Yahoo's Disappointing Results

Yesterday's Wall Street Journal carried the following piece:

Yahoo Slumps on Earnings Drop

Shares of Yahoo sank $3.78, or 12%, to $28.31 on the Nasdaq Stock Market. Investors have pushed up the company's stock price in anticipation of Panama, its overhauled online-advertising platform, but Yahoo said the financial benefits of the system won't materialize until the next quarter.

I cannot say I am surprised in the least. Susan Decker, the new CFO, notwithstanding, this seems reinforce Yahoo's inability to pull a consistently superior-performing business out of a collection of various online initiatives.

In this case, the blame is placed on their new ad system. Even if Panama had delivered, does anyone expect Yahoo to overtake Google in this product/market? I don't think so.

As the Yahoo-sourced chart above, comparing Yahoo, Google and the S&P500 demonstrates, the Yahoo has plateaued for the last two years, while Google has outperformed the index from its IPO date.

In this post from March, I discussed how Yahoo had squandered its rich deal with AT&T in 2001, only to have it about to be renegotiated upon its expiration next year. Yahoo failed to use the funds to develop either leadership in the areas in question, or new services which would continue to differentiate it in the online marketplace.

Now, one of the few paying services it has, online ad sales, is faltering as it tries to compete with Google and Microsoft. Perhaps it's time for the Yahoo board to consider replacing Terry Semel, before the only major decision they have left is to whom to sell, or with whom to merge, to salvage some value from the Yahoo brand franchise.

Time Warner's Big Cable Decision

Yesterday's Wall Street Journal featured an article in its Marketplace section which reported that Time Warner is seriously considering unloading its cable holdings. CNBC, as it often does, due to its alliance with the newspaper, featured a discussion of the article. At least one fairly on-air-headed anchorperson wagged her tongue about the 'fat cash flows' from Time Warner's cable businesses.

That, of course, misses the point. Public companies are not run for cash flows, because, in a capital market which is liquid, cash can be borrowed. Shareholders rarely seem to buy stocks for dividends, as they did thirty years ago, when transaction costs were exhorbitant. Instead, stocks are viewed with an eye to total returns.

There was one key passage in the Journal article that says it all about Time Warner's situation,

"For years, Time Warner has believed in wedding its movies and television programs to powerful distribution networks- primarily its cable operation- as a way to ensure that their content wouldn't be blocked by rivals. But with the Internet increasingly serving as a home for TV and film offerings, content companies may feel they no longer need to control old-style distribution networks such as cable or satellite TV."

In prior posts, here, and here, plus a handful of others you can find by searching my blog for the term 'Time Warner,' I have argued that old media, as represented by Time Warner and the networks, have ignored the coming, now at hand, disintermediation of broadcast and cable channels by direct URL access.

My post yesterday concerning H-P's entry into the hardware product/market space for this missing link portends just how broad this disintermediation is likely to become- quickly.

Taking all of this into account, I can only marvel that Time Warner has dawdled as long as it has to come to the realization that its cable assets are about to become as 'valuable' as the old Bell System's local copper loops and land lines. Being a common carrier is simply not likely to earn consistently superior returns in the future of direct video content access from URLs on the internet to a TV.

Beyond that, Time Warner's strategy of attempting to own both the distribution and the content was never fated to work well. It never has, and never will. I've written about this as recently as February of this year, here. Essentially, superior content will always find a market. Superior carriage will always command a premium and have supply. Owning a mediocre combination of both assures that, in time, both will fail to provide consistently superior returns.

I've included a Yahoo-sourced chart of Time Warner's past five-year stock price performance, compared with the S&P500. It's pathetic. The firm's stock price has ended up essentially flat, having plunged early on, plateaued, then rose, and now sunk again. It has woefully underperformed the index over the period. It's hard to believe the firm's senior management and/or board has been attentive to its long term prospects.

The Journal article alleges that the two-pronged strategy involving holding cable assets is CEO Parson's preference. That figures, since Parson's has pretty much bumbled the management of the combined Time Warner-AOL since he took over from Gerald Levin. Parsons is a lawyer with no evident grasp of business strategy.

Thus, it's no surprise that Time Warner might be as much as five years too late in exiting cable systems and using the resulting funds to buy into online properties at lower prices than today's.

HP's Entry Into Web-TV Integration

This past weekend's Wall Street Journal featured Mark Hurd, H-P CEO, as its customary interview.

It's a nice piece, and Hurd seems like a fine CEO. But what really drew my attention was this little passage,

...Hurd points to H-P's new MediaSmart HDTV, which can receive entertainment directly from a PC, as a glimpse of where the company is headed: "to integrate content across the home, whether it's emanating from the Web, from satellites, from cable, or the PC, and bring that to the consumer's touch."

Then Hurd reportedly said that he'd 'probably just told you more than I should have...'

This pretty clearly positions H-P to be in the running, with Apple and TiVo, to market the missing link in video content for the home. That is, the server with wireless access to high-speed cable, et.al., and wired delivery of downloaded and stored content onto home video devices, such as television screens.

In this respect, H-P is certainly morphing itself from a collection of old, force-fit computing platforms (DEC, Compaq), into a competitively-positioned, modern technology-producing device manufacturer. H-P will probably never be the Windows-based equivalent of Apple when it comes to novel and beautifully-designed digital devices, but it seems to be heading toward that ideal under Hurd.

This is great news for consumers, and uncertain news for investors. Were Apple to have had the AppleTV space all to itself for an extended period of time, its investors would probably be ecstatic. The way things are shaping up, though, it looks as though at least TiVo and H-P are going to be joining in, with who knows how many other solution providers on their collective heels.

Does this not bode well for: rapid technological advancement in the product space, falling prices, and ever-wider distribution points for the devices? Perhaps they will be the coming years' equivalent of large, flat-screen TVs for the big box electronics retailers?

Time will, of course, tell all. But personally, I'm excited to see so many technological resources being poured into this rather obvious 'missing link' device space. It should speed the demise of cable companies, push the creaky old media video content owners into a final solution, and provide, at last, a nearly seamless way of acquiring, storing and viewing/consuming digital video content.

Seeing as how I mentioned the cable companies' upcoming dilemma, and noting today's Wall Street Journal piece concerning Time Warner's deliberations on that business, I will write about that tomorrow.

From The Files: Edward Prescott on 'Competitive Cooperation'

When it's been a slow couple of days for business strategy or equity markets news, I often turn to a pile of choice articles I have saved from earlier editions of various business publications.

Today, I want to touch on an excellent piece by Nobel Laureate, and periodic Wall Street Journal contributor, Edward Prescott. Back on February 15 of this year, Prescott wrote about 'competitive cooperation,' with the just-turned-50 European Economic Union, the product of the 1957 Treaty of Rome.

Among the many pieces of economic data Prescott cites, these are some of the most compelling. The original six Common Market countries progressed from having a productivity level that was 55% of that of the US, to having achieved rough parity twenty-five years later. However, three countries which did not enter the pact- Denmark, Ireland and the UK- but were near parity on productivity with the six in 1957, fell behind. The same trends held true for subsequent signatories to the Treaty in in the 1980s, '90s and this decade.

Prescott continues the analogy by noting the progress made in Australia and its trading partners in Southeast Asia. The glaring laggard geographic area is Latin America. There, Prescott cites the region's preference for protectionism as having predictably 'poor' results and consequences. Specifically, referring to research by some of his Minneapolis Fed colleagues, he writes,

".....from 1950 to 2001, per capita GDP for Europe increased 68% relative to the US; Asia increased by 244%, while Latin America decreased by 21%. This is all the more striking when we realize that Latin America's per capita GDP actually exceeded Asia's by 75% in 1950."

Prescott sums up his article by noting that protectionism's short term seductiveness inevitably has disastrous long term consequences for relative and absolute wealth creation. Getting the flywheel of economic development and growth going is key, and protectionism tends to slow that flywheel down and cement existing economic conditions in place, while the rest of the competitive global economies move forward.

With this point in mind, I will close this piece with a quote from the beginning of Prescott's editorial,

"If the government has any economic role at all, surely, this.......(to protect US industry, employment and wealth against the forces of foreign competition).....must be it. Actually, no. Government has a higher calling in this country...which is to provide the opportunity for people to seek their livelihood on their own terms, in open international markets, with as little interference from government as possible."

While Prescott is understandably vague on the particulars, I'll be more blunt. At a time when the US Congress has been taken over by liberal Democrats, and their economic protectionist and income redistribution agenda, this sage advice is more crucial than ever. It's a big mistake for government to attempt to manage the how of economic activity, in hopes of attaining a collective economic welfare. The names we have historically used for that vary, but include socialism and fascism.

Rather, the US has historically allowed its citizens to determine the organization of economic resources, as well as own them, while simply setting some minimum, and minimally changing, guidelines within which to pursue their individual economic welfares. If we depart from that history to any great degree, thanks to the current Democratic Congressional agenda, I fear that Prescott's warnings will ring true in America quite soon.

Another Take on Local TV Stations & The Internet

Last June, I wrote a post about consolidation in the local TV station sector. In part, I wrote,

"I can't help but see a parallel to the troubles and solutions of daily newspapers a decade or more ago. Papers began to share printing plants, and, essentially, become differently positioned products freelancing off of the same production assets. It would not surprise me if local television stations, including the major city stations, do the same.

... I'd expect that, over the next few years, competing local broadcast stations will pool their facilities and news gathering, perhaps simply merging into one station per local market. If not the latter, then at least sharing all possible resources, save on-air staff, content selection, and idiosyncratic local programming.

Yet another example of Schumpeterian dynamics at work without any overt organizing entity to guide it, save technological change and consumer behavioral responses."

A recent Wall Street Journal article updated the situation, noting how many TV stations are losing ad revenues faster than they can transit to web-exclusive content.

But this time, what struck me, in addition to my prior observations, is that there is no particular difference between the online presence of a newspaper, and that of a TV station. Once they both go to the internet, how could you tell which is which, if they weren't labeled? I suppose, initially, because one would feature more writing than the other. However, I'm not sure that will last.

Because online is a medium tailored to video, won't both morph in that same direction?

Last year, I foresaw multiple TV stations in a single market combining online. Now, I wonder if we won't see all, or most, print and TV assets/organizations combine online? Essentially, both types of local information media companies are struggling with the web's erosion of all of their exclusively non-local content.

Isn't the obvious solution for them all to simply combine into one new media outlet? Further, if one were starting up a local information content business, wouldn't you just develop a web-based multi-media site? Offer written pieces, news, editorials, video news, ads, and local commercial, community, etc., information? Of course you would.

I can't see much meaningful differentiation in local print or video media, once it moves onto the web. Seems to me the consolidation has at least one more important step to go.

Question is, where would that leave the local affiliation to a broadcast network? Would it even have economic value anymore, in a world in which every entity, whether local media outlet or network, can provide its own content on separate websites?

Citi's Ongoing Troubles

The big news out of the financial sector this week seems to be Citigroup's latest efforts to resolve its ongoing troubles.



This time, reports have it firing 17,000 people, or about 5% of its staff. Of course, various expense equivalents are presented, and bandied about by analysts, to demonstrate the intended effects on Citi's future performance. One waggish brokerage analyst was so bold as to cry for 80,000 job cuts, to arithmetically bring the firm's revenue/employee in line with Citi's competitors.



Then we have the solemn intonations of every talking head and analyst in sight that,



'this is only half the job.'



Thanks for that. The rest of us would have forgotten that Income Statements begin with the revenue line. God save us from arrogant analysts.

Appearing, from first to last, in this post, are five Yahoo-sourced price charts (click on any chart to view a larger image) for Citigroup, Chase, and the S&P500 Index from 12 months to 30 years. What is clear from the broad array of charts is that, over most timeframes, these two former money center, now universal banks, are typically subject to the same market forces. On occasion, however, one or the other will perform a bit better than the other.

Lately, Chase has done better. So much so that, contrary to my wildest expectation, it has been selected in the high-growth component of my equity strategy's portfolio for April of this year. It's very rare that a large, diversified financial services firm would perform in such a manner as to merit this inclusion.

Citigroup, however, seems to have lost ground most recently at the beginning of this year, for a performance penalty of roughly 10 percentage points over the past year. The five-year view shows the two firms to be roughly equal, while the thirty-year view displays Citi's recent flattening, along with Chase.

So, in a sense, Citigroup does need to address its high-cost operating issues. However, given that, according to my proprietary research, revenue growth is key to long term, consistently superior total return performance, I wonder how capable Citi will be of revenue generation, in the wake of its expense surgeries? If, as many call for, the company cuts further, it almost has to affect the firm's ability to generate revenues at significantly higher rates.

Further, the company has reshuffled senior executives, adding several, and generally given the impression that nobody is in charge.

As I have written in earlier posts about these scale and banking, it may well be that neither firm is capable of long term outperformance of the market, at their current sizes. Prince is an ineffective executive, and has been given, in my opinion, far too long to do his job. However, it is a rather tall order to wring consistently superior performance from these financial concerns. Even Dimon, at Chase, deserves little credit for its current, perhaps temporary, out-performance, since he only took the helm there recently.

Bottom line, as one might say, I would not bet on Citigroup's recent actions to return it to consistently superior total return performance any time soon.

Investing: John Bogle's Book & Oppenheimer's Fund Activism

Today's Wall Street Journal carried two interesting pieces on investing.

The first one that caught my eye was a review of John Bogle's The Little Book of Common Sense Investing, by Burton Malkiel. Apparently, there is a series of Little Books, and Bogle's is but one. Malkiel, a financial maven of no small repute, recommends Bogle's volume over those of Joel Greenblatt and Christopher Browne. The former has received good reviews, so it's no minor thing that Malkiel makes this recommendation.

Perhaps the most revealing part of the book, to judge by Malkiel's review, is Bogle's no-nonsense chapter entitled "The Grand Illusion." In it, Bogle provides an analysis of why the average investor earns so much less than the market rate of return. Parenthetically, last week on CNBC, Schwab Chief Market Strategist Liz Sonders noted, based upon Schwab research, that frequently-trading investors earned, on average, as little as 4-6% per annum, versus the S&P index's long-run 10-11% per annum average. That's a stunning differential.

In effect, Bogle, at a stroke, explains why the 'average' investor has no business owning almost any equities directly. For so many reasons involving management and timing, well beyond simply selection issues, s/he typically underperforms the market. Of course, from Bogle's perspective, being the inventor of the passive (sector) index fund concept, this is heartbreaking.

Further on, Malkiel chides Bogle for resisting ETFs. But it's my sense that, whereas Malkiel gives the instrument a pass on tax efficiency bases, Bogle objects to them simply on principle. Anything that facilitates more frequent trading and, thus, opportunities to mis-micro-manage their investments, is a bad thing, in his opinion, for the average retail investor.

The other piece of interest to me is the article on Oppenheimer's mutual fund's involvement in the management shake-up at Take-Two Interactive Software. As I wrote here recently, and here, over a year ago, I see essentially two polar positions.

The first is that of minority shareholders who are simply price- and management-takers. I'm one of those. I buy shares of companies for their existing performance prospects. If those change, I sell. I don't really care to have any truck with affecting their operations.

The second is that of shareholders who, even if technically a minority, hold, like Oppenheimer's fund does, a very large chunk of some company. In Take-Two's case, it's up to 25! I would hazard to guess that, combined with the hedge funds, with whom they are collaborating, Oppenheimer's shares are part of a majority of shareholders.

Thus, I say, bully for Oppenheimer & friends! Really. If you're going to own a quarter or more of a company, you are responsible for oversight. You'd better have a board seat. You are, in effect, a shadow management. I think this is one instance in which mutual fund activism is warranted. Once you get past the dubious wisdom of a publicly-traded fund owning 25% of a smallish, illiquid company.

New Competition for Apple's iPod

Yesterday's Wall Street Journal featured an article describing the latest attempt to dethrone Apple's iPod franchise.

The device in question, the "Sansa Connect," is an MP3 player from Zing, a startup founded by an ex-Apple senior developer, combined with SanDisk and Yahoo.

According to the article, the leading 'wow' feature of the Sansa Connect is its wireless connectivity. Apparently, though, the main method of using the Sansa Connect is to rent music from Yahoo for $11.99/month. Music is downloaded in pre-packaged mixes from Yahoo, rather than on a song-by-song basis, as with iTunes.

According to Ian Rogers, general manager of Yahoo Music,

"We want to be the music dial tone for connected devices."

OK. Sounds puzzling to me, but perhaps I'm not a member of their target market.

What strikes me about the Sansa Connect, however, is how it seems to demonstrate an innovation-related idea I first conceived back in 1984 or thereabouts, when I was with AT&T. At the time, it occurred to me that one of the very major advantages of a first-moving innovator was that s/he faces an unploughed field of opportunity. Given some sort of technological or feature/function innovation, the first entrant can pretty much move in any direction.

However, second and later entrants are restricted by existing market positions and strengths of earlier innovators in the product market. The image I had was of a farmer allowed to plough new furrows in the field of opportunity, but none of which could cut across existing furrows of other farmers/earlier entrants.

As such, Sansa Connect seems to be grasping at a few technological frills, such as wireless downloads, while omitting the powerful, simple and useful features of iTunes. It can't apparently offer owned music, nor individually-selected artists, songs, etc. But you can download wirelessly. Yessir.

It's a curious approach to taking on the juggernaut that is now Apple's iPod franchise. Somehow, for me, it befits Yahoo's perennial 'day late and a dollar short' style in most of what it does. I suppose Zing will sell some hardware, as will SanDisk. But, once again, I expect Yahoo to come up short in yet another product/market. Not to mention that it seems to stretch the company pretty thin, to be competing with Google on one hand, and Apple on the other. Even savvy, deep, talented managements would, I think, have their hands full pulling this off. How Yahoo expects to do so is beyond my understanding.

Diebold and Jim Collins

Carol Hymowitz wrote a piece in today's Wall Street Journal reviewing CEO reading lists.

Leaving aside her assessment of the new trend in these reading lists, away from celebrity authors and CEOs, and back to basic business operations, I did observe one oddity.

Hymowitz, whose work I generally like, spotlighted Diebold CEO Tom Swidarski. He allegedly returns frequently to his dog-eared copy of Jim Collins' "Good to Great."

Maybe Tom should toss the book and try another author, because, juding by Diebold's performance over the past five years, and longer, whatever he's doing isn't working.

According to the Yahoo-sourced charts above, for both five years and going back nearly twenty years, Diebold has failed to outperform the S&P500. I suppose with dividends, Diebold may have eked out a slight edge. However, it's recent performance has clearly been inconsistently mediocre.

If Swidarski is using Collins' ideas, this doesn't speak well for them. As I noted in this post, Collins' work has some very serious problems. It does not seem to translate well to a multi-period, total return-oriented world.

I wonder if Diebold's performance is indicative of what happens when CEOs try to apply Collins' insights and 'findings' in a real company, ex ante?

CNBC's Confusion On The NYSE Floor

This morning, one of CNBC's anchors (Liz Claman, I believe), promised that their floor reporter from the NYSE would have 'the scoop on all the hot trading buzz,' or some such verbiage, while waiting to speak with Diana Olick.

There's just one problem. The camera was panning over the mostly-empty trading floor at mid-morning. As has been reported for months now, the place is fast becoming a ghost town.

Many of the old floor-handled trades are migrating to the electronic Archipelago system.

Ooooops! Claman demonstrated her typical on-air headed confusion by forgetting the reality of what is happening to equity markets around the globe.

By insisting that the floor is a font of wisdom and knowledge for viewers, Claman once again provided evidence that most of CNBC's air time is spent entertaining viewers, not informing them.

This is why I pay attention to CNBC for just two things: actual 'news;' and the occasional interview with a well-known, respected and savvy pundit. Otherwise, it's just background noise.

Still, I wish these people would get their stories straight and at least be up to date on the changes in the exchanges they cover so meticulously. Is that too much to ask?

Potpourri: Schumpeter & Leon Black's Apollo Group

As expected from the recent quasi-public offering of Blackstone Group shares, its competitors are lining up to cash in on the current premiums for private equity firms.

According to yesterday's Wall Street Journal, the latest private equity shop approaching the market valuation trough is Leon Black's Apollo Group. Apollo has done some indirect public issuances in smaller ways over the last few years, but, now, it is rumored to be unloadi....er....issuing....shares in its main operations.

Allegedly, Leon Black doesn't want to jeopardize his company's valuation by mimicking Blackstone, so he is reported to be leaning to selling unregistered shares to institutional investors. This provides some time for the market to forget about Blackstone before the Apollo Group shares could be registered and traded. Meanwhile, Leon & Co. would be counting the cash from the sale of 10% of their firm.

The land rush is on! Of course, as is typical with financial services trends, need we be reminded by something other than the current sub-prime lending debacle, most trends end in underpriced risk for assets. It's likely that private equity IPOs will be no different.

Come a year or so hence, one of the lower-tiered private equity firms will probably issue public shares and promptly tank, sparking immediate and huffy calls from Congress for "an investigation."

On a more upbeat topic, today's Journal featured an interesting profile of Joseph Schumpeter, one of my personal favorites among economists. Much of my own proprietary work is based upon my readings of, and insights gained from his early work in the 1920s. While the review of Thomas McGraw's book discussed both the professional and personal aspects of his life, I particularly enjoyed the author's focus on Schumpter's beliefs on the ultimate fate of free-market capitalism.

Briefly, Schumpeter felt that, in time, capitalism's superb ability to create societal wealth would be overtaken by its effects on those creatively 'destroyed' in the process. Much like an Ayn Rand novel, he foresaw ungrateful, misunderstanding pseudo-intellectuals, many of whom owe their wealth to his principles, attacking the system for its very successes.

Of equal interest to me was Schumpeter's prescience with respect to monopoly power. He correctly predicted, a la AT&T, Xerox, and Microsoft, that monopoly power did not need to be regulated, because it would tend to die of its own weight, under the attack of new, more technologically-adept competitors. Considering the now laughable concern over Microsoft's browser antics, Schumpeter's clarity of vision on this topic is remarkable.

Even today, a good 80 years after some of his most important work, Schumpeter is still over the heads of most of our politicians, legislators, and regulators.

More On Starbuck's Expansion

Tuesday's Wall Street Journal featured a very good piece describing the tactical considerations involving how Starbucks sites new stores.

As with most business operations, the details of each site's size, funding, and expectations paint a picture of how the company uses its knowledge of consumer behavior to capitalize on its brand, and drive growth.

Thus, one observes the phenomenon, written about in the story, of as many as three out of four corners of an urban intersection sporting a Starbucks coffee store, of one size and ownership or another.

This reminds me of nothing so much as the late-1980's growth of another fast-service, convenience-oriented purveyor of morning comestibles- Au Bon Pain. Many years ago, the Journal featured a similar article on that older chain. At the time, I traveled to Boston frequently on business, and noticed the saturation of the Downtown Crossing area with Au Bon Pain stores.

If I recollect, the chain found pretty much the same behavioral information on its customers as Starbucks has on theirs. For many urban areas, total sales actually rose with a saturation of stores, rather than splintering a seemingly-fixed demand among more outlets. Traffic patterns and purpose-specific visits allowed for more sales as the brand was more conveniently placed in the paths of more consumers.

Even Coke knows this, as its CEO has recently articulated a goal of putting a Coke within some very short distance or time period from every thirsty consumer on the globe.

It's hard to say whether or not this type of attention to operational detail and consumer behavior will result in Starbucks' total return reversing its recent stall, as depicted in the Yahoo-sourced chart (click on the chart to view a larger version) at the beginning of this post. I wrote much the same in my piece on Schultz's now-infamous memo, back in February of this year, here.

So, while I applaud Schultz's honesty about the changing nature of his brand's face, and his minion's careful study of consumer behaviors in their siting and expansion of outlets, I remain sceptical (hey, I am "the reasoned sceptic") that these well-intentioned efforts will reverse the firm's fortunes, and its senescence, on behalf of its shareholders.

The New Anti-YouTube Consortium

The recent alliance of MySpace (NewsCorp), NBC, AOL, Microsoft and Yahoo for video clip distribution, obviously presents a competitive presence to Google's YouTube unit.

The Wall Street Journal article on the subject, from 23 March, included this passage,

"This is a game changer for Internet video," said News Corp. President Peter Chernin in a statement announcing the deal. "We'll have access to just about the entire U.S. Internet audience at launch." News Corp. and NBC said the four portals account for 96% of the monthly U.S. unique users on the Web.

In the past, I have found Peter Chernin to be distinctly "old media" in his outlook, and I believe that continues here. Despite Chernin's rather pompous statement, I'm not at all sure the alliance is a "game changer."

If anything, YouTube was and is the "game changer." Does anyone seriously think this recently-announced alliance would have occurred, but for the competitive pressure and observed consumer behaviors brought about by YouTube's popularity? When Google bought it, that only added to the sense of urgency on the part of old media interests who own old content. My prior posts about this, found by clicking on the labels for "old media" and "new media," discuss some of these issues. Older, as-yet unlabeled posts, do so as well. Of the newer ones, this one, here, perhaps best reflects my thinking.

That is, this alliance reflects a broad "hunkering down" of old media behind its own walls, hoping to stave off the inevitable move by consumers to view short, compressed video clips of its own choosing. Paul Kedrovsky has likened this to the Napster-originated trends that have eviscerated the music business sector of late.

So, if anything has been game changing, it would seem to be YouTube's allowing consumers to expect short clips to be viewable for free.

However, take a step back, and ask yourself, 'what do the alliance partners stand to gain by their rejection of YouTube, that they could not have had through an alliance with YouTube?'

It seems to me that it is simply advertising revenues. Pure and simple.

Like Amazon, or eBay, YouTube has staked out, developed, and established a single, highly-visible, valuable piece of online real estate. For all Chernin's puffery, consumers go to YouTube for video. They go to the other sites for a plethora of needs, but it's unclear that video is one of them, or a salient one. Visits to the various sites are not all 'equal,' in this sense.

More to the point, do I, or most consumers, really want to have to guess, or try to keep straight, which sites have which content? When visiting YouTube, I just search, and view. Pretty much any significant, recent news clip will be there. Plus much entertainment, as well. How do I determine, in advance, the URLs and specific content type of each of the 'alliance' sites?

I still contend that the networks', and all video library owners,' best alternative was and is to revenue share with YouTube and distribute on that site. It's unclear that the financial economics of all these other video distribution sites will pan out, whereas, when they are concentrated on a provider's site, the content owners simply collect a payment for their share of ad revenue, plus any sales revenues from consumers who choose to buy the clip they are watching on YouTube.

So, in conclusion, I think that I am underwhelmed by the NewsCorp-Yahoo-NBC-MSN-AOL alliance. It smacks, to me, of old media trying, once more, to lasso a consumer behavior trend that is already out of the gate and roaming far afield from the old consumption models for video content.

The Street.Com On Dell: 'Who Cares?'

I admit, it's not something I ever thought I'd be doing. But I have to write a post to compliment The Street.com.

Finally, someone there said something with which I can strongly identify. Not that I ever expected it from staffers at firm, founded by Jim Cramer. But one of their number spoke truth to power last week on CNBC, boldly contending, about Dell's recent malaise and accounting troubles,

'who cares? it's an old tech has been,' or words to that effect.

When the CNBC on-air anchor/interviewer sputtered unbelievingly, and stated that many people have a lot of money in Dell, and it's a big company, the Street guy retorted something like,

'so is Xerox. How big is its market cap? Does anyone think it is a leading tech firm anymore?'

Very well put. Big does by no means equal important. Often, it simply means 'still bloated and primed to collapse like a souffle' when sufficient technological change finally sweeps away the last of its ancient underpinnings. Like Kodak. A victim of corporate senescence. Its best days of profitable growth are in the rear view mirror. Consistently superior returns, if they ever happened at Kodak, are a thing long past.

This is yet another example of Schumpeterian dynamics in action. Dell's model went out of fashion some years ago. The guy from the Street echoed my own analysis, noting that Dell hasn't been an outperformer in many years- nearly a decade. It's not just 'having a few bad years.' It's history, as an outperforming company. So are Xerox, Kodak, IBM, and Microsoft. Their earlier technological breakthroughs are now parts of the fabric of our current world, and no longer offer the potential for consistently profitable growth that distinguishes a consistently superior company in terms of total returns.

The truth is, companies, like athletes, slow with age, then die. Aging may be prolonged. Death may come by acquisition, dissolution, or bankruptcy. But it inevitably comes. In the meantime, watching some companies is like going to a baseball game and seeing the 'oldtimers' play between halves of a doubleheader. I guess somebody has to be CEO of Kodak, IBM and Xerox, but does anyone really care anymore? Personally, I can no longer name those people off the top of my head, as I can with Google.

The guy from The Street.com has it right. These firms may once have been fast-growing, leading tech icons. But now, they are just old, large, slow tech has-beens.

Richard Breeden's New Career: Interventionist Hedge Fund Manager

The weekend's Wall Street Journal carried a piece describing former SEC Chairman Richard Breeden's new career. He runs nine-month old hedge fund which actively harangues the management of its holdings to "improve strategy and governance."

OK, other hedge fund managers spout off about this a lot these days. And I'm on record as thinking that, unless, like Eddie Lampert, you actually buy the company, who cares what some shareholder thinks about corporate strategy? As Holman Jenkins noted, in agreement with me, in an article about which I wrote recently, here, there are plenty of other types of companies to buy, rather than become an activist outside shareholder.

According to the article, Calpers has invested $400MM with Breeden's fund. Yet, Breeden is a novice at this. Reading further, the Journal piece states,

"(Breeden's) basic idea is to take modest stakes in smaller companies whose stocks have been lagging due to strategic missteps, out-of-whack compensation structures or other problems, and then advise management on how to get back on track."

Allegedly, Breeden's efforts at strategy advisory led Alexander & Baldwin, one of his holdings, to listen to him, and the stock price rose 18%.

However, I Googled Breeden's bio, and found that he has essentially no business background whatsoever, save for a brief stint as a legal beagle at the resuscitated WorldCom. And some unspecified work in 'his own turnaround and workout' firm. No strategy consulting stretches at McKinsey or Bain. No tenure as Chief Strategy Officer at some large-cap companies. Nada.

Calpers & company are betting hundreds of millions of dollars on the strategic insights of a non-practicing lawyer.

Breeden has certainly cashed in on the current rage among institutional investors for "relational" fund management. Whether he can actually maintain a healthy margin over the S&P500 returns for more than his first year of management remains to be seen. Given how hard it is for seasoned managers to outperform the S&P, you'd think Breeden has to do more than just run around waving the ethics flag and shouting, in effect, 'listen to me!'

Had I known it would be that easy, and could have gotten tens of millions in client money myself, I guess I could have saved a lot of time and trouble actually researching what corporate performance patterns tend to consistently outperform the index.

Corn Farming, Ethanol. and Innovation

Normally, I read stories about midwestern farmers being myopic or whiny, grasping, transfer-payment-consuming small businessmen. However, the one in Thursday's Wall Street Journal was different.

Instead of the typical subsidy theme, this one featured a dynamic, heads-up Iowa farmer, Mr. Nelson, who epitomizes how innovation can occur, even in something as commoditized as corn farming.

He has already forward-integrated into ethanol production, capturing value with production plants. Additionally, he uses financial futures aggressively to hedge his production income.

To me, this is real progress. An operating farmer who is able to respond to market dynamics, move to add more value than simply growing crops, and use available derivatives and insurance vehicles to manage his income more smoothly.

If someone can do this in corn, and move from being a victim-like farmer, to one who takes advantage of market changes to add more value, then I believe it demonstrates that such behavior is inherently achievable in any product/market.

Parker Hannifin's CEO Discover's Customer Needs

Tuesday's Wall Street Journal featured a wonderful article on the radical new pricing policies initiated by the new CEO of Parker Hannifin.

It's sort of a good news/bad news story.

The bad news is, PH had actually hard-coded a fixed markup percentage into their pricing management software. Talk about inflexible, stupid, and being insensitive to the uses to which your products are put. I can see using a fixed minimum markup percentage, but not a fixed universal markup.

The good news is that the new CEO, Don Washkewicz, has brought an end to this practice, and instituted a 'willingness to pay' style, application-sensitive approach to markups. The customer's applications of PH's seals is now a paramount input into pricing. Thus, the company's marketing and product people focus more, not less, on customers, and their applications of PH's products. PH added $200MM of revenue and income to its P&L in four years, bringing it up to its current $673MM.

Two interesting things were mentioned in this story. First, how inept external consultants advocated PH develop a greater customer service focus, but neglect to accompany that with segmentation, product differentiation, and pricing strategies to pay for it. Second, PH had a total insensitivity to how its products were used by its customers. They knew next to nothing about the real customer problems, applications, and options for which PH's seals were alternative solutions.

In short, a lack of fundamental marketing skills existed at Parker Hannifin prior to Washkewicz's elevation to CEO. Now, PH has such a focus, and I hope it makes an appearance in my equity portfolios soon.

A Kindred View on "Shareholder Democracy"

As I wrote in this post recently, all I really want "shareholder democracy" to mean is that I can buy or sell equity shares, cheaply, into a liquid market, whenever I wish.

Now, according to Wednesday's op-ed piece by Holman Jenkins in the Wall Street Journal, I am not alone. While beginning with the Conrad Black case, Jenkins moves to the general topic of shareholder democracy and corporate governance about 3/4 of the way through his piece.

He wrote,

"Alas, corporate governance has become a new favorite cause of society's forces of self-righteousness. They flog the unanalytical ideal of "shareholder democracy." Democracy is a four-syllable word for "good" in these mouths, but does it really apply in this case of companies whose shares trade on a stock exchange?

Investors, after all, have thousands of companies to choose from, with ease of entry and exit afforded through the stock market....You are equally free to buy buy shares in a company in which control remains with a dominant shareholder whose interests may not be synonymous with your own."

Thus, Jenkins agrees with me on the key point that what is essential is the easy entry to, and exit from, equity positions. Voting on various proxy issues is, he agrees, tangential, because you can, in fact, select from numerous equities in which to invest. Jenkins goes further than I did, pointing out that there are markets for each type of company/corporate governance model.

It's a valid and good, nuanced point. As I have written elsewhere in a prior post, if one is Eddie Lampert, voting is moot. You just tender for the company's shares and own the problem. Short of that, I'm not sure what shareholder voting gets you, but, as Jenkins notes, to each his own. You can find almost any model/structure you wish among various listed equities.

As in the case of Warren Buffett echoing my thoughts on the attractiveness, or lack thereof, of certain sectors, it's also nice to be joined by someone like published columnist Holman Jenkins of the Wall Street Journal in seeing the "shareholder democracy" fad for what it is, and focusing instead on the basics- the freedom to buy and sell shares easily and inexpensively.

The Blackstone IPO : Taking Advantage of the Mediocre

Schwarzman must have been planning the Blackstone IPO for some months. Given how quickly it proceeded after the leak a few weeks ago, it was clearly in the works for some time.

Like my recent post about being 'wrong' now, and 'right' later, when the broad, mediocre middle rushes after you, Blackstone/Schwarzman are ahead of the average investor in realizing the end of private equity as we knew it. Or, if not the end, certainly a peak price for private equity firms.

Schwarzman, Blackstone's CEO, is a very bright guy, and no doubt understands Schumpeterian dynamics all too well. After only 22 years, Schwarzman is not so emotionally attached to Blackstone that he is trying to restructure it as its major market sector undergoes radical change. Instead, he's taking the big payday and acknowledging market forces greater than he can control.

Initially, in my three prior posts, here, here and here, I mistakenly believed that the Blackstone IPO would be for common shares of a listed company on an exchange such as the NYSE. Instead, as I read last weekend in the Wall Street Journal, Blackstone is becoming a master-limited partnership, which is, in a sense, very much like the structure of a hedge fund. Limited partners have no say in the operation of the firm, and, after fees and expenses, share in the income of the organization. Apparently, the Blackstone partnership shares would be tradeable.

Thus, my earlier comments regarding Blackstone's inability to continue to do private equity transactions were in error. However, I believe that those transactions will continue to be less lucrative, as the prices rise.

What I find amazing, however, is that investors are lining up to buy shares of an entity in which they can't even measure risk levels. Essentially, they are buying income 'participation shares,' much like I advocated last year in this post regarding corporate governance and takeovers. But, rather than retaining interest in a previously-public firm, they are buying the equivalent of a blind pool.

In a very real sense, Schwarzman has created the best of both worlds- retaining total control and privacy of operations, while establishing a value for the firm, and cashing out while doing it.

Honestly, I have even more respect for him now than I did before. Not that I would be on the other end of an equity transaction from him. And, correspondingly, I have less respect for the investors who buy the Blackstone IPO shares.

Jim Cramer's Confession On The Street.Com TV

My partner emailed me this YouTube video clip from The Street.com TV's interview with Jim Cramer. Judging by the comments in the beginning of the clip, it took place sometime in December, before the MacWorld announcements of the iPhone and AppleTV.

I think Cramer speaks quite clearly about both his view of, and actions in support of that view of equity markets. According to him, you really need to be wary of any sort of very short term, especially intra-day, stock price trends.

Cramer dismisses various analysts, Wall Street Journal writers, and CNBC's Bob Pisani as mere pawns who will immediately broadcast whatever lies, rumors or tips they are fed by hedge fund managers like Cramer used to be. According to Cramer's view of equity markets, short-term prices are more likely to be manipulated by large hedge funds with the willingness to create false information and the money to create momentum in their desired direction than to be a function of simple supply and demand forces.

After viewing this clip, I think even less of on-air, real-time "reporting" of breaking stories on CNBC. Far from being only entertainment, they may, instead, be a part of a carefully orchestrated market manipulation.

The manner in which Cramer candidly and off-handedly discusses market manipulation, via false rumors and price manipulations, makes me wonder how anyone else can make money day trading, or even trading with timeframes as long as only a week or two. If Cramer is even remotely correct in his description of how the daily equity markets in the US trade, it's ample reason to have a much longer holding period, such as several months. Like the six-month holding period my equity portfolio management strategy uses. Over such a long timeframe, it's unlikely that an equity's total return will be totally a function of market manipulation.

The Fed's Language & Pundits, Analysts and Investors

This week's Fed meeting had a noted and unexpected effect on the US equity markets. Due only to a change in language, not a rate change, the equity markets rose 1.71% on Wednesday.

The logic here is interesting. Essentially, the Fed has indicated that, although it does not currently feel the economy requires a rate cut to help avoid a recession, it is now leaning more toward a rate cut as its next move, than a rate hike.

Since equity market investors react to lower rates rationally, by bidding up prices, the market rose. This is fairly direct, simple economics, with a lot of historical evidence to back it up.

That day, CNBC aired some discussions of the Fed language and rate inaction among various pundits whom they frequently feature. One of those people is Doug Kass, a prominent, bearish hedge fund manager and senior partner at SeaBreeze partners. Kass argued that the rate cut bias now means the economic is in trouble, so equities should begin to experience price declines.

I wrote this post last June, discussing economists, analysts and pundits as they criticize Ben Bernanke and the Fed. It seems very relevant again now. There's only one Ben Bernanke, and one Board of Fed Governors. Doug Kass is not on that board.

Kass' comments provide a view to a strange sort of economic analysis and commentary that seems to be quite common these days. Secondary meanings and tortured behavioral implications gain credibility over the simpler, more direct analyses of various business and economic information.

In this case, the direct analysis is that the Fed is not overly worried about a recession. It simply indicated that it is prepared to move to reduce the probabilities of such an economic development. Rick Santelli, CNBC's excellent Chicago correspondent for interest rate products, noted, correctly, that the Fed will act when it needs to. Otherwise, its words are just that.

On the other side is Kass, and another, lesser CNBC light, economics correspondent Steve Leisman. They both contend that the secondary implication of the Fed's language is that there will be a recession, and the Fed will cut rates, and equity market indices will fall soon. Notice that this interpretation requires the assumption that the Fed cuts rate, but fails to prevent a recession. Two rather significant assumptions, indeed. From second-rate, non-Fed sources.

To many investors, all these opinions may be confusing, and seem equally probable. However, the net effect of investors' behaviors this week demonstrate that they are able to understand the primary implications of the Fed's language and inaction, and believe those.

For now, this is gratifying. With so many more B-team pundits and analysts than A-team counterparts, it's amazing the primary message can sometimes make it through all the noise at all.

Continuing Changes in Consumer Media Consumption Behaviors

Today's Wall Street Journal carried two rather complementary articles.

One of the three page-one columns featured an in-depth look at the decline in music CD sales. The mainstay physical delivery vehicle of the music industry has suffered a decline of between 15% and 20% over the past three years.

In referring to the article this morning on CNBC, on-air co-anchor Joe Kernen repeated NBC-Universal's executive, Bob Wright's, comment, to paraphrase, 'losing analog dollars for digital nickels.'

The rise of Apple's iTunes, as well as illegal file sharing services, beginning with Napster, have finally sapped music sales to the point of actually shrinking physical unit and dollar sales.

The moral of this story, of course, is that, when better alternatives arrive, consumers will migrate to completely new delivery models, if the benefits are compelling. And in music, they are.

The second story also features Apple. Walt Mossberg reviewed, very favorably, the new AppleTV device. Without repeating his review, let me just note that he found it very easy and effective to use.

Mossberg commented on Apple's current software as crippling the streaming of video from your PC to your TV, via AppleTV, except for content already stored on your PC, i.e., legitimately bought and stored as resident files. However, he also intimated that it's just a matter of time, and legality, before Apple pushes software upgrades down the 'net to provide for a wider selection of streaming video.

Think, for example, playing streaming video, bought directly from a content producer's site, through your PC, right onto your TV, via AppleTV.

Now, my consulting friend S believes this is going to be a long, hard slog. That it will be many years before a sufficiently large segment of Americans, or other global citizens, forsake their cable subscriptions and broadcast TV, to access video content in this manner.

Take another look at the first part of this post. I've posted on this topic so often, I probably can't find all the cites myself. If you search the blog for keywords like 'appletv,' 'itv,' 'cable,' etc., you will doubtless find many of them. It has taken just three years for the iTunes model to shove physical music delivery downhill so fast, that all the major retail music chains are gone, the current electronics stores are shrinking retail space devoted to music, and the labels themselves are getting worried about survivability.

Now consider how much more immediate and important video is to many consumers. I just watched my younger daughter spend hours this evening watching Disney channel television program reruns on a wireless laptop connection in this hotel in the middle of the Northeast woods.

I don't think it's going to be long at all before a variety of video content producers collaborate with Apple to allow their directly-purchased content to stream down the path I mentioned earlier, hopping from the PC to the TV.

If physical CDs could be toppled in so short a time, how much less time will it take for video to do likewise to broadcast video and cable networks, once the requisite hardware and software are available?

The Blackstone IPO : Part 3 of 3- Private Equity Going Forward

In my prior two posts, here, and here, I discussed how the expected Blackstone IPO raised issues of motivation and valuation for private equity firms, as well as how the IPO affects the rationale for the existence of private equity firms in the first place.

In this post, I'd like to consider how Blackstone and its still-private competitors may now operate.

Regarding Blackstone, what will now become of its unrelated parts? In a world where the firm frequently was seen as a sort of intensive care ward of the corporate world, hidden from view, how does its imminent new role as a public company affect this portfolio? Can Blackstone still confidently bid on turnaround candidates, or "misunderstood" companies, and patiently hold them among other, unrelated companies and active financial service divisions, such as asset management and M&A advisory? If its former cloak of privacy gave it the wherewithal to do so, is that now no longer possible?

Doesn't Blackstone become just another public corporation bidding on assets of other companies?

If so, does this leave other private equity shops with less competition? But with all the existing private shops, and the liquidity among them, could they perhaps put an end to Blackstone's successful bidding for new assets? Doesn't the still-private nature of the sector's remaining titans, such as KKR and TPG, mean that they can reliably and consistently outbid the public Blackstone for assets, just like Blackstone did in the past?

If a handful of other large, private equity shops, such as, e.g., KKR, TPG, and/or SilverLake Partners, all decided to exit the private equity sector, would that mark the end of the era of such firms and activities? Could it be that they all will aim to cash in their "magic dust" premiums, apparently ascribed to the larger, more successful private equity firms? After all, what is so different, or special, about Blackstone's portfolio of assets and operating units, that makes it unique among private equity firms to contemplate throwing in the towel on their business model?

Could we be seeing a situation in which greed for monetizing current value ironically removes a fear of many investors, regulators, and legislators, i.e., that there will be too few quality public companies in which to directly invest?

Simply put, when one of the best-managed firms in a sector plans to leave that sector, it makes you wonder: a) why others won't do so, too, and; b) whether any decent firms will remain in the sector?

The more I consider these questions, the more I'm coming to the conclusion that Schwarzman and his management team see a confluence of important trends. Premiums for private equity buyouts, due to heightened awareness on the part of boards of targets, are rising, while the expected multiples on the exit end are unchanged, shrinking the expected returns to the sector. Too much liquidity is adding to this return pressure. Thus, excess capacity should be drained from the sector.

Seeing all of this, I think Blackstone's managers see the opportunity to cash in first on their perceived value, while most sellers and investors are unable to yet appreciate that, having done so, the Blackstone they will now own can't create the value of the firm that just went public.

This being the case, we should see a few larger shops follow Blackstone into the public markets, while the remaining private equity firms continue to ply their trade in a somewhat more profitable, if smaller, sector.

Like so many other economic challenges, this one seems destined to be worked out in the free capital markets of its own accord, long before any legislation can affect the sector, its constituents, or the eager investors waiting to pay up to own a share of the newly-public, former private equity giants.

The Blackstone IPO : Part 2 of 3- The New Private Equity Philosophy

This morning, I read through the Wall Street Journal's Monday article concerning the potential Blackstone IPO. Most of the piece seemed to dwell on how many other parties will be upset with Blackstone or Schwarzman over the IPO. There were comments about how investors would react to the large payouts to management and partners. Plus a lot of ink about existing public investment banks getting upset at the rather more brazen competition from the newly-public private equity giant.

However, all that notwithstanding, I am interested in the second of my two topics on this IPO- the new meaning of private equity's philosophy, in light of Blackstone's IPO.

Everyone reading this blog is likely to be very conversant with the world of private equity, and Blackstone, as well as have read several stories by now in various business publications, if not seen endless stories about it on CNBC and CNN. So I won't restate what it is that Blackstone and its ilk do to create the value that they do.

What mystifies me, to be blunt, is how the Blackstone management team will "create" value when their central raison d'etre is gone. When they have to file quarterly reports, be valued as a conglomeration of wildly different businesses, and become hostage to public investors, and their expectations, how will they maintain their 'patient money' credibility and capability?

What, precisely, will the new Blackstone offer managements to buy them, since they can't be 'taking them private' anymore? And what does Blackstone hope to do for a prospective acquisition, since it is now just another public bidder. Does it believe it possesses a superior turnaround staff? Because if the turnaround is in the hands of existing management, then what does Blackstone add to the firm's efforts?

After so many years of ostensibly creating value in a sheltered, patient manner, the firm is throwing all that away in one go. How, then, will it continue to create comparable value going forward? With its complicated mix of financial service and operating parts, how will it be properly seen and understood for value maximization? Won't Blackstone have to slowly, but surely, unravel itself, in order to "unlock" the values of each constituent element, just like the firms from which it has made its money by buying those parts?

If it cannot, or does not, continue to create value through all of these efforts, then is not the investing public buying the prior value creation model, but holding the current/future model? Is this not a classic case of paying for prior accomplishments, while the very environment which allowed those achievements, those returns, is eradicated?

Given that other private equity firms will continue to exist, perhaps Blackstone will have a diminishing share of that activity. Perhaps this is Schwarzman's way of assuring that he and his partners are not the last ones holding the bag of overly-competitive private equity competitors, while the value of the model decreases with time.

If the Blackstone IPO is, in reality, the first significant removal of capacity from the private equity sector, then Schwarzman will probably win again, by attaining a high value for his business, before the true state of the sector becomes generally known.

The Blackstone IPO : Part 1 of 3

The Blackstone IPO that was announced last week has certainly created a wealth of topics on which to comment. There are probably at least three posts in this announcement.

First, there are the questions of motivation and valuation. Second, that of philosophy of the private equity management style. Third, the ramifications of this IPO for the future of buyouts and the now-about-to-be-public private equity firms.

For starters, Steve Schwarzman's decision to reverse course on Blackstone's organizational form is clearly linked to the firm's apparent ability to cash in on its imputed value. The numbers being tossed about value Schwarzman's stake in the neighborhood of at least $800MM.

The weekend Wall Street Journal piece rather caustically contrasted Schwarzman's extolling of the benefits of private equity with the world into which he is about to plunge Blackstone.

The truth is, though, that such amazement is appropriate. I'm not against greed or opportunism. But I don't like inconsistency. Especially not in personal principles.

To me, Schwarzman's entire raison d'etre is now suspect. The party line on why private equity is good for managers, companies, the economy, etc., is now a sham. The 'magic dust' that firms like Blackstone sprinkle on otherwise-normal firms is about to become suspect.

The greed Schwarzman has now displayed will pass, I think, without criticism from the business community, because that community understands power and taking advantage of it when you have the opportunity.

However, that done, what is Blackstone? Isn't it, in aggregate, as messy and undirected as, say, that other financial mess, Citigroup? Or Chase? Only worse

It has trading, asset management, M&A advisory- all the cream financial service businesses- plus a slew of operating companies.

Whatever mythical valuation all of this has when private should, one can be forgiven for supposing, that valuation should shrink as soon as the lot is merely part of a publicly-held, routinely-reporting entity.

It would seem to be the business equivalent of the physics debate about the nature of light- wave, or photon? Blackstone cannot be both preferentially-valued private takeover, rehab and financial services shop, and a public entity as well.

To preserve access in this very small world, it's even possible that media personnel and analysts alike will give Schwarzman and Blackstone a pass for a few months, to a year, before the private equity 'magic dust' begins to evaporate.

I think it's highly likely that Schwarzman sees the rising tide of combative public boards, and takeover prices rising, returns falling, and the eventual compression of his overall business returns.

What better time to move, and cash in, than before the other side becomes fully aware of this sea change?

On one hand, Schwarzman is striking opportunistically and 'fairly,' but, in the same moment, he is transmuting that which he is selling, for a higher value, into something generally conceded to be worth much less and, usually, nightmarish to operate for consistently superior returns.