Tuesday, December 28, 2010

But What Would Eric Think?

Brett Arends is steamed.

He’s had it up to here with the Cult of Apple, and he’s decided to do something about it: what he’s doing is he’s not getting an iPad for Christmas.

This is how the Wall Street Journal columnist began his pre-Christmas diatribe against the latest must-have invention from Steve Jobs’ North Pole Magic Factory:

Why I Don't Want an iPad for Christmas

Everyone wants an iPad this Christmas, right?

Apple's tablet computer is this year's hottest adult toy. Sales are booming. James Cordwell, an analyst at Atlantic Securities, expects the company to sell six million this quarter, half of them here in the U.S. It's driving the company toward what will probably be yet another blowout Christmas period.

But you can count me out. I don't want an iPad for Christmas, thanks very much.

—Wall Street Journal, December 21, 2010

Arends’ reasons—there are ten in all, thus fulfilling the journalistic requirement for “Top Ten” lists at this time of year—include a few a rational ones (“The cost of the add-ons,” for one) and quite a few more irrational head-scratchers that, in the main, remind me of something Paul Hulleberg used to say.

Paul was a childhood best-friend, and a serious music-head in those days when serious music came on LPs (look it up, kids) packaged in fancy sleeves (look that up too, kids), which we would dissect along with the music (“Magical Mystery Tour,” with its 24-page color booklet, was a particular fave), debating everything from who-sang-what to what was the song about, anyway? (“Drugs,” we usually decided).

There was, however, one album from that period that we did not dissect.

It was “Layla” (technically “Layla and Other Assorted Love Songs”: look that up too, kids), courtesy of the post-Cream guitar hero Eric Clapton, but released under the assumed name of Derek and the Dominos.

Now, because Clapton’s name was not on the cover, and because the title song clocked in at seven minutes, the album failed to find an audience when it was first released, despite having both Duane Allman and Clapton playing together.

It was only a year later, when “Layla” was included on a Clapton ‘Greatest Hits’ compilation, that the year-old album became popular.

And therein lay the problem: Paul refused to buy “Layla and Other Assorted Love Songs” after the album became popular, because the whole point of us being music-heads was that we were supposed to find this kind of stuff before everybody else knew about it—not when Layla had become as close to a hit record as was possible on WNEW FM, which back then was the leading-edge New York music-head station, home to the likes of wispy-voiced Alison Steele (“The Nightbird”) and gravely-voiced Scott Muni.

“What would Eric think?” Paul would say. “I can’t buy it now that it’s popular.”

I’d throw an album cover at him and yell something like “Eric would say ‘Thank you for the five bucks.’”

My reaction, of course, made him say it every chance he got.

Which brings us back to Arends’ “Top-Ten” reasons not to buy an iPad: he seems less interested in what the thing actually does—which is a lot—and more concerned about what it represents—which to him is a slavish devotion to the Cult of Apple.

Let’s take the first five of his so-called reasons:

1. It’ll be cheaper next year.

That may be true, but it may not be true. While the painfully slow first-generation iPhone soon became, as Arends writes, “a paperweight,” the iPad is no such thing: it is fast, easy to use, and excellent value for the money.

2. It’s going to be better next year.

“The next iPad will have new features—allegedly including video conferencing and maybe a better screen. This year’s model will be so over,” he writes. This may also be true—but it probably won’t, since not many people are a) sitting around waiting for video conferencing, and b) unhappy with the iPad’s gorgeous screen.

Unless Steve Jobs is going to attach a working personal jet-pack to the next generation iPad, it’s hard to see a reason the average user will care to wait.

3. Apple’s profit margins are too high.

This is the biggest head-scratcher. First, Arends gets the margins wrong. He cites Apple’s year-old 41% gross margin and says “Me, I don’t want to support someone else’s 60% markups with my own dollars.”

But Apple’s gross margins are now running at 37%, down significantly from last year thanks in no small part to the lower margins Apple gets on the iPad compared to the iPhone, the price of which is subsidized by the wireless phone carriers.

Second, the issue shouldn’t be what Apple’s margins are, unless, of course, like Microsoft’s margins they result from a monopolistic business model in which the consumer has no choice when seeking an Intel-compatible computer. The issue should be value-for-money.

And the iPad is terrific in that department.

4. Competitors are coming.

This is true, as far as it goes. Arends unfortunately cites the Samsung Galaxy Tab, which means he apparently has not seen a Galaxy Tab, nor used one, because the Galaxy Tab is the least of the iPad’s potential concerns, in our opinion. It has a surprisingly small screen, for starters; and based on hanging around the repair desk at Verizon stores, we are told the thing tends to seize up and need rebooting, which may explain why a friend’s 22 year old daughter recently called the Galaxy “an iPad for losers.”

5. No flash.

By this, Arends refers to Steve Jobs’ famous decision to leave Adobe’s Flash Player for video and animation off the iPad. This was a very a big issue when the iPad first came out, because most web sites used Flash at that point, and it was about the only thing competitors could talk the iPad down with.

But today, an increasing number of web sites (MLB, for example) that were Flash-only last spring now accommodate the iPad, and do so beautifully.

Of the remaining five issues on the list, one is merely list-expanding padding (“It’ll get boring”), while another regurgitates mainstream fluff (“The whole Apple cult is starting to creep me out”).

But what it all seems to come down to is, like Eric Clapton’s “Layla” those many years ago, the iPad has become too popular for some people to admit they want one.

Our own advice is, don’t listen to “Top-Ten” columnists, whatever newspaper they write for, and don’t listen to virtual columns like NotMakingThisUp: try it yourself and make up your own mind.

Meanwhile, I’ll have to call Paul and see if he’s got an iPad, or if he’s holding out like our Wall Street Journal columnist. Besides, it’ll give me a chance to find out if he ever, finally, bought “Layla and Other Assorted Love Songs,” too.

Paul had excellent taste: I’ll bet he’s got them both.

Jeff Matthews
I Am Not Making This Up

© 2010 NotMakingThisUp, LLC

The content contained in this blog represents only the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.

Monday, December 20, 2010

Conference-Gate Revisited

Well, what goes around comes around.

Barron’s is recommending Sallie Mae, the fallen-angel student loan servicer (the Feds have taken over the task of actually lending the dough) which had a near-death experience during the financial crisis and is now being resurrected as a value stock.

As the article notes, Sallie Mae’s “formal name” has been replaced, like Prince’s once upon a time, by a symbol. In this case, the symbol is “SLM,” the company’s stock ticker symbol.

The obvious reason for the name thing is that “SLM” has no desire to be associated with the “Sallie Mae” that provided one of the most entertaining conference calls in the history of conference calls, as the Financial Bubble of Our Time was just beginning its Great Unwind.

Now, we have no opinion to the positive or negative on the stock itself these days, but we couldn’t help think back to those dark days, and thought it be worth a stroll down memory lane through the archives of NotMakingThisUp:

Thursday, December 20, 2007
Expletives Deleted! Tapes Erased! It’s Conference-Gate!

“How (inaudible) is this? Steve, let’s go. There’s no questions, let’s get the (expletive) out of here.”
—Al Lord, CEO Sallie Mae Corporation

Call Woodward and Bernstein—it’s Conference-Gate!

That’s right: the official replay of Wall Street’s most famous conference call has been tampered with!

I am not making that up.

In a cover-op worthy of Nixon and his Watergate-era tape-erasing scandal, the best part of yesterday’s Sallie Mae conference call—CEO Al Lord’s above-quoted “let’s get the (expletive) out of here” which even the Wall Street Journal highlighted in this morning’s article on Lord’s melt-down—has been deleted.

That is a shame, because yesterday’s call ranks right up there in the upper pantheon of our Patrick Awards, whereby NotMakingThisUp semi-regularly awards Wall Street’s Finest and Corporate Bigs alike for whatever strikes us as particularly outré commentary, in a realm where outré commentary is generally the norm.

In fact, the Sallie Mae call will probably go down as one of the Top Ten Train Wrecks of All Time.

Get a load of this:

Bill Cavalier—Société Genéralé

Can you talk a little bit about the pass-through market? Clearly, there is pretty much no appetite for student loan paper at this point. What are you being told about when you think there will be a market for your pass-through notes so that we can start to do some….

Al Lord—CEO
I’m not sure what you’re talking about. I’ve been talking to whom?

Bill Cavalier—Société Genéralé
When you do a securitization, right, you have a bank that arranges -- that actually does the arranging, right, you have an arranging bank. Somebody must be telling you something about what the market is looking like, what their expectations are for next year…. We're trying to put together projections here, Al. We're trying to figure out what your stock is going to be worth, and you have got to give us some guidance, you've got to give us some numbers. I don't even see a margin number here for the stuff that you've done. Can you give us some handle on what your stock is worth?

Al Lord—CEO
You should give Steve [McGarry, IR guy] a call.

Bill Cavalier— Société Genéralé
But you’re the CEO. You’re the guy who just took over the company.

Al Lord—CEO
Yes, that’s exactly right, I’m the CEO. You should give Steve a call. Next.

Nothing on paper, virtual or hard copy, can replicate the angst, anger and frustration projected in those words as spoken by Mr. Lord and the investors and analysts asking questions: it must be heard to be believed.

Unfortunately, the Big Moment—Mr. Lord’s final blowing-off of the accumulated pressure as head of a company caught up in both the highly public collapse of a private equity transaction of its making and a credit crisis not of its making—no longer exists.

That’s right.

Mr. Lord’s “How (inaudible) is this? Steve, let’s go. There’s no questions, let’s get the (expletive) out of here” has been erased from the conference call replay.

Both Haldemen and Erlichman would be proud.

Jeff Matthews
I Am Not Making This Up

© 2010 NotMakingThisUp, LLC

The content contained in this blog represents only the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.

Monday, December 13, 2010

Shazam! From the Boss to the King to John & Paul (But Not George or Ringo, or Keef or Mick), Not to Mention Jessica & Nick...2010 Edition

2010 Editor’s Note:

Back for the third consecutive year by popular demand, we’ll try to keep this year’s update brief—but don’t count on it.

For starters, we’re going to plug a book: Keith Richards’ autobiography, “Life,” which happens to be one of the best books ever written—and we don’t just mean “Best in the Category of ‘Memoirs by Nearly-Dead Rock Stars’.”

It is a great book, period.

The story of how ‘Keef’ (as he signs sweet letters to his Mum while rampaging across America), Brian and Mick developed the Rolling Stones’ sound, for example, is worth the price alone (in short, they worked really hard; but the full story is much better than that).

Yet there’s more—much more. Guitarists can soak up how Keith created his own guitar sound; drummers will learn—if they didn’t already know—Charlie Watts’ high-hat trick (and from whom he stole it); while songwriters had better prepare themselves to be depressed at how Mick wrote songs (‘As fast as his hand could write the words, he wrote the lyrics,’ according to one session man who watched him write “Brown Sugar”).

And that’s just the rock-and-roll stuff.

The sex-and-drugs stuff is also there, and the author lays it all out in his unfettered, matter-of-fact, loopy-but-straightforward style, often with the first-person help of friends and others-who-where-there (and presumably of sounder mind and body than you-know-who: the drug and alcohol intake is truly staggering) who write of their own experiences with the band.

Okay, you may say, but how exactly is Keith Richards’ autobiography relevant to our annual review of holiday songs?

Well, while furtively reading snatches of ‘Life’ during a stop at the local Borders (we expect to see the book under the Christmas tree sometime around the 25th of this month, hint-hint), we happened to hear another musical legend perform one of our favorite offbeat Christmas songs in the background, and it occurred to Your Editor that of all the bands out there that could have done that same kind of interesting, worthwhile Christmas song, The Rolling Stones probably top the list.

What with Keef’s bluesy undertones and Mick’s commercially sinister instincts on top, it would have certainly made this review, for better or worse. (Along these lines, The Kinks’ “Father Christmas” is one of the all-time greats, and doesn’t get nearly enough air-time these days.)

Now, for the record, the offbeat Christmas song that triggered this excursion was “’Zat You Santa Claus?”—the Louis Armstrong and The Commanders version from the 1950’s. (The song was later covered, like everything else but the Raffi catalogue, by Harry Connick, Jr.)

Starting out with jingle bells, blowing winds and a slide-whistle, you might initially dismiss “’Zat You?” as Armstrong’s sadly commercial attempt to get in on the Christmas song thing, except that his familiar, Mack-the-Knife-style vocal comes over a terrific backbeat that turns it into what we’d nominate for Funkiest Christmas Song Ever Recorded:

Hangin’ my stockin’/I can hear a knockin’
’Zat you, Santa Claus?...

One peek and I’ll try there/Uh-oh there’s an eye there
’Zat you, Santa Claus?

Please, ah please/ah pity my knees
Say that’s you Santa Claus
(That’s him alright.)

It is a delight to hear, and the fact that it is suddenly getting more air-time this season is a step-up in quality for the entire category—or would be, if not for the apparent installation of Wham!’s “Last Christmas” in the pantheon of Christmas Classics.

A 1980’s electro-synth Brit-Pop timepiece, “Last Christmas” combines a somewhat catchy tune with lyrics that make a trapped listener cry “No mas!” while attempting to open the car door even at high speeds to get away:

Last Christmas, I gave you my heart
But the very next day you gave it away
This year
To save me from tears,
I gave it to someone special

Considering the fact that the songwriter (Wham!’s gay front-man, George Michael) decided to repeat that chorus six times, the full banality of the lyric eventually gives way to incredulity: “Let me get this straight,” you begin to ask yourself. “This year he’s giving his heart to ‘someone special’... so who’d he give it to last year? The mailman?

Last Christmas” does have the distinction of being the biggest selling single in UK history that never made it to Number 1. Furthermore, all royalties from the single were donated to Ethiopian famine relief, the same cause which led to creation of what turned out to be the actual Number 1 UK single that year, “Do They Know It’s Christmas?

Do They Know…” is a song that has received some push from readers to receive an honorable mention in these pages, and while it is certainly an interesting timepiece, with much earnest participation from the likes of Sting, Bono and even Sir Paul, it is not nearly as worthwhile as an album that seems just as prevalent these days: A Charlie Brown Christmas by jazz pianist Vince Guaraldi.

How a jazz pianist was hired to create the music for a TV special with cartoon characters is this: the producer heard Guaraldi’s classic instrumental “Cast Your Fate to the Wind” on the radio while taking a cab across the Golden Gate Bridge.

One thing led to another, and thanks to that odd bit of chance, future generations will have the immense pleasure of hearing that timeless work of art every year around this time. (A second odd tidbit for our West Coast readers: Guaraldi died while staying at the Red Cottage Inn, in Menlo Park—of a heart attack, however, and not the usual, more gruesome fate of musicians who die in hotels.)

One second-to-last note before we move on: we have been heavily lobbied by certain, er, close relations to include Mariah Carey’s “All I Want For Christmas is You” as a worthwhile holiday song—despite our previously expressed misgivings about her contribution to the genre (see below).

And we have to admit, her “All I Want…” leaves behind the incessant vocal pyrotechnics that made some of her other Christmas covers (“Oh Holy Night,” for example) unbearable, at least to our ears.

In this case she seems to trust the song to take care of itself, which it does in fine, driving, upbeat style. Now, as Your Editor previously hinted, all he wants for Christmas is Keef’s book. And it had better be there, if, as previously noted, you get our drift.

Finally, and speaking of autobiographies, we happened to read Andy Williams' own book this past year (for reasons we can't recall), and must report that our reference to Williams below seems overly harsh. For one thing, his book is as honest as Keef's; for another, as a singer not necessarily born with the vocal equipment of, say, Mariah Carey, the man worked at his craft and succeeded mightily where many others failed.

Which, we might add, is, after all, the hope of this season.

And so, we wish for a Merry Christmas, Happy Hanukkah and Good New Year to all.

JM—December 13, 2010

2009 Editor’s Note:

Back by popular demand, what follows is our year-end sampling of the Christmas songs playing incessantly on a radio station near you, and it demands from your editor only a few updates this holiday season.

For starters, we have not heard the dreaded duet of Jessica Simpson and Nick Lachey singing “Baby, It’s Cold Outside” thus far in 2009, and for this we are most grateful.

Indeed, if it turns out that their recording has been confiscated by Government Authorities for use as an alternative to lethal injections, we’ll consider ourselves a positive force for society.

On the other hand, we are sorry to report an offset to that cheery development, in the form of a surge in playing time for Barry Manilow’s chirpy imitation of the classic Bing Crosby/Andrew Sisters version of “Jingle Bells.”

For the record, “Jingle Bells” was written in 1857...for Thanksgiving, not for Christmas. And it’s hard to imagine making a better version than that recorded by Bing and the three Andrew Sisters 86 years later.

But Manilow, it seems, didn’t bother to try.

Instead, Barry and his back-up group, called Expos, simply copied Bing’s recording, right down to that stutter in the Andrews Sisters’ unique, roller-coaster vocals on the choruses, as well as Bing’s breezy, improvised, “oh we’re gonna have a lotta fun” throwaway line on the last chorus.

Sharp-eared readers might say, “Well, so what else would you expect from a guy who sang ‘I Write the Songs’…which was written by somebody else?”

Well, we can’t argue with that, but we will point out another annoyance this year: the enlarged presence of Rod Stewart in the Christmas play-lists.

Don’t get us wrong: we like Rod Stewart—at least, the Rod Stewart who gave the world what your editor still considers the best coming-of-age song ever written and recorded: “Every Picture Tells a Story.”

It’s the Rod Stewart who gave us “Do Ya Think I’m Sexy?” we’re less crazy about.

So too the Rod who chose to cover “My Favorite Things” (for the definitive version of that classic, see: ‘Bennett, Tony’) and “Baby It’s Cold Outside” with Dolly Parton (for an equally offensive version of this one, see: ‘Simpson, Jessica’ and ‘Lachey, Nick’).

As an antidote to Rod, we suggest several doses of Jack Johnson’s sly, understated “Rudolph the Red-Nosed Reindeer,” which seems to be gaining recognition, and anything by James Taylor—especially his darkly melancholic “Have Yourself a Merry Little Christmas.”

Of all the singers who recorded versions of this last—and Sinatra’s might be the best—it is Taylor, a former heroin junkie, who probably catches more of the intended spirit of this disarmingly titled song.

After all, the original lyric ended not with the upbeat “Have yourself a merry little Christmas, let your heart be light/Next year all our troubles will be out of sight,” but with this:

Have yourself a merry little Christmas, it may be your last/Next year we may all be living in the past.”

No, we are not making that up—and it should keep Barry Manilow from be covering it any time soon.

JM—December 19, 2009

Wednesday, December 24, 2008

Shazam! From the Boss to the King to John & Paul (But Not George or Ringo), Not to Mention Jessica & Nick

Like everyone else out there, we’ve been hearing Christmas songs since the day our local radio station switched to holiday music sometime around, oh, July 4th, it feels like.

And while it may just be a symptom of our own aging, the 24/7 holiday music programming appears to have stretched the song quality pool from what once seemed Olympic-deep to, nowadays, more of a wading pool-depth.

What we recall in our youth to be a handful of mostly good, listenable songs—Nat King Cole’s incomparable cover of “The Christmas Song” (written by an insufferable bore: more on that later); Bing’s mellow, smoky, “White Christmas”; and even Brenda Lee’s country-tinged “Rockin’ Around the Christmas Tree” (recorded when she was 13: try to get your mind around that)—played over and over a few days a year…has evolved into a thousand mediocre-at-best covers played non-stop for months on end.

Does anybody else out there wonder why Elvis bothered mumbling his way through “Here Comes Santa Claus”?

It actually sounds like Elvis doing a parody of Elvis—as if he can’t wait to get the thing over with. Fortunately The King does get it over with, in just 1 minute, 54 seconds.

Along with that and all the other covers, there are, occasionally, the odd original Christmas songs—the oddest of all surely being Dan Fogelburg’s “Same Old Lang Syne.”

You’ve heard it: the singer meets his old lover in a grocery store, she drops her purse, they laugh, they cry, they get drunk and realize their lives have been a waste…and, oh, the snow turns to rain.

So how, exactly, did that become a Christmas song?

Then there’s ex-Beatle Paul McCartney’s “Wonderful Christmastime,” which combines an annoyingly catchy beat with dreadful lyrics, something McCartney often did when John Lennon wasn't around.

(After all, it was Lennon who replaced McCartney’s banal, teeny-boppish opening line for “I Saw Her Standing There”—“She was just seventeen/Never been a beauty queen” is what McCartney originally wrote—with the more suggestive “She was just seventeen/You know what I mean,” thereby turning a mediocre time-piece into a classic.)

But Lennon was not around to save “Wonderful Christmastime” even though McCartney actually recorded this relatively new Christmas standard nearly thirty years ago, before Lennon was shot.

It rightfully lay dormant until the advent of All-Christmas-All-The-Time programming a couple of years ago. Fortunately, by way of offset, Lennon’s own downbeat but enormously catchy “Happy Xmas (War is Over)” is played about as frequently as “Wonderful Christmastime.”

Who but John Lennon would start a Christmas song: “And so this is Christmas/And what have you done...”? Of course, who but Paul McCartney would start a Christmas song, “The moon is right/The spirit's up?”

If anything explains the Beatles’ breakup better than these two songs, we haven’t heard it.

Now, we don’t normally pay much attention to Christmas songs. If it isn’t one of the aforementioned, or an old standard sung by Nat, Bing, Frank, Tony, Ella and a few others, we’d be clueless.

But thanks to a remarkable new technology, we here at NotMakingThisUp suddenly found ourselves able to distinguish, for example, which blandly indistinguishable female voice sings which blandly indistinguishable version of “O Holy Night”—Kelly Clarkson, Celine Dion, or Mariah Carey—without any effort at all.

The technology is Shazam—an iPhone application that might possibly have received the greatest amount of buzz for the least amount of apparent usefulness since cameras on cell phones first came out.

For readers who haven’t seen the ads or heard about Shazam’s wonders from a breathless sub-25 year old, Shazam software lets you point your iPhone towards any source of recorded music, like a car radio, the speaker in a Starbucks, or even the jukebox in a bar—and learn what song is playing.

Shazam does this by recording a selection of the music and analyzing the data. It then displays the name of the song, the artist, the album, as well as lyrics, a band biography and other doodads right there on the iPhone.

Now, you may well ask, what possible use could there be for identifying a song playing in a bar?

And unless you’re a music critic or a song-obsessed sub-25 year old, we’re still not sure.

But we can say that Shazam is pretty cool. In the course of testing it on a batch of Christmas songs—playing on a standard, nothing-special, low-fi kitchen radio—heard from across the room, without making the least effort to get the iPhone close to the source of the music, Shazam figured out every song but one (a nondescript version of a nondescript song that it never could get) without a hitch.

And, as a result, we can now report the following:

1) It is astounding how many Christmas songs are out there nowadays, most of them not worth identifying, Shazam or no Shazam;

2) All Christmas covers recorded in the last 10 years sound pretty much alike, as if they all use the same backing track, and thus require something like Shazam to distinguish one from the other;

3) Nobody has yet done a cover version of Dan Fogelburg's “Same Old Lang Syne,” which may be the truest sign of Hope in the holiday season;

4) None of this matters because Mariah Carey screwed up the entire holiday song thing, anyway.

Now, why, you may ask, would we pick on Mariah Carey, as opposed to, say, someone who can’t actually sing?

Well, her “O Holy Night” happened to be the first song in our mini-marathon, and it really does seem to have turned Christmas song interpretation into a kind of vocal competitive gymnastics aimed strictly at demonstrating how much of the singer's five-octave vocal range can be used, not merely within this one particular song, but within each measure of the song.

In fact Mariah's voice jumps around so much it sounds like somebody in the control booth is tickling her while she’s singing.

More sedate than Mariah, and possibly less harmful to the general category, The Carpenters’ version of “(There’s No Place Like) Home for the Holidays” comes on next, and it makes you think you’re listening to an Amtrak commercial rather than a Christmas song (“From Atlantic to Pacific/Gee, the traffic is terrific!”), so innocuous and manufactured it sounds.

Johnny Mathis is similarly harmless, although his oddly eunuch-like voice can give you the creeps, if you really think about it. Mercifully, his version of “It’s Beginning to Look a Lot Like Christmas” is short enough (2:16) that you don’t think about it for long.

Now, without Shazam we never would have known the precise time duration of that song.

On the other hand, we would we never have been able to identify the perpetrators of what may be the single greatest travesty of the holiday season—Jessica Simpson and Nick Lachey, singing “Baby it’s Cold Outside.”

“Singing” is actually too strong a word for what they do. Simpson’s voice barely rises above a whisper, and you cringe when she reaches for a note, although she does manage to hit the last, sustained “outside,” no doubt thanks to the magic of electronics. Lachey’s vocals are like what people do in the shower, or in their car—as opposed to what professionals do in a recording studio.

Thus the major downside of Shazam might be that it can promote distinctly anti-social behavior: having correctly identified who was responsible for this blight on holiday radio music, your editor decided that if he ever ran across the pair in his car while singing along with the radio too loudly to notice, he wouldn’t stop to identify the bodies.

Fortunately, the bad taste left by their so-called duet is washed away when Nat King Cole’s “The Christmas Song” comes on next.

Thanks to Shazam, we learn that this is actually the fourth version Nat recorded. The man worked at his craft, and it shows. This is the best version of the song on record, by anyone, and probably one of the two or three best Christmas songs out there, period.

The second those strings sweetly announce the tune, you relax, and by the time Cole’s smoky, gorgeous voice begins to sing, you’re in a distinctly Christmas mood like no other recording ever created.

(Unfortunately, the song’s actual writer, Mel Tormé, had the personality of a man perpetually seething for not getting proper recognition for having written one of the most popular Christmas songs of all time. We did not learn this from Shazam: we once saw Tormé perform at a small lounge, during which he managed to mention that he, not Nat King Cole, wrote “The Christmas Song”—as if this common misperception was still on everybody’s mind 35 years later. When that news flash did not seem to make the appropriate impression on the audience, he later broke off singing to chew out a less-than-attentive audience member, completely destroying the mood for the rest of the set.)

Like that long-ago performance by the "Velvet Fog," the pleasant sensation left behind by Cole’s “Christmas Song” is quickly soured, this time by a male singer performing “Let it Snow, Let it Snow, Let it Snow” in the manner of Harry Connick, Jr. doing a second-rate version of Sinatra.

Who is this guy, we wonder?

Shazam tells us it’s Michael Bublé. We are pondering how such a vocal lightweight became such a sensation in recent years—the answer must surely be electronics: his voice, very distinctly at times, sounds like it has been synthesized—when John Lennon’s “Happy Xmas” comes on.

It’s a great song, demonstrating as it does Lennon’s advice to David Bowie on how to write a song: “Say what you mean, make it rhyme and give it a backbeat.” The fact that Lennon had the best voice in rock and roll also helps.

Unfortunately, his wife had the worst, and a brief downer it is when Yoko comes in on the chorus like a banshee. (Fortunately she is quickly drowned out by the children’s chorus from the Harlem Community Choir.)

The other songs in our Shazam song-identification session are, we fear, too many to relate.

Sinatra, of course; Kelly Clarkson, an American Idol winner who essentially does a pale Mariah Carey impersonation; Blandy—er, Andy Williams; and one of the best: Tony Bennett.

Then there’s Willie Nelson, who has a terrific, understated way of doing any song he wants—but sounds completely out of place singing “Frosty the Snowman.” One wonders exactly what kind of white powder Willie was thinking about while he was recording this, if you get our drift.

Oh, and there’s Coldplay’s “Have Yourself a Merry Little Christmas,” which pairs the sweetest piano with the worst voice in any single Christmas song we heard; Amy Grant, a kind of female Andy Williams; the Ronettes, who are genuinely terrific—a great beat, no nonsense, and Ronnie singing her heart out with that New York accent; and then Mariah again, this time doing “Silent Night” with that same roller-coaster vocal gargling.

Gene Autry’s all-too-popular version of “Here Comes Santa Claus” would be bearable except that he pronounces it “Santee Closs,” which is unfortunate in a song in which that word appears like 274 times. ‘N Sync is likewise unbearable doing “O Holy Night” a cappella, with harmonies the Brits would call cringe-making, and Mariah-type warbling to boot.

Hall & Oates’s “Jingle Bell Rock” is too easy to confuse with the other versions of “Jingle Bell Rock”—thank you, Shazam, for clearing that up—while Martina McBride manages to sound eerily like Barbra Streisand imitating Linda Ronstadt singing “Have Yourself a Merry Little Christmas.”

Winding things down is Dan Fogelburg’s aforementioned “Same Old Lang Syne,” and here we need to vent a little: something about the way he sings “liquor store”—he pronounces it “leeker store”—never fails to provoke powerful radio-smashing adrenalin surges.

Fortunately, we suppress those urges today, because the Shazam experiment concludes with one of the best Christmas songs ever recorded. Better than Bing, and maybe even better than Nat, depending on your mood.

It’s Bruce Springsteen. The Boss. Doing “Santa Claus is Comin’ to Town.”

And even though this version was recorded live more than 25 years ago, it still jumps out of the radio and grabs you.

Now, as Shazam informs us, this particular recording was actually the B-side of a single release called “My Hometown.” (Back in the day, kids, “singles” came with two songs, one on each side of a record: the “A” side was intended to be the hit song; the “B” side was, until the Beatles came along, for throwaway stuff.)

Fortunately nobody threw this one away.

Springsteen begins the familiar song with some audience patter and actual jingle bells; then he starts to sing and the band comes to life. Things move along smoothly through the verse and chorus...until ace drummer Max Weinberg kicks it into high gear and the band roars into a fast shuffle that takes the thing into a different realm altogether.

Feeding off the audience, The Boss sings so hard his voice slightly breaks at times. Then he quiets down before roaring back again into a tear-the-roof-off chorus, sometimes dropping words and laughing as he goes.

This is real music—recorded in 1975 during a concert at the C.W. Post College—with no retakes, no production effects, and no electronic vocal repairs, either.

Try doing that some time, Jessica and Nick.

Actually, come to think of it, please don’t.

Merry Christmas, Happy Hanukkah and a Good New Year to all.

Jeff Matthews
I Am Not Making This Up

© 2010 NotMakingThisUp, LLC

The content contained in this blog represents only the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.

Monday, December 06, 2010

Memo to Steve Jobs: “It’s Warm Inside the Herd”

“It is warm inside the herd…but then, of course, you go off the cliff.”
—Jean-Marie Eveillard, First Eagle Funds

What the heck: we’ve written an open letter to Ben Bernanke, the most powerful central banker in the world, so why not write a memo to the most powerful CEO in America?

The genesis of today’s virtual memo is the recent spate of articles in financial publications revolving around the topic of what Mr. Jobs’ company—Apple—ought to do with the growing cash hoard on which that company now sits.

The articles stem from the fact that everybody outside the actual company that created the cash hoard has an opinion on what to do with that cash. And what everyone is recommending is this: Apple should spend the cash—and sooner rather than later.

Here’s how a recent Bloomberg story led off the discussion:

Apple Piggybank Earns 0.75% Return as Investors Ask for Payback

Apple Inc.’s piggybank, stuffed with $51 billion in cash and investments, is earning a lower return than a typical U.S. savings account. Some investors say Steve Jobs should put that money to better use….

Apple got a 0.75 percent return on the investments in the past fiscal year, according to a regulatory filing last week. The gain pales next to the roughly 10 percent investors would have earned from the Standard & Poor’s 500 Index and the Dow Jones Industrial Average over that time. Apple’s stock itself also was a much better investment, rising 60 percent….

—Adam Satariano, Bloomberg, 11/2/10.

For the record, the cash hoard that seems to be burning a hole through the pockets of everyone except the folks at Apple is mainly the result of two facts, both of which have nothing to do with the outside observers now indignantly calling for it to be put to ‘better’ use:

Fact One is the outsourced manufacturing model Apple began implementing a decade or so ago when the first iPod was launched. Under the careful watch of Fred Anderson, the CFO at the time, Apple abandoned the asset-intensive, factory-owning high-tech business model common to Silicon Valley, farmed out production to low-cost Asian companies, and so began turning inventory into cash in a way that forever changed the way Silicon Valley looked at where value was really added.

Fact Two is the success of those products themselves, starting with the lowly iPod—a mere music player that morphed into the all-purpose “internet in your pocket” iPhone, which itself begat the notebook-threatening iPad, whose “instant on” capability is something Intel hoped to do with PCs for at least a decade and never got close.

Combined, those two facts have created a business model from Nirvana that requires none of Apple’s capital dollars—none—to be tied up in chips, circuit boards and manufacturing lines, thus allowing Apple to generate gross profit margins that are half-again higher than commodity box builders such as Dell and HP, and gross profit dollars that don’t need to be plowed back into plant and equipment.

Instead, they can be plowed into R&D, sales and marketing, with the leftovers sent to the bank.

So successful is this model that Apple, as has been widely noted, now finds itself with the aforementioned $51 billion worth of leftover cash sitting in the bank.

And that $51 billion, as those same articles point out, is earning almost nothing, thanks to Apple’s conservative investment policy and the low interest rate environment of the moment.

Here’s how the Bloomberg story continued the critique:

For some shareholders, the cash hoard is overkill, especially considering Apple added about $17 billion to its balance sheet last year, though they don’t want a big, overpriced acquisition either.

“That amount of cash is way above what’s needed to have a prudent war chest,” said Keith Goddard, CEO of Tulsa, Oklahoma-based Capital Advisors Inc., which has $822 million under management, including Apple shares. “It would be a real shame for them to do an acquisition to get into another line of business or dilute something they already have going on.”

Now, it is true Apple’s cash return of 0.75% has significantly lagged the broad stock market, and Apple’s own shares, in the last twelve months.

It is also true, however, that Apple’s cash earned significantly more than the stock market, and Apple’s own shares, in calendar 2008, when all those years of Americans living dangerously came home to roost, and investors sweated out a 37% market decline and a near-death experience for the world’s financial system.

Have those investors already forgotten about 2008 and early 2009?

Did the “Flash-Crash” never happen last spring?

Will there never be another Asian crisis, as in 1997-8? Another Internet Bubble, as in 2000? Another “Black Monday”…or “Black Tuesday,” for that matter?

Indeed, we suspect that Apple investors—including, we would bet, all those quoted to the effect that Apple’s $51 billion cash hoard violates some sort of hidden magic cash figure learned in Financial Analysis 101—took immense comfort in the company’s $25 billion September 2008 cash cushion during the panic-stricken days of 2008 and early 2009, when Apple’s market capitalization plummeted to under $100 billion and investors around the world were wondering whether anyone would have enough money to cough up lunch money, let alone enough cash for an iPod or iPhone.

More to the point, we also suspect that some of those same voices also once applauded similar “return value to shareholders” exercises that other companies pursued to their ultimate detriment.

Exhibit A in this category is Dean Foods, purveyor of milk and other dairy-related products, which in early 2007—that’s three and a half short years ago—decided to “return value to shareholders” by paying a whopping big dividend to shareholders.

Now, Dean Foods didn’t have the balance sheet Apple does, but that didn’t stop the company from listening to the siren song of its investment bankers and other “return value to shareholders” mavens.

Here’s how the company justified its actions on a conference call with Wall Street’s Finest:

We announced this morning that we will return approximately $2 billion in capital to our shareholders through a special dividend of $15.00 per share. Before Jack walks you through the details of the recap and the dividend, I would like to discuss with you the factors that make this transaction the right step for Dean Foods' shareholders at this time.

Given our internal focus, our strong cash flows, and the incredible liquidity and flexibility of today's debt capital markets, the appropriate finance decision for Dean Foods today is to increase our utilization of the debt markets and return equity capital to our shareholders. We believe we can do so without diminishing our capacity to grow or foregoing appropriately-priced, strategically-sound acquisitions. Our robust growing cash flow should allow us to de-lever our balance sheet over the next few years….

But clearly from our perspective it was an opportunity that it would have been, in our view, a significant mistake in judgment not to take advantage of the markets that present themselves today. These are extraordinarily liquid markets; they are extraordinarily flexible; and they're extraordinarily well priced.

—Gregg Engles, Dean Foods Chairman and CEO, March 2, 2007

Readers can imagine the huzzahs such a “shareholder-friendly” announcement generated at the time—and, indeed, the analyst from Bear Stearns said “Congratulations…obviously a good announcement” on the triumphant conference call.

(We will pause while readers digest the irony of an analyst with a firm that didn’t survive the financial crisis congratulating a company in a low-margin, highly cyclical business leveraging up just months before the crisis hit.)

Alas, Dean Foods’ shareholders are nowadays wondering all what the congratulations were about. The 'significant mistake in judgment' turned out to be the dividend itself. Dean Foods' balance sheet has not been de-levered since that balance-sheet-destroying event, and the shares, which closed at $34.50 that day ($19.50 adjusted for the $15 a share dividend), traded at $8.50 the day after the company announced yet another in a string of disappointing earnings reports last month.

Oh, and the “Jack,” the Dean Foods CFO referenced by Mr. Engles in the 2007 call touting the special dividend has resigned.

All that said, what, you might wonder, does Steve Jobs say about Apple’s cash?

Again, from Bloomberg:

Jobs, Apple’s chief executive officer, said last month that the company has a good track record of using cash, saying it’s holding money for one or more “strategic opportunities,” rather than a dividend or stock buyback.

Indeed, Steve Jobs and the Apple management team do have a good track record of using cash, if the iPod, the iPhone and the iPad are any indication of what they have been doing with it.

So why not let them worry about the cash hoard?

And if, for some bizarre reason, Steve Jobs ever feels himself moved by the writings of various individuals who have never met payroll, let alone created a product like the iPhone that literally changed lives, to blow all that cash on some special dividend or massive share buyback or some otherwise cash-dispensing activity euphemistically labeled “shareholder-friendly,” we would urge him and his board to consider the examples of other company CEOs who have likewise been so moved.

It is, indeed, as investment genius Jean-Marie Eveillard warned a group of students at a recent San Francisco State FAME investment conference, “warm inside the herd.”

But that is cold comfort when, as he said, the herd goes off the cliff.

Jeff Matthews
I Am Not Making This Up

© 2010 NotMakingThisUp, LLC

The content contained in this blog represents only the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.