Friday, August 11, 2006

Terror, Energy and Growth

To judge from investor reactions yesterday and, so far, today, you'd think that the future of travel and lodging in America is now over. Kaput. Finis.

That's the implication of yesterday's knee-jerk reactions by investors as they drove the major indices higher, but savaged energy and hospitality stocks.

My question is, if this is investor sentiment after a successful foiling of a massive terror attempt, what would it be like after a successful act of terror? My portfolio fell more than 1% yesterday, as investors apparently believe that energy, particularly oil, is now going to be plentiful for the forseeable future.

In truth, the longer-term realities of the world are still the same. These are now common risks in the larger world. As one piece in yesterday's Wall Street Journal put it, people are beginning to view terrorism like natural disasters- they don't know when an attack may occur, but they realize the chances of one are non-zero.

If investors are waiting for "the end" of the war on terrorism, then we may have 20 years of a sideways or bear market. The reality is that global commerce will continue, there will be demand for commodities as China and India grow, and terrorism will become part of the political-economic landscape for a while.

As David Dreman, a well-known institutional investor was reported to have said yesterday, 25 cancelled flights won't have much effect on world demand for jet fuel.

While possible, I doubt that the world will retreat into a a modern "Dark Age" because of Muslim fanatics and their terrorism.

Thus, if anything, this week is probably a buying opportunity for energy and hospitality equities.

Thursday, August 10, 2006

The Fed Has Spoken: But What Will CNBC Do In the Interim?

Thank God it's over! Bernanke & Co. have spoken. Rates have remained flat for this Fed cycle.

But what will CNBC do for the next month or so? Lately, they've had so many wannabe-pundits on camera professing about rates that I thought they'd interview my dog, if I had one.

In discussing this with my partner the other day, he reminded me that Bernanke also happens to run a little thing called the Federal Reserve System. Between Washington and the regional Fed Banks, there is quite a staff in the outfit.

So, as I wrote a short time ago, there are some 70-80 people in the US who seem to believe that they are qualified to be Ben Bernanke. They pop up on CNBC with distressing regularity, solemnly intoning that Ben is missing 'this,' or if Ben would only look at 'that,' then he'd see the light, and all would be saved.

Now, I am reminded that there are at least 100+ seasoned professionals working for Bernanke already. The 80 private economists and pundits don't even rate first tier behind the Fed Governors. They are, at best, in third place, behind the Fed staffs.

More reason to laugh at CNBC's scouring of the economic world every few months, in order to bring us every possible inflation outlook or piece of advice under the sun.

At least we have a few weeks of respite, before the network cranks up the volume on this broken record again.

Wednesday, August 09, 2006

Internet Video Content: Further Developments

About a week ago, I wrote a piece concerning Comcast's efforts to secure internet video content via a major licensing program. At that time, I thought, mostly because Comcast's licenses don't seem to be exclusive, that it is a somewhat iffy strategic proposition.

In the intervening days, there have been a few more developments reported in the Wall Street Journal.

First, a piece in the Journal reported that 'big media' is launching dozens and dozens of web channels with narrowly-focused content. Rather than wait for the web to get to the TV, these networks are moving their new content directly onto the web, paying for them with embedded advertising.

On one hand, that seems pretty savvy. Why wait to be eaten by other websites, when you can develop them yourself. The bad news, of course, is that this essentially moots their broadcast assets.

Like the AT&T of old, where I once worked, it is a classic good news/bad news situation when technology is cannibalizing your product line faster than you can react to it. In the end, better you should lose to yourself than to your competition.

As a side point, I think this will blunt the Comcast initiative about which I wrote earlier. With so much content spewing forth, Comcast may well find itself offering for money what its competition is giving away for just the price of watching ads.

Then, this past Monday, Google and Viacom agreed to have the former distribute the latter's video content, with paid advertising, to third-party websites. The bet here is that the many smallish websites will draw viewers to the content, and sell the ads along the way.

Call me narrowminded, but I don't get this one. If you think the content is valuable, why squander it across a thousand unnamed websites? How exactly do I find Spongebob, or some other content I specifically wish to view?

Instead, this strategy seems to lock into existing websites, and pour content at them. It's "push" marketing, all the way.

I guess Google can't lose, since ads pay for this. Viacom could lose, if it has sold its content to the web too cheaply. Users might lose because content sort of vanishes onto the web in hard-to-find places.

The more players jump into the web video content game, the more curious it gets.

Should be fun to watch in the coming months and years.

Tuesday, August 08, 2006

Ford Motor Company: The "Other" Chairman Bill's Continuing Woes

The WSJ has run several pieces recently on Ford's new problems.

First, the recent vehicle recalls. Then, the doubling of recent quarterly losses. While not good news, it's probably fair to say these problems involve past events which can only be ameliorated now, rather than prevented.

Finally, we have the hiring of ex-Goldman Sachs investment banker Ken Leet to do what Bill Ford and his staff already get paid to do- evaluate strategic options in the current dire situation.

What's going on here?

Didn't Chairman Bill (Ford) just tell us earlier this year that he and his aides had developed the company's "Way Forward?" What happened to that plan? Is it out the window already?

My mentor at Chase Manhattan Bank, its SVP of Corporate Planning & Development, Gerry Weiss, also a GE veteran from the '50s through '70s, taught that competent management only hires consultants for two reasons: for information to which the consultant is privy, and the company is not, and the consultant can legally and ethically convey to the company, and/or; for special skills, such as negotiation, purchase or sale of unusual assets, etc, that would be of little value to retain on staff, but are required for some current purpose. Beyond that, he said, either the managers under employment are inept, or the consultants are redundant, or, possibly, the reverse. But you can't logically claim to need garden-variety 'evaluation' skills from consultants for your own sector's businesses, when you have deep staffs of employees to do that very task.

Thus, I am very sceptical of Leet's retainer by Ford. If Leet is really necessary, then it suggests that Bill Ford's "Way Forward," and the people who developed it for him, are wrong, and will ruin the company in short order. And it's doubtful that one outside consultant can magically fix the management problems of Ford's entire senior executive group. If Leet is unnecessary, why hire him? Either way, it doesn't say anything good about what shape the company is in.

More than anything, I think it suggests that Bill Ford, and maybe his board, doesn't have any confidence in Ford's own staff. Everything I've read that Leets is supposed to do- undertake strategic evaluations of options for Jaguar, Volvo, Aston Martin and Land Rover, plus Ford Credit- would seem to be well within the purview of the firm's own strategy and planning staffs. Certainly investment banks will be happy to call on the firm with ideas, gratis, on what to do with these units.

Why retain an expensive outsider? Perhaps it's just the latest inept maneuver of a genuinely motivated descendant of a proud family, desperately trying to save the company whose name he shares.

There Will Be (More) Headlines...... BP's Alaskan Pipeline

As I wrote in this post in March of this year, specifically-unknown, but generally-anticipated headlines are once again favoring our portfolio strategy.

In this case, it's the headlines about British Petroleum's surprise announcement of corrosion on the Alaskan pipeline, which will necessitate its closure for an as-yet undisclosed period of time.

There goes 8% of American's crude oil supply, in one fell swoop.

While not knowing precisely "which" headlines would affect investors and, thus, the equity markets, we knew there 'would be headlines.'

And in the energy sector, the odds seem to be for more headlines which send prices of energy, and, thus, energy stocks, up, rather than down. Fewer announcements of massive new, easy-to-exploit energy sources. More announcements of refinery closures for maintenance, pipeline closures for repair, and/or oil fields at risk due to war.

So, while others are busily trading today, and will be again for several days, on the basis of BP's announcement, we are simply reaping the benefits of the headlines from our steady portfolio positions.

Surely, there will be more headlines to come........

Monday, August 07, 2006

YouTube Strikes Again: Microsoft's Vista Dismal Demo Caught On Video

Windows Vista Demo Goes Awry

As I wrote a less than a month ago, websites like YouTube have opened up a new era in "small" media commentary. Now, video may be provided with commentary and analysis like that on this blog. My earlier example was for illustrative purposes, and not exactly "timely."

This one is.

I was watching CNBC this morning with a cup of capuccino when I saw a story featuring this video. As soon as the pieced had finished, I dutifully went to this computer, found the clip, and captured it for this post.

So, two points.

First, as I wrote last month, now it's possible for a totally "free" and expenseless source, me, to access news videos, as well as written pieces, like the post about Michael Wolff's Time Warner piece in Vanity Fair which I just published. The world of non-major-media analysis and commentary is expanding at a breakneck clip, and not just for trivia.

Second, if you still thought Microsoft was a successful, smoothly-functioning "technology" company that matters, watch this clip. How many total return performance failures and fundamental business operating gaffes (like delayed releases of the company's major products) does a large company need to make in order to be seen for what it really is- a once-successful tech company now in its dotage?

This clip of Vista's malfunctioning voice recognition capabilities is a howler. Do you not wonder how this could have occurred? Were you Steve Ballmer, would you not have required this experiment to have been tried successfully about, oh, 25 times, before allowing it to go "live" before the press?

Talk about mediocre, inept management. And Ballmer still can't explain the last five years of Microsoft's total return performance. Neither can Gates. See my posts here, here, and here for details.

I think this video clip is just one more example of why Microsoft has become a large company that was once a tremendous driver in the technology field, and also once a tremendous growth investment opportunity. But no more. Now it's mired in difficulty simply executing in its major product areas. As if, by the way, anyone really "wants" to be forced to buy a new operating system, rather than, say, simply receive a more secure, upgraded version of XP. For free, so it functions like a modern operating system "should."

Sunday, August 06, 2006

Time Warner Again: Michael Wolff's Analysis in Vanity Fair

You read it here first. And here. Time Warner no longer has a raison d'etre. Now, I'm in good company.

Michael Wolff of Vanity Fair wrote a wonderful piece this month discussing why Time Warner should be broken up. The occasion was his interview with Carl Icahn, the erstwhile corporate raider, now 'corporate governance' enforcer.

Rather than attempt to rephrase or summarize Wolff's article, I've provided the link to it, so you can read it for yourself.

What is comforting to me is that Wolff, although much later than I did, comes to the same conclusions regarding the company's current and long-term viability, for many of the same reasons. I've seen Wolff on several CNBC interviews. His candor and sensibility have impressed me, so I'm happy that he and I have similar feelings about the Time Warner situation. Only I didn't have the benefit of an afternoon with Carl Icahn to cement my conclusions.

Nevertheless, I think, based upon Wolff's piece, that perhaps Time Warner, its recent quarterly results notwithstanding, is headed for breakup within the next, say, 24 months?