Equity Vix: Duration & Volatility

Yesterday's Wall Street Journal contained a piece on equity holding durations, trading frequencies and volatility.

Among the interesting factoids cited by the article were these:

-in 1999, the average holding period for equities was more than a year.
-in 2006, the average holding period for equities was less than seven months.
-The CBOE's volatility index is at its lowest level in 10 years.

According to Justin Lahart, the Journal article's author, computing and communications technology are mostly responsible for the changes. Lower trading costs, decimalization, and increased computing power has allowed for some previously theoretically-only strategies to become reality. Such developments would tend to exploit inefficiencies in prices, moving them closer together.

Hedge funds are also believed to be a cause of the shorter holding periods for equities, due to their own need to meet quarterly performance expectations.

Funny how that works, isn't it? Even privately-held financial firms offer vehicles whose performance is judged over short time periods, just like the non-financial, publicly-held firms whose equities the hedge funds trade.

Reading the piece, however, brought me to wonder about the artificiality of the terms "trading" and "investing."

What is the difference? Perhaps trading is what you do to implement investment strategies.

However, my biggest surprise was that as recently as 1999, investors typically held equities for over a year. Even I haven't done that since I began actively using my proprietary equity strategy. For a brief time, the holding period was a year, but for nearly a decade, it has been six months.

Furthermore, I don't think there is any meaning to the equity duration timeframe. With trading costs so low, why should anyone overstay the performance of an equity they hold, relative to expectations about its performance, and the performance of other equities?

I cannot understand how, with rapid dissemination of information, low trading costs, and quarterly publication of company fundamental results, investors can justify planning to hold equities for as long as a year. There have been some equities which my selection process has chosen for as many as three sequential six-month holding periods. But I never planned, a priori, to hold the stock that long.

Rather, it is difficult for me to believe that most equities can offer an expectation of relatively consistently superior returns for over a year. Thus, I would not expect to buy an equity and expect to hold it for that long.

With all the reasons investors have for trading any given equity on any given day- price appreciation, breaking news, a better opportunity in another equity, cash needs- why is it so important for investors to hold equities for as long as a year? Furthermore, doesn't frequent trading contribute to more price information and, thus, an expectation of fewer large-scale price changes, i.e., decreased volatility? Isn't lower volatility preferable for any equity holder?

Based upon Lahart's article, I don't see any particular cause for concern in emerging trading patterns which support equity investments

Fox To Start Business Channel in Late 2007

Finally, it looks like there will be some competitive pressure for CNBC. Fox has announced that it will commence operating a business news channel in late 2007.

As I wrote recently, expect to see Fox poach some of CNBC's better, more attractive female anchor personnel. My prediction is that Rebecca Jarvis and Erin Burnett will be lured to the new network. They are the brightest, most articulate, attractive female anchors who also have limited exposure.

While Becky Quick and Michelle Cabruso-Cabrera are probably better, more knowledgeable and skilled anchors than Burnett and Jarvis, they enjoy maximal exposure already.

Then again, who knows how many women, and men, may wish to bolt to Fox just to get away from "money honey" (is that trademarked yet?) Maria Bartiromo.

Additionally, I understand that, perhaps because of the 'glamor' of network exposure, compensation for anchors at CNBC is not all that lavish.

Should be interesting to see who jumps, and what the eventual anchor lineups are come fourth quarter of this year.

Starbucks' Schultz Sees Senescence

Saturday's Wall Street Journal carried a lengthy article concerning an internal email from Howard Schultz, the firm's chairman, regarding his concerns for the firm.

Back in April of 2006, in this post, I wrote,

"So Howard Schultz is opening more than 10 company stores per week, which would account for the employee growth. That is, 2 company stores per day, plus 5 licensee stores per day, plus turnover. With 'more than 100,000' employees currently, they are adding roughly 1% to their employee base per week. Allow for some Kentucky windage, and they are growing like topsy.

At these rates, I would guess Schultz lies awake nights wondering how his company's culture can withstand this sort of dilution and explosion among its ranks. When the US military saw these levels of growth during WWII, they employed the "cadre" system- seeding new units with experienced combat veterans. Is Starbucks doing this? Can they afford to, if they are moving into new locales?"

Interestingly, Schultz isn't planning to limit growth- he plans to more than triple the current number of stores to 40,000. Rather, he frets over the changes that have been wrought in Starbucks stores in order to maintain revenue and volume growth.

Changes such as automatic espresso machines which are tall and obscure the sight of the "barista" at work. A switch to pre-ground and packaged coffee, so that one no longer smells roasted coffee upon entering a Starbucks store. The aroma of burnt cheese on occasion, as the chain's new breakfast sandwiches cause some mess that is not immediately cleaned out of the ovens.

On one hand, I have to admire Schultz for his ethic in understanding that "success is not an entitlement." I really do admire that realistic attitude in a CEO or company leader. However, when Schultz wrote in his email,

"We desperately need to look into the mirror and realize it's time to get back to the core," just what does he mean? Hire more people and backtrack to more labor-intensive, poorer-quality service levels of the past? Trim the product offerings, and drop skim milk?

Perhaps Schultz is simply confusing limits to growth and consistently superior returns, with his company's own recent history. My proprietary research has found that there is a natural senescence that all successful firms experience. Just as athletes age, firms eventually outgrow their initial markets, attract competition, and simply become harder to lead, manage and grow in a manner that sustains consistently superior total returns than they once were.

This Yahoo-sourced chart (click on the chart to see a larger version) illustrates that, versus the S&P500, Starbucks has actually been stuck in neutral for about two years. While the company's stock price has outpaced the S&P for the last five years in total, it's been flat for the last two. The S&P is higher over that period, while Starbucks has plateaued. In fact, Starbucks is among the better performing shorts in my equity strategy, were we to be using the short strategy right now. It's been superior over several years in terms of total return, but inconsistently.


My guess is that Starbucks is simply reaching a Wal-Mart-like limit to profitable growth that can sustain a consistently superior total return performance.


From the Journal article, it appears that Schultz is not exactly a well-educated, deeply knowledgeable businessman. Rather, it notes that he was a salesman who moved to Seattle in 1982 to join the coffee roasting firm. It's just possible that he does not realize what happens when a firm outgrows its initial niche. In Starbuck's case, it must now add food, music, etc., to maintain growth levels. And it has engendered renewed competition in coffee from the likes of Dunkin' Donuts and McDonalds.


I should probably note here that I hold McDonalds in my equity portfolio. And that, truth be told, when offered a choice, I'm a Dunkin' Donuts guy, not a Starbucks aficionado, for takeout coffee. I do, however, religiously buy one-pound bags of espresso beans at Starbucks, because Dunkin' Donuts refuses to sell me bags of the espresso beans they have in the store to brew their own espresso.

However, back to the Schultz email. It surprised me to read that Schultz puts so much emphasis on the "romance and theatre" of a Starbucks store. I guess I really am not their target market customer, because I've never had a romantic or theatrical experience in one of their units. I've had bad service. But I could personally care less if I see the guy/gal - excuse me, the barista- actually make my cup of coffee.


If Schultz and his crew plan to hit their target of 40,000 stores, I think they will find themselves making lots more changes than they have yet anticipated. If anything, a Starbucks will probably become even more distant than Schultz' dreamy original-style store than it already is.

So, kudos to Schultz for being uncomfortable and suspicious of what success his firm has enjoyed. But I'm not sure there's that much he can actually do to avoid the inevitable effects of senescence upon Starbucks.

H-P's New Direction: Software

Last Tuesday's Wall Street Journal reported that H-P is planning to boost growth by bundling its various software offerings, including those of Mercury Interactive, and Bristol Technology.

The software in question is corporate-oriented systems management software. Allegedly, the effort didn't work well prior to this because it was not sufficiently important to merit H-P's full support.

Now, H-P has hired Thomas Hogan, former CEO of Vignette, a software firm, to lead the new effort. Focus is being placed on sales force training and compensation, to facilitate the success of the new endeavor.

Even with all this, I doubt this effort will re-ignite H-P to be a firm with consistently superior total return performance over several years.

First, while Mark Hurd has led H-P through a recovery from its malaise under Carly Fiorina, I don't think that the firm has, by any means, locked up the consumer laptop and personal computer market. It has enjoyed a short-term bounce in its stock price thus far, but I'm not sure it is poised to continue that consistently going forward.

Second, the Journal article notes that corporate customers are already migrating to online, "on-demand" software services, rather than the traditional type that H-P envisions selling.

Third, H-P is coming to the corporate software market long after many competent competitors have already settled in, such as IBM.

Fourth, there is the issue of credibility. I would think that commitment to a software vendor is a very serious issue, and H-P isn't really much of a presence yet in that world. This could take quite some time to pay off.

Overall, I think this new direction probably won't change the fortunes of H-P, which are heavily wedded to selling commodity computing and related hardware- laptops, printers, etc. Hurd has fixed some of the firm's earlier problems, but I do not think this necessarily presages a return to H-P's former days. As the Yahoo-sourced chart on the left depicts (click on it to see the larger version), over 40 years, the company has had some runs of clearly consistently superior returns. For much of the 1990s, and the early 1980s, the firm appears to have outperformed the S&P500. However, beginning in the mid-1990s, H-P's performance began to revert to average and/or inconsistency.

Over the past 5 years, as shown in the chart on the left, H-P hasn't really outperformed the index until the last 20 months or so. Hardly a long-term return to consistent superiority. Based upon my proprietary research findings, H-P's recent performance is far from sufficient to merit ascribing to it long-term outperformance of the index. Even three years of relatively high total returns is no solid predictor of consistent outperformance of the S&P.

So, I think it remains to be seen whether H-P can even be a high-growth, long-term consistently superior total return company again, going forward. As I have written in prior posts, creating a successful second act for a technology company is a nearly-impossible task to achieve.

Google & The Networks: Is Content King?

Yesterday's Wall Street Journal featured an article discussing the push back of NBC, CBS and Viacom to YouTube's approach to airing their video libraries. Additionally, Paul Vigna, a writer for Dow Jones, wrote an editorial declaring the networks safe, for now, because content will always be king.

This week's alliance between online video site Joost, and Viacom, is clearly aimed at setting up and reinforcing a competitive threat to Google's YouTube.

Did Google make a mistake buying the best-known piece of online video distribution real estate? Probably not.

Does Google, via YouTube, expect to air all the video content of the networks for free, or just shares of advertising revenues? Again, probably not.

Is Viacom going to get as much viewership for its content at Joost as it has, or would, at YouTube? Once again, probably not.

I don't think the issue here is whether YouTube will successfully deprive owners of existing video content of value for distributing that content directly online at a very popular site. I also think many pundits mistake YouTube as a joke, just full of some home movie producers.

The issue is whether YouTube successfully exemplifies the ability of one or two sites to become so valuable that they will rival the owners of content in importance.

In this regard, I disagree with Mr. Vigna. I don't believe the networks have much time to build any proprietary online distributions sites. YouTube is already pervasive. Why won't some creative production team approach YouTube directly for a distribution deal, and never even stop at the networks? Just release content on their own URL, and via YouTube. Or Joost. Perhaps one or two other sites.

What Mr. Vigna overlooks, a la AOL-TimeWarner, is that nobody has successfully owned distribution pipes and content. Either one may be managed successfully, for a time, to provide consistently superior total returns. But it's doubtful any company can provide both and have that performance.

Other content originators suspect a distributor who also produces content. Other distributors suspect a content provider who also owns distribution.

But, alone, the best-run, most creative distributor or content producer can easily dominate their business, and even fight its functional counterpart to an even revenue-sharing arrangement.

YouTube isn't an empty threat just yet. I think it will simply take a little time for the reality of the new, disintermediating online opportunities to fuel the move of content producers directly online. If so, then Google's bet on YouTube will look smart after all.

The CIO as Strategy Officer- Again

Yesterday's Wall Street Journal contained an article discussing a new trend toward involving CIOs in company strategy deliberations and formulations. Included in this is an old holy grail of technology/operations management- the commercialization of internal IT operations as a business development function to produce revenue.

"Companies are requiring CIOs to be more thoughtful about strategy," Reynold Lewke, a recruiting partner at Egon Zehnder, is quoted in the article.

You have to read to the end of the piece to get the real message, however. Louie Erlich, formerly just CIO of Chevron, now also VP for Strategy and Services, is quoted as saying,

"The CIO title is misused, frankly. If all a CIO does is oversee tech systems, they should be named a tech manager. A CIO should be enabling a business to grow."

Mr. Erlich's statements seems eminently sensible. It also points up the likelihood that, for several decades now, "CIOs" have, in fact, been over-elevated, misnamed technology and operations managers who have not had a clue as to how to integrate their functions into the support of corporate growth and development strategies.

I saw the first run of that movie at Chase Manhattan Bank some years ago, and it wasn't pretty then. The hoped-for commercializations of internal operations never materialized. Managers were more comfortable with technology, and building walls around their fief, than they were venturing out to support and facilitate business development. That's why so much financial services innovation tends to occur in monoline startups, be they credit card, mortgage banking, hedge funds, or private equity firms.

I suspect that the moral of this story is to watch for some quasi-spectacular failures as corporations try to market their own IT groups' interpretations of how to assemble systems which their vendors are already marketing, right beside them, to other customers.

Erlich's focus on truly broadening the scope of "information" used to facilitate Chevron's strategy sounds reasonable and may potentially lead to more profitable growth and consistently superior total return performance. Trying to commercialize internal IT doesn't.

The New Kraft Foods

Yesterday's Wall Street Journal's Marketplace section featured an interview with the CEO (as of last June) of Kraft Foods, Irene Rosenfeld.

The genesis of the piece is Kraft's imminent spinoff from Altria, and an analysts' conference for Rosenfeld, on that occasion.

By all indications, Ms. Rosenfeld is a capable and sensible businesswoman. What is troubling is the simplicity and classic nature of her prescription for fixing Kraft.

Essentially, she arrived, toured the company's facilities, talked to employees, and conducted ground-level, personal visits to customers and their kitchens throughout the world.

Here's what the Journal had to report,

"Ms. Rosenfeld concluded the nation's largest food maker- whose household-name products range from Jell-O to Maxwell House coffee to Velveeta cheese- had lost sight of how its offerings fit into consumers' lives. Deep cost cutting had eaten into Kraft's product quality, eroding the strength of some brands and causing the company to lose market share. Workers were afraid to speak up when they saw problems.

Today, at an analysts' conference....Ms. Rosenfeld plans to unveil a new strategy to reignite Kraft's growth as it gets ready to spin off from Altria Group Inc. Instead of just selling meal components, Kraft will make more complete meals like prepackaged salads and ready-made sandwiches with its Oscar Mayer meats and Planters nuts."

This all sounds great. Except for one thing. Where was this strategy for the past several years? What was the board at Altria doing for the past five years or so, while Kraft slipped into the coma from which Ms. Rosenfeld intends to wake it?

How sad that a leading brand name in American consumer packaged foods simply lost the salient skill of such vendors- staying close to the consumer and her/his habits and needs. Nearly thirty years ago, when I was a graduate student at Penn, we were constantly regaled with tales from our consulting marketing professors of the various new products and consumer research being conducted at their clients, who were typically large US packaged goods purveyors.

As a little consumer behavior aside, Ms. Rosenfeld refers to something that has remained true for over thirty years. Back in the day, one of my marketing professors, Jerry Wind, related how research revealed that completely prepared foods didn't score as well with consumers as 'mostly' prepared foods did. For instance, instant cake mixes didn't use powdered eggs, so consumers could add fresh eggs and feel that they prepared the cake.

Today, Ms. Rosenfeld relates how they leave the consumer to zap a product in the microwave, to give the illusion of a freshly-cooked meal that, in reality, was essentially already prepared in the box.

Still, while Ms. Rosenfeld seems like the real McCoy when it comes to marketing and new product/growth development, isn't it sad that this conventional wisdom of more than three decades is now required as major surgery on a fallen consumer brand portfolio? This is the true failure of corporate governance.

Why didn't Altria's board ask questions about growth and new product introductions? Why didn't they ask what the impact of the ready-to-eat food assortment at 7-11 had to do with Kraft's demise?

How many tens of millions of dollars do you think were paid to inept, under-performing heads of the Kraft unit under Altria?

Well, the silver lining for me is that, perhaps in four more years, I'll be able to invest in Kraft, when Ms. Rosenfeld leads it to performance that qualifies it for my equity portfolio selection criteria.

Investors, Hedge Funds, and Market Timing

My partner and I were discussing private equity takeovers last week over lunch. It was a continuation of an earlier discussion involving timeframes of various investors.

I was relating some business reporting on these private equity groups looking to clean up and "unlock value," as the pundits were saying of Goldman Sachs last week, in regard to the rumored AMR-BA merger.

It occurs to me that there are basically two kinds of investing: betting on continued excellence, or betting on someone bailing out and fixing a loser.

The latter approach requires at least three assumptions:

1. Someone else will view the poorly-performing asset of which you own a share as fixable
2. The right person/group will come along to fix that asset
3. You will be allowed to realize increased value from the fixing of the asset, or the act of buying it from you (and other shareholders) in order to privately fix it

To me, these seem very problematic and risky assumptions to make, and they must all come true if the investment is to be worthwhile.

It's at least a timing issue, and more. That is, this type of investment is a variation of market timing. The white knight which comes along to 'save' or fix the asset in which you have invested is looking to 'unlock' value and sell, not necessarily reorganize the company for long-term, consistently superior total return performance.

Along these lines, my partner sent me a New York Times article from this past Sunday by Mark Hulbert entitled "A Good Word for Hedge Fund Activism."

Herewith is some of the text of his article,

"WHEN hedge funds buy shares of a company and start agitating for changes in the way it is being managed, they may seem to be gunning for a quick killing at the expense of longer-term shareholders.

But, in fact, the evidence shows that for the most part, buy-and-hold investors ought to cheer when hedge funds jump aggressively into a stock, according to a new study. Titled “Hedge Fund Activism, Corporate Governance and Firm Performance,” it was written by Alon Brav, a finance professor at Duke; Wei Jiang, an associate professor of finance and economics at Columbia; Frank Partnoy, a law professor at the University of San Diego; and Randall S. Thomas, a professor of law and business at Vanderbilt. The study has been circulating in academic circles since the fall.

The authors examined nearly 900 instances from 2001 through 2005 of what they call hedge fund activism. The professors compiled their database in large part from the reports that hedge funds must file with the Securities and Exchange Commission whenever they acquire at least 5 percent of a company’s outstanding shares and intend to get involved in running the company.

Though the professors concede that they have no way to know whether their sample included every instance over this five-year period of hedge funds trying to change a company’s behavior, they write that they believe the sample “includes all the important events.” Included in the professors’ database are not only aggressively hostile actions like threats of lawsuits, proxy fights and takeovers, but also offers to help management enact policies intended to bolster the company’s stock price. Inherent in such cases, Professor Brav said, is an implied threat of hostile actions if management rebuffs those offers.

The professors found that the stock of the average company singled out by a hedge fund outperformed the overall market by 7 percentage points over a four-week period: the two weeks before and the two weeks after the hedge fund’s public acknowledgment that it was aiming at the company. ........If hedge funds did nothing to improve the target company’s profitability, this short-term boost to its stock price would be temporary, and the stock would fall back. But that is not what the professors found. In the year after that initial month of market-beating performance, the average target company’s stock kept pace with the overall market. And over the subsequent two years, the professors also found, the operating performance of the target companies improved markedly.

In finding that the market’s reaction to this type of activism was the rule, not the exception, the professors concluded that the average long-term investor in companies singled out by hedge funds has benefited significantly."

I found this article to be very interesting for two reasons.

First, that the best that could be found for hedge-fund activism, which, for an existing shareholder, is probably better than private equity activism, in which the shareholder loses his shares and all future gains in the company, is a month's worth of outperformance. That's it. One month.

Clearly, these hedge funds are out to "unlock value," meaning, get a quick pop and unload most of the position, a la the Goldman Sachs activity in the airline sector.

Apparently, in the best case, as in the bolded passage, there's a one month outperformance, followed by a year of average performance. The comment about "operating performance of the target companies improved markedly," is code for, 'darn, no more total return effects after that month, but, hey, at least the fundamentals seem to have improved, although without any corresponding stock price gain.'

Second, the authors of the paper, and the NYTimes piece, Hulbert, all consider timeframes longer than a month to be "long term." Even as little as that extra year of average returns is ostensibly good for "long term" shareholders.

Yet, my own research has demonstrated that even for periods as long as three years, there are incredibly large volatilities associated with total returns, such that they are neither predictable, nor reliable.

Further, even I am not a "long term" shareholder. I look for long term patterns of consistency, but I only hold for a period sufficient to suggest I will reliably earn another increment of superior total returns. Holding an equity for years, on the hopes of some sort of magical uplifting of the stock price above the market, is a mug's game.

The paper to which Hulbert refers reinforces my point. One has to be extremely fortunate to already be in an equity which is sufficiently depressed to attract the right sort of attention. Timing has to be down to the month, to really optimize one's gains. Who among us, not managing a hedge fund, is that good at market timing?

I'd much rather identify patterns of consistently excellent fundamental and technical performance, and buy, in the expectation that such above-average performance is causally based, and likely to last just a little longer. That way, I don't need to rely on a somewhat complicated, loose transmission system of poorly-performing equities, white knights, and timing.

It takes discipline to use my approach, rather than simply hoping for good luck and a white knight.

Home Depot & Relational Investors

There were amazing developments at Home Depot last week. According to Alan Murray's comments on CNBC on Monday afternoon, here's what happened.

First, Relational apparently got the Home Depot board to agree to revisit the 'supplier' business which Nardelli and his lieutenant, now CEO, Frank Blake, built and acquired.

Second, in presenting their analysis, Relational allegedly corrected a prior mistake in calculating this unit's ROI. This part is just amazing. So Blake and Nardelli, two exorbitantly-compensated senior executives, couldn't even do the basic math to correctly determine the return to HD of a new business? Can we say "mediocrity?"

Consequently, third, the board is now agreeing to consider getting rid of the unit. Maybe a good idea, maybe not, as some note, because they would be selling 'at the bottom,' the housing sector being as weak as it is just now.

How can the board actually retain a CEO, even a new one, who was responsible for incorrectly providing the basic arithmetic of calculating operating performance for the new business unit, and presenting it to the board? For more thoughts on this, see my post on MBAs this week, as well as this one on a recent application of a very old marketing management method at GE/NBC. It's easy to see why I am so sceptical of the value of an MBA, isn't it? Somehow, common sense was simply lacking, even among GE-trained senior operating executives. Neutron Jack would be so proud.

Does the Relational Investors saga make you wonder what else is going on at Home Depot that smacks of grade school ineptitude? Not to mention how little spine the Home Depot board seems to have, bending to whomever has pushed on it with the most force most recently?

More MBA Nonsense

This past Monday's Wall Street Journal featured an article entitled, "M.B.A. Programs Hone 'Soft Skills.' Apparently, the new idea is to add 'soft skills' and people focus to the MBA curriculum.

Warren Bennis, professor at Southern Cal's business school, claims that schools are 'responding to employers' growing interest in soft skills. Executive suites are increasingly composed of managers running far-flung operations who must attract and retain knowledgeable workers. That puts a premium on skills such as communicating and brokering compromises.'

Having been to graduate business school, I must say, that's an awfully ambitious agenda for people with, realistically, 18 months of focus, little knowledge of business. In fact, the article goes on to note that the schools "are copying and adapting popular corporate techniques such as coaching, personality assessments and peer feedback."

The worst is that second year students are counseling new first-year students on these topics. And, just what great font of 'soft skill' wisdom would a second-year MBA student have? If I were a student, paying for a two-year MBA education, I'd be livid about this.

Talk about the blind leading the blind. No wonder 'average' business management remains so, well, average, throughout time. I've written elsewhere (December 28th post) in this blog recently about MBA programs churning out decades-worth of mediocre business people. I believe this new trend promises to intensify the mediocre output of MBA programs.

For example, see my recent posts on auto inventories, or NBC ad sales. We can't even get existing senior managers to use tried and proven management concepts from the 1950s, like 20/80 analysis, let alone sensibly manage inventories to relate to sales and profit volumes.

And now they are teaching 'soft skills' in the same schools that have failed to graduate students who can get the simple, mathematical stuff right? I think, in reality, the so-called 'soft skills' are the product of one's career. You may not be able to teach some of them, and, others, need to be developed in the real world, not in some B-school game environment, or among "peers" whose motivation is to get a job, not teach other students.

How about MBA programs doing more with topics like how to identify, foster and commercialize innovation- the real driver of value-added growth and overall shareholder returns?

Chrylser's Big Problems

I would be remiss if I did not comment on DaimlerChrysler's announcement, earlier this week, that it is embarking on a massive restructuring effort, laying off some 13,000 employees, and entertaining the option of selling or spinning off its American Chrysler unit.

The first thing I would note is that this supports my long-held contention, which I mentioned in a prior post, that no Big Three Detroit auto maker has ever really been "rescued" or "turned around," in the sense of being saved from imminent bankruptcy or serious ownership change, for a lengthy period. Iacoccoa may have fended off dissolution in the 1970s, but only with massive Federal assistance. Then again, he did set the company on the road to independence for another twenty years or so. Still, if not for government intervention, the industry would have probably taken some badly-needed capacity reduction medicine earlier, rather than later.

The 1998 merger of Daimler and Chrysler, only nine years ago, including the subsequent "turnaround" of Chrsyler by Dieter Zetsche earlier in this decade, now seems to have been a colossal mistake.

To provide a little incidental perspective on this story, Senator Tom Carper (how apt a name for a US Senator, eh?), recently-elected Democrat from Delaware, droned on for almost five minutes during Fed Chairman Ben Bernanke's Senate appearance this week about Delaware's Chrysler plant dilemmas. Among the more ill-informed comments he made was that he believed and hoped that we would keep more auto manufacturing (assembly, really) jobs in the US (read: his state), and that the workers at the Delaware Chrysler plants are good workers, and produce good cars.

These are nice sentiments, but indicate why US industrial "policy," such as it is, causes such trouble. Does anyone think Chrysler has much value anymore, or should be "saved?" Or that just because its employees work very hard producing mediocre and unwanted products, that they deserve special treatment?

Despite the many ideas floated about spinoffs, sale of the firm, or merging it with GM, who really would want the Chrysler division now? Is there more value to it than perhaps part of the legendary Jeep brand (oddly, an AMC relic), and perhaps some real estate? Are those two components possessed of sufficient value to offset the firm's pension and health care liabilities?

I don't see GM as being able to afford this one. Nor that it would help that firm. However, I think the very real question is whether any other firm would even bother to bid on Chrysler without Daimler having to pre-fund all the various employee-compensation-related liabilities. For that matter, we don't know what would be considered "safe," from a legal viewpoint, in spinning the unit off to existing DaimlerChrysler shareholders. If it isn't sufficiently capitalized, might the US come back after Daimler for 'looting' Chrysler by failing to sufficiently fund the pension liabilities?

But, back to this week's news. The job cuts will probably hasten the firm's shrinkage. Zetsche's reputation is now tarnished. This unit, and, indeed, the firm, seems somewhat stuck in neutral with a gigantic problem having resurfaced to impair its ability to compete in a sector in which fewer and fewer operational mistakes are being tolerated by the financial markets, and customers. Its hoped-for design integration turned out to be a non-starter. The Daimler engineers balked at it, and their luxury customers may be at risk if it is now intensified as a cost-cutting option.

Once again, inept marketing and a clear focus on customer behavior seems to have led an automotive manufacturer astray.

Market Value: When and To Whom?

In his Tuesday piece in the Wall Street Journal, Dennis Berman refers to situations in which executives,

"were trying to use overpriced shares to buy other companies in stock deals before the market came to its senses....executives don't dare broach- that their shares might be overvalued."

What does it mean to simply state that a company is "overvalued?" By whom? Or that the market is not 'in its senses?' Over what timeframe? Do such an unconditioned terms or statements even make sense?

Can anything be "overvalued" today? I think not. As my wise old friend and colleague, B, noted some years ago,

"A model can tell you what X was worth yesterday, or what it may be worth tomorrow, but today, it is worth what I can sell it for in the market."

Just so.

And, further, today's market price, or value, for a company, is a function of many buyers and sellers, and non-buyers and non-sellers, whose various and varying expectations constitute the forces which drive the actual price of shares of a company.

In fact, there are so many conditions on the question of "value," much less "overvalue," that it boggles the mind to consider them all.

For example, if I sell one share of a stock I currently hold, Gilead Corporation, it is unlikely to affect the market value of the company. I am essentially a price-taker. However, suppose I own 4% of the firm- a level below that requiring certain SEC filings. Suppose I wish to sell all but one share of my 4% stake in Gilead, today. Would this action affect the company's value? Almost certainly. The flooding of nearly 4% of the ownership in a company into the market at once will change its value very quickly, indeed. It may result in a price decline sufficient to bring in more buyers, who now think the company is "undervalued," relative to their own expectations, and perhaps move the market value back up again.

Thus, the use of sloppy language, such as referring to a company, or its stock, as simply, unconditionally, "overvalued," or "undervalued," obscures clear understanding of the mechanics involved in the valuation of companies. In an open trading market, a company is always "fairly" valued at the moment. That value may appear to be too high, or low, to different investors, or potential investors.

To address Mr. Berman's point regarding "overvalued" companies, I would suggest that what is meant is that there are situations in which a company is "overvalued," in the opinion of some people, relative to some other company. In such cases, there may, indeed, be takeover activity.

But that's not to suggest that either company was "wrongly" valued that day. Or on any other trading day.

"Value" is what you can get for something in a market. Any other "value" ascribed to the item is only a relative estimate, which is itself a function of a particular investor's expectations. Nothing more, and nothing less.

GM's New Shareholder: Goldman Sachs

Yesterday's Wall Street Journal noted that Goldman Sachs now holds a 5.2% stake in GM.

Are they betting on a takeover, or girding for the kind of shareholder activist campaign that Relational used to get a seat on Home Depot's board? Or of the type that Kirk Kerkorian failed with last year? Or, is Goldman simply being opportunistic, hoping for a quick "pop" in the stock price, before unloading their shares?

I haven't seen much discussion about this, for example, on CNBC. Isn't this surprising? When a noted equity house, asset manager, private equity funder and player, and M&A powerhouse takes such a large interest in an ailing company?

What's the likely implication for GM shareholders? I'd guess very good, since GS is comprised of a bunch of smart, tough financial sharks. I suppose the big question is whether Rick Wagoner is or would be more fearful of Goldman's no-nonsense bankers than he was (not) of Kirk Kerkorian.

NBC's New Ad Sales Approach: What's Old Is New Again

Yesterday's Wall Street Journal carried an interesting piece in the Media&Marketing Section regarding advertising.

The piece, by Brian Steinberg, featured the changes in ad marketing and sales being wrought by NBC's new ad-sales chief, Michael Pilot, late of GE's Commercial Finance Group.

Apparently, Pilot has "a history of using sophisticated analytical methods to generate sales growth."

Twenty-odd years ago, when I was a graduate student at Penn, we learned these sorts of techniques from the then-resident expert Professors, Len Lodish and Jerry Wind. The use of prior sales data from which to build models of most-likely buyers, and more productive sales and marketing efforts, is hardly new.

I think it's wonderful that NBC is making use of someone with Mr. Pilot's tendencies. Beyond his focus on more analytical sales planning, Pilot is also redesigning the entire sales and fulfillment process, something consultants like my old outfit, Andersen cum Accenture, likes to call 'business process re-engineering,' to be more efficient, automated, and electronic.

All this is, frankly, pretty obvious, low-hanging fruit. The question you should have, that I have, is, what took GE, the parent of NBC Universal, so long to effect this change? As I've written in prior posts, GE is too large to be effectively managed anymore for consistently superior total returns to shareholders. This is an excellent example of why I believe this to be so.

How does one justify viewing GE as either visionary, or well-led, if something so large and prominent as the ad sales function in one of its six business groups, is so hopelessly antiquated and poorly-managed?

I think this also speaks to the reality of business education in America, and, possibly, the world. Michael Pilot is most certainly not the only business school graduate to have learned these techniques over the past thirty years. Where are all the other graduates with similar knowledge, and their successful sales management changes?

Where does all that learning, knowledge and skill go? Thousands of graduates from the top ten or so US business schools in the past few decades, and when one of them actually implements a decades-old idea, it's considered breaking news in the Wall Street Journal.

How sad.

Detroit's Continuing Stupidity: The Inventory Dilemma

The Wall Street Journal featured a lead article Friday discussing the big three American auto maker's dilemma with unsold cars.

My favorite line in the piece is this quote from GM's head of North American sales and marketing, Mark LaNeve, "It's not like we have some crisis." Then there is this gem from his colleague, Troy Clarke, president of GM North America, "Today, we are much better in balancing production and demand than we were two years ago....If the trend continues, we will be right where we want to be."

Actually, they do. A crisis so bad that the CEO of AutoNation, Mike Jackson, routinely finds the wrong types of cars on the lots of his dealerships. According to the Journal article,

"AutoNation's Toyota and Honda stores typically carry enough cars to last 35 to 42 days. Its GM, Ford and Chrysler locations used to have 65 to 70 days of inventory. These days.....that number has climbed to between 80 and 120 days."

The other interesting item reported in article is that AutoNation hired McKinsey and several other consulting groups to perform some rather basic 20/80 rule analyses. That is, to identify the relatively few (usually around 20%) vehicle variations that account for most ( the 80%) sales. I'm not sure why AutoNation couldn't do this with its own marketing staff, but, for now, never mind that.

When Jackson approached GM about co-developing a predictive modeling system based upon this age-old 'wisdom,' Mr. LaNeve said GM was "seriously considering joining" the effort.

At least Alan Mulally, Ford's new CEO, said, of Jackson's idea, "He's absolutely right on. When you have big inventories, you get further and further away from that customer decision."

This is hilarious. The Journal piece, which is quite long, lavishes examples with lots of details, illustrating some howling mismatches of cars and US locations, thanks to GM's and Ford's insistence on guessing at consumer preferences, and then cranking out models according to those guesses.....ah...."forecasts."

This alone ought to tell you why you shouldn't be betting on either GM, or Ford, to return to a consistently superior total return performance path anytime soon. They may not even have sufficient funding to do so independently, at the rate their senior executives are moving on the inventory issue.

As I wrote in a post early on in this blog, the real question is why the manufacturers continue to use dealerships as they do at all. Why not simply establish kiosks or third-party locations, such as Wal-Mart, etc., to site sales offices with elaborate online 3D software programs to showcase their vehicles. Consumers could then order their cars, custom-made, on the spot, paying a deposit. The third-party location would accept the drop-shipped car, which could be built within weeks. And would this not eliminate much of the auto manufacturers' inventory and work-in-process financing issues?

There is another, related challenge which was mentioned in a glancing fashion in the article.

Right now, Detroit seems to need about 18 months, minimum, and often, up to 3 years, to adjust its product offerings to major changes in consumer behavior. I'm referring to, of course, what happens to demand for various product types every time gasoline prices either skyrocket or plummet. What to do? How do the auto manufacturers handle such volatility in the price of a major complementary good used by consumers of their product?

Actually, the answer already exists, in pieces. Shell pioneered scenario planning over forty years ago, and Detroit needs to implement that skill as well. The variability in consumer demand for vehicles can probably be reduced to a few major sources of discontinuous uncertainty and, thus, modeled as several most-probable scenarios.

Under each scenario, the auto producers could determine what sorts of models would be best-suited for the particular situation forecast. The manufacturers could then simply keep designs current for at least a few models under each scenario, and several factories ready to switch over production upon a few months' notice.

Does it not seem likely that the first producer to arrive in the market with vehicles tailored to something like a radical change in gasoline prices would be rewarded with increased market shares and pricing power, offsetting some of the costs of simply keeping designs current?

The truth is, today's global scope and volatile gasoline and oil prices make the auto industry a far from simple business to manage. Judging by the statements in the Journal's Friday article, and AutoNation's CEO, Mike Jackson's cool reception with some solutions, the current leaders of GM and Chrysler remain questionable as being up to that challenge. It also remains to be seen whether either Ford or GM have the financial staying power to continue to play a game in which the manufacturers remain so far from consumers' decisions points.

Hedge Fund Going Public

Today's big financial news is the IPO of the Fortress hedge fund. Believe it or not, I believe this is a small piece of what will eventually prove to be the solution to what some see as a "corporate governance" problem.

In a lunch conversation with a retired Wall Street lawyer, I sketched out my thoughts on how the Fortress IPO may affect private equity, and my friend concurred. Fortress is but an early example of the eventual reincarnation of what I refer to as "corsair capitalism," in memory of J.P. Morgan. As I wrote recently, here, the original intent of the corporate form was liquidity for the "robber barons," which, as a side-benefit, provided a means by which less-wealthy people could benefit besides the titans of industry. Add in the SEC, and, eventually, you had a decent start to a modern capitalistic system.

However, the concept of "shareholder democracy" was never intended, from our current corporate form. The boards were supposed to be composed of successful business people, whose financial interests were materially entwined with the companies on whose boards they served.

Now, we are quite far removed from that day and practice. Thus, there is no modern-day equivalent among public companies for the corporate boards of eighty years ago, or even fifty years ago. Since markets tend to create solutions on their own, I view private equity as such a solution.

Private equity and hedge funds are probably now different only in term of investment. The effective structures are not all that dissimilar.

Thus, with Fortress' IPO, I think we are seeing a first step on the way to some form of equity-participation structures for the 'common' investor, by private equity firms. My lunch colleague agreed. Assuming tax considerations can be addressed, private equity firms can begin to bundle up their current holdings, monetize them as spin-offs of some type in the market, and redeploy the equity into more private deals. Everyone wins, at first.

The private equity partnerships unload and unlock the value of their earlier deals, receive fresh capital, and smaller investors are able to enjoy equity returns similar to those of the private partnerships. The only fly in the ointment will be when someone other than a Goldman Sachs, Texas Pacific or KKR does this and craters one of their equity vehicles.

It's quite a testament to the public's latent desire for 'corsair capitalism' that so many people would subscribe to the Fortress IPO, driving the price skyward, despite having essentially no control over the continued presence of the key principals, the nature of the business, risk levels, or even a knowledge of the nature of the deals underpinning the value of the equity. Nobody's screaming that there is too much risk, or insufficient disclosure, in the Fortress offering.

If that's not a market signal, what is? Barney Frank, please take note. We are witnessing the market-sourced 'reform' for currently-perceived "problems" with corporate governance. It's not about a need for "shareholder democracy," or shareholders voting on the CEO's compensation package, but, simply, the ability for shareholders, at a low-cost, to buy and sell shares, as their way of "voting." And they are "buying" little-understood Fortress, in droves.

Steve Job's DRM Manifesto

Tuesday's release of Steve Job's essay on DRM (digital rights management) and digital music formats/downloading is yet another sign that Apple is running on all cylinders. To read the actual essay, go here.

Of course, it has become the grist of many business media articles. Even this blog.

The Wall Street Journal, a favorite topic and news source of mine, ran an article on Wednesday essentially reprising the situation, the essay, and possible results.

Give Jobs credit for sensing the changing winds, and now allying himself with consumers, against the very music publishing companies whose support enabled him to make Apple the 'first mover' in the digital music downloading and device product/service/market.

Perhaps the European regulators were posing too much of a threat for Apple recently. Certainly, Jobs' call to remove all copy protection can only benefit Apple, with its immense market share, in a freely-competitive market for digital music players and music downloads. With no bar to playing any site's downloads on any player, the battle will go to the better-designed sites, players notwithstanding. Jobs is clearly issuing a challenge, and betting on his own people, that both Apple's digital devices and its iTunes site can each best competition in their own space.

I've personally never seen much in the argument that, by buying an iPod, you could only buy music from iTunes. Or that iTunes songs couldn't play on devices from other companies. You knew that going in. It was part of the value proposition, and millions of people knowingly paid to take that proposition from Apple.

What I found stunning is the previously-unknown data that Jobs cited regarding the provenance of music found on the average iPod, and its status. I have to admit, it pretty much describes my own behavioral patterns. I've bought some music from iTunes, but most of the content on my fully-loaded Shuffle is songs I ripped from my own CDs using iTunes' ripping facility.

Jobs makes two very potent points in his essay. First, that if such a small amount ( just 3%) of each iPod's capacity is filled with iTunes-source music, how can copy protection on such a sliver of the music market matter? Second, that the big four music publishers sell far more unprotected CDs every year, injecting untold amounts of easily pirate-able music into consumers' hands. And, by the way, I have witnessed just this sort of behavior among my daughter and her friends, with their iPods.

Once again, we see why Jobs and Apple are in such a strong market position in their various product/market spaces. That short essay was an incredibly timed and aimed piece of marketing which will now cause uncertainty among competitors, and potentially unlock large new markets for both iPods and iTunes, at a single stroke. All while making the music publishers now the 'bad guys' on which regulators and consumers may vent their anger over digital music copy protection.

My guess is that this most recent competitive move by Jobs will increase the chances that Apple will continue its record of several years of consistently superior total return performance for its owners.

More Video Content Deals

Today's Wall Street Journal carried two stories concerning new media arrangements to distribute video content.

Comcast and Facebook are forming an alliance to allow videos created on Facebook to air on Comcast, prospectively on a television channel. According to the Journal article,

"....numerous links will be established between the social-networking site and Ziddio, a new Web site dedicated to "user generated content" that Comcast is developing. The best videos created by Facebook users as selected by a panel of judges will end up on Comcast's video-on-demand service and possibly on a new show that Facebook and Comcast hope will be aired by a television network."

As I recall, this summer Comcast was reported to have a fairly large staff ready to spend significant money to acquire video content for distribution from Comcast's own sites. I wrote a post about it, here. In that piece, I republished a quote from Comcast's CEO, Steve Burke, stating that he wants Comcast to be the megaportal on the net.

Frankly, this Facebook-Ziddio-Comcast deal underwhelms me. Facxebook seems to be one of those teen-twentysomething social-networking sites. It's not MySpace. Having some sort of filtering where themed video entries are judged, then packaged up for viewing, sounds a world different than just logging onto YouTube, opening an account, and uploading your video.

If this is Comcast's video content plan's best idea, I think they have trouble ahead. AppleTV is already going to threaten their television carriage revenue stream over time.

Then there's this little article from today's Journal, which will probably add to Comcast's coming difficulties. TiVo and Amazon are teaming up to offer content from the former on the latter's devices. So quiet was Amazon's Unbox service's debut that this article was the first I'd heard of it.

Apparently, Amazon allows users of its Unbox service to buy or rent, then download, video content from CBS and Paramount Pictures, a unit of Viacom, plus other sources.

TiVo, in order to attempt to reposition itself with value-added service, away from digital-on-demand cable TV, recently introduced new features that allow users to download content from the Internet, for viewing on a television.

As I look at these two articles, I see a confirmation of my sense that video content distribution is spreading with each passing month, and nobody will likely have a lock on exclusivity. The Amazon-TiVo alliance, coupled with the imminent AppleTV release, seems to put more long-term pressure on the viability of cable operator's television-service-based revenue stream. In time, ATT, Verizon, Comcast, et.al, may be fighting over the 'double-play,' rather than the 'triple-play.'

Which comes back to my suspicion that, as investments, telecommunications and cable operators are long term risks if one desires consistently superior total returns. Both groups are faced with owning and managing expensive infrastructure, probably mispriced, and both hope that video content distribution will bail them out. However, as more and more content disintermediates to the internet, then hops back to the television screen, thanks to an emerging class of server-like accessories which wirelessly download from the home personal computer, I suspect those hopes will be dashed.

Network TV's Bright Spot: Charging Cable for "Free" Programming

Yesterday's Wall Street Journal featured a piece describing how broadcast television networks are charging cable systems for carriage of what the public may view for free on those networks and their affiliates.

It's a non-trivial issue, when a major cable system, such as Comcast, is faced with an ultimatum to pay, or be unable to deliver the Superbowl telecast to its viewers.

Will it matter in the long term? My guess is that it will not. Right now, many sources of video content come to the broadcast networks first. And events such as the Superbowl have been loathe to sell the rights to a cable-only network, thus freezing out 'free' viewers. Talk about bread and circuses.....

However, this describes the current state of affairs.

Won't cable look to new programming sources? Will production still go to network exclusively?

Is it not possible that, whenever the Superbowl carriage rights are up for renewal, the NFL might sell only the broadcast rights to CBS, ABC or NBC, and reserve direct cable carriage for a negotiated fee directly from each cable network?

Is that not disintermediation? The article mentions the growing power of broadcast networks, as groups of stations are now allowed to be owned by a single entity. Markets being what they are, would not content providers also feel some pinch from that, and seek wider distribution alternatives?

Could television-focused video content not go the route of the Hollywood studio distribution model, treating various markets- US cinemas, cable movie networks, overseas, DVDs- separately?

Seen in this light, we could well be seeing the common occurrence of vendors in a shrinking product/market raising prices as the category becomes extremely mature. Faced with fleeing consumers, demand is relatively inelastic, so raising prices is the theoretically 'correct' choice to maximize profits.

In this case, however, it could well accelerate the development of vibrant alternative distribution channels around broadcast television. The recent Viacom-YouTube non-agreement, leaving the former to demand removal of its content from the latter's site, only reinforces how broadcast is raising the drawbridges and hunkering down with its legacy content.

My consultant friend S opined last year that one of the best things to have happened to all this old video material, such as Viacom's content, was to be seen, for free, on YouTube, thus rekindling consumer interest, for no advertising expenditures, in old bands, television programs, movies, etc. There's bound to have been some uptick in demand for some of that content on a paying basis.

Google, of course, is perfectly familiar and comfortable with this revenue model. Give content away for free, and run the most efficient advertising program available around it. Old media can't quite get it's head around this, and, since it can't control the vehicle, is simply refusing to play by the new rules.

My sense is that this burst of network demands for fees to distribute "free" content will last only so long as the average life of the existing content's exclusivity to network distribution. Then, watch out. Disintermediation is bound to run rampant, with devices such as XBox and AppleTV to facilitate streaming bespoke video content right off your high-speed connection, through your video switch..ah...sorry.....computer...over your wireless network, to a server (the Xbox, AppleTV, etc.) connected to your television.

Michael Dell's Return as CEO

I would be remiss if I did not remark on this past week's news concerning Michael Dell.

Dell fired Kevin Rollins, Michael Dell's replacement as CEO, and announced the return of its namesake founder.

Of course, the business media was awash in stories concerning whether Michael Dell is the right CEO for Dell, whether he can turn the company around, etc.

Frequent readers of this blog will not be surprised by my own opinion on this matter. In the many prior posts I have written (search on the word "Dell" to see some of them) about this company, I have expressed my belief that the firm's business model's best days are behind it.

Today's Wall Street Journal carries a piece in the Marketplace section, on page B4, by Joann Lublin & Erin White. Under the "Theory&Practice" column, they discuss Dell's return from the perspective of other founders returning to rescue their floundering companies.

Frankly, I find the piece to be of no value. Whether a lot of founders are returning to their companies or not, the high-profile cases are very few in number, and, thus, statistically meaningless.

My own opinion is that it's better to look at the type of product or service involved, rather than the class of phenomenon, i.e., "returning founders and their successes."

Consider, for example, Ted Waitt, of Gateway, Mark Eppley, of LapLink, and Charles Schwab, of the company that bears his name.

Waitt's company shares the same product space with Michael Dell's, and has had a similar fate. Perhaps more cataclysmic, and earlier, due to the differing sales models, but, still, it's clear the era of expensive, custom-build PCs delivering consistently superior total returns is behind us. In their prime, I owned both Gateway and Dell in my portfolio, so successful was each. But that was more than seven years ago now.

Eppley's product has been eclipsed by technology. Period. Who would even bother with a dedicated PC-to-PC cabled product anymore? I'm no expert, and even I plumped for a wireless network in my home last year. So Laplink's bankruptcy filing, as of 2003, did not surprise me.

Schwab's case is different, due to its being in the discount brokerage space. It was firmly glued to the rise, and subsequent fall, of market-bubble day-trading volumes by retail "investors" in the late '90s. True, Schwab has apparently refocused his firm on discount trading. However, as a customer, I have been the target of unwanted 'wealth management' advice which, honestly, I do not find credible, coming from Schwab. Looking at a price chart for Schwab and the S&P500, I can't help noticing that, once again, Schwab's total return performance is tied to market volumes and bull markets. Maybe "Chuck" has turned the firm around, secularly, maybe not. I don't think one could tell in the midst of this rising market.

But, back to Michael Dell. As wonderful and focused as his points were, in the leaked memo which was described in today's Journal, I don't think he'll make much of a difference in terms of returning his firm to consistently superior total returns.

Consider this. If it only takes one person to fix Dell, then how stable is the whole firm? How attractive and reliable should investors consider a firm which rises or falls on just one person, the CEO. And only the founder as CEO?

If, on the other hand, the fault lies with the markets and the business model, and not just the CEO, then what magic does Michael Dell possess that Kevin Rollins did not? Is it just personal magnetism, and pride in the company name? I think Michael Dell is a gifted and effective business leader. He absolutely earned his sizable fortune through smart business management and hard work. He may restore profit margins for Dell, and maybe some revenue growth, as well. However, the salad days of the product/market are simply gone.

As I wrote in this September 4th post last year, after shopping for a new laptop for my daughters, Dell simply missed the changes in consumer behavior with respect to requiring customization, hand-holding, and resisting instant gratification in the form of leaving a store with a PC or laptop that day.

So, while I personally wish Michael Dell success in his attempt to fix what's wrong with his company, I doubt his chances, and I don't think that, even if he enjoys some success, it will do much for long term consistent superior total returns for his shareholders.

Business Media Developments

Last week, I was poking around on blogs which discuss business media and various on-air personalities, such as Erin Burnett, Becky Quick, Maria Bartiromo, as the Citigroup-Maria Bartiromo-Todd Thomson-CNBC situation seemed to play out.

I guess I'm the last person on the planet to learn that Fox is reputed to be planning the launch of a business-only channel to compete with CNBC. Even my partner responded to my remark about this as 'old news.'

Several blogs discussed how Maria Bartiromo has besmirched the reputations of on-air female reporters and anchors with her activities, including her alleged, very public dating of the married former Citigroup exec, Todd Thomson. Additionally, one blog alleged Bartiromo is attempting, or did attempt, to trademark the phrase "money honey." Again, my partner confirmed this, saying he remembered reading some reference to it in the New York Times last month. So it's a very recent development, set in the current context, not some story from several years back, when Bartiromo was referred to via that phrase more commonly. That this trademark story is true makes you wonder what sort of undercurrents must be swirling among the on-air staff over at CNBC, with such a prima donna in their midst.

In any event, widely-held expectations appear to be that, should Fox be planning a new, competing business network, they would be obviously targeting any disgruntled, underrepresented CNBC anchors, such as Erin Burnett. This could become an interesting development in many ways.

If Fox takes its usual hard, analytic look at business, in contrast to CNBC's increasing focus on business and investing as entertainment, they could very well dent the current market leader's share. Not to mention give business leaders and pundits an alternative perch from which to speak, perhaps relaxing the choke-hold that CNBC currently seems to have on business interviews. Maybe Fox would even consider eschewing CNBC's format of digging up and presenting ever-more unknown "analysts" and "experts," and, instead, retain fewer, first-rate consultants to opine on important business news stories and developments.

It is, however, sad that so many observers feel that Fox needs to recruit its own attractive female on-air anchors to realistically compete with CNBC.