More Failure Among GE's Spawn: McNerney's Troubles at Boeing

Last year, in June, I wrote this piece regarding Boeing CEO, James McNerney. Arriving in 2005 from GE, via a brief, undistinguished stop at 3M, McNerney was heralded as the savior of Boeing, post-Harry Stonecipher's departure amidst messy and embarrassing circumstances.

In that post, I wrote,

"All in all, an ironic track record for McNerney. It appears that under his leadership, 3M's stock price path remained pretty consistent, suggesting that investors didn't really see much difference with McNerney running the company. The only significant changes were bad ones- the dips in price in this decade.

What is not evident in the McNerney era of 3M is a break with its own past stock price path. It failed to noticeably ignite sufficient investor confidence or interest to move its stock price trajectory above the long term path it has been on for 30 years. That is, until recently when it has uncharacteristically flattened.

Does this portend anything for Boeing? From where does McNerney's credibility come, if this is his recent post-GE track record? Surely Boeing's recent stock price performance doesn't yet reflect McNerney's actions. For the record, it hasn't really changed, either, in several years.I know of nothing negative about Jim McNerney. The comments attributed to him in the WSJ piece seem promising. However, that's about all there seems to be on file to suggest he will lead Boeing where it has not been before this. If 3M is any indicator, I'm not sure I expect Boeing to show any signs of unusually better performance than before McNerney arrived."

Then, last Thursday's Wall Street Journal carried a page-one article discussing Boeing's official admission that delivery of its breakthrough plane, the 787 Dreamliner, will be delayed some six-seven months, arriving in December of 2008.

Indirectly, then, it's been a tough year for ex-GE Chairman Jack Welch. Welch's hand picked successor, Jeff Immelt, as Welch's replacement at the diversified industrial firm, has failed to beat the S&P500 over his tenure. "Iron Mike" Zafirovski, the CEO of Nortel, another former GE star, is struggling. Bob Nardelli was cashiered from Home Depot, becoming the rather inexplicable choice to become Chrysler CEO.

Maybe Jack's way wasn't so good. The only really good performer among companies headed by ex-Welch lieutenants is Boeing.

But McNerney got there after Alan Mulally, now Ford CEO, had put the company back on track to success. The firm McNerney left GE to head, 3M, hasn't exactly set the world on fire.

And now, after McNerney's been at Boeing long enough to make an impression, the company falters. As the Yahoo-sourced price chart nearby reveals, Boeing's performance since late 2005 has begun to stall, as the S&P closes in on it.

Could it be that McNerney is Boeing's "Chuck Prince?" Recall that he came in and extricated the airplane maker from some sordid messes involving bribery on government contracts, as well as simply not being Harry Stonecipher, the disgraced departing CEO.

However, McNerney didn't get the nod at GE. He didn't make a positive impact at 3M. Now, Boeing begins to buckle more than two years after McNerney takes the top post.

The Dreamliner's delay is the highest profile, potentially most damaging setback the firm has had since Alan Mulally left for Ford.

Perhaps McNerney isn't cut out to be an operating CEO. Maybe he's better at various 'softer' tasks, rather than driving significant corporate performance that leads to consistently superior shareholder returns?

People gave Chuck Prince of Citigroup quite a few years after he cleaned up the regulatory mess left by his predecessor, Sandy Weill, before realizing he wasn't cut out to make the financial giant perform.

I guess the next year or so will tell us whether McNerney has similar traits. Or whether he can lead Boeing to better peformance, both fundamentally on the financial statements, and in shareholder returns.

Florida's Bid To Make You Pay For Their Beachfront Home Insurance

Last Wednesday's Wall Street Journal's lead editorial, entitled "The Politics of Disaster," concerned Florida Governor Charlie Crist's lobbying to help pass the 'Homeowners' Defense Act.'

This bill, pushed by Florida Democratic Representative Ron Klein would, according to the Journal editorial,

"force the U.S. Treasury to issue below-market loans to state-insurance programs, while also creating a kind of Fannie Mae of disaster reinsurance, a federally chartered organization called the "National Catastrophe Risk Consortium."

According to Treasury Assistant Secretary Phillip Swagel, "Taxpayers nationwide would subsidize insurance rates in high-risk areas, which would be both costly and unfair."

I wrote about this trend early on in this blog, in a post here, and more recently here.

Honestly, I don't know whether to laugh, or cry about what the Floridians are attempting with this bill.

Basically, we have the following series of events.

Over years of benign hurricane seasons, people flock to the Southern Atlantic and Gulf Coasts, putting homes and businesses in harm's way. Then the hurricanes begin to return, and the losses mount.

As private insurers left the oceanfront markets, state governments, albeit foolishly, stepped in with their own funds.

Of course, if you know anything about insurance, you immediately realize that a state such as Florida, tapping its own resources, cannot self-insure against its hurricane risk. The very storms that are to be insured against by the state's taxpayers will damage the state's economic ability to generate income to....pay for that damage, via insurance claims.

So, having established an under-funded state insurance program, the state is now turning to the rest of us Americans, via federal legislation.

This means that even though you may not enjoy an ocean view from Key Biscayne, the other Keys, or the Florida Gulf Coast, you're going to paying for one soon.

There are several aspects to this story that should frighten all of us.

First, there's one state's attempt to force the rest of the country to subsidize their citizen's inability to afford insurance for the area in which they have chosen to build homes and businesses. Perhaps if they had to pay full freight, they would have located elsewhere, mitigating the entire problem.

Second, there's the unwise federalization of what has historically been a private insurance market. What business activity has the federal government ever performed better than the private sector that it replaced?

As I noted in the earlier linked post,

"The net effect of today's mess of homeowners insurance in hurricane areas is to make all Americans ultimately pay the tab for the difference between what local politicians feel they can ask their ocean-front-dwelling homeowners to pay for insurance, and what private insurers would actually demand for those risks. So you and I, if you don't have a beachfront home somewhere between North Carolina and Texas, pay a form of rent to those who do, but we never get to enjoy their view.

Common sense says that if it's too expensive for a person to afford privately-offered insurance to replace the value of a home built so near the ocean in hurricane territory, then the home shouldn't be built. Not that 'someone else' should step in and pay to make it affordable. How long can we, as a nation, afford this sort of economic idiocy?

This sort of market price signal distortion, on such a grand scale, is bound to come a cropper at some point. It's a good argument for simplifying the insurance market to become a national one, rather than 50 local ones, each hostage to local political appointees who try to beggar their neighbors by capping risk prices in their own states, and attempting to force the insurers to recover the true risk premiums 'somewhere else.'

The way things are looking, this would seem to cast doubt on the wisdom of investing in property and casualty firms anytime soon, if one expects consistently superior total returns."

Third, since the legislation intends to make the Federal loans to the state insurance funds 'forgivable,' you know what this means. Through the Federal treasury, we will all be subsidizing ever-riskier building in a variety of natural disaster zones, since there will be no check on the activity.

So there you have it. One state's dissatisfaction with the reasonable reaction of the private, publicly-owned insurers to their citizen's risky home- and business-building in the path of hurricanes has led us to this. A bill to replace the astute risk pricing and rationed capital with the boundless debt capacity and more (endlessly) forgiving insurance practices of the Federal government.

The only positive about this story is that it might warn one off investing in property and casualty insurers until this matter has been settled, one way or another.

What Is Risk?

A young woman recently told me she wants to learn more about "risk."

In discussing the term with her, I quickly realized that it is used so differently, in so many technical contexts, that she probably has no clear idea just how complex the topic has become.

In an attempt to return to some simpler expression of the term, I sought a definition. On Wikipedia, which is not usually one of my first choices, I found this information,

"Risk vs. uncertainty

In his seminal work Risk, Uncertainty, and Profit, Frank Knight (1921) established the distinction between risk and uncertainty.

“... Uncertainty must be taken in a sense radically distinct from the familiar notion of Risk, from which it has never been properly separated. The term "risk," as loosely used in everyday speech and in economic discussion, really covers two things which, functionally at least, in their causal relations to the phenomena of economic organization, are categorically different. ... The essential fact is that "risk" means in some cases a quantity susceptible of measurement, while at other times it is something distinctly not of this character; and there are far-reaching and crucial differences in the bearings of the phenomenon depending on which of the two is really present and operating. ... It will appear that a measurable uncertainty, or "risk" proper, as we shall use the term, is so far different from an unmeasurable one that it is not in effect an uncertainty at all. We ... accordingly restrict the term "uncertainty" to cases of the non-quantitative type." "


Since it's a quote attributed to Frank Knight, I felt it worthy of presentation here. And, additionally from Wikipedia,


"In finance, risk is the probability that an investment's actual return will be different than expected. This includes the possibility of losing some or all of the original investment. It is usually measured by calculating the standard deviation of the historical returns or average returns of a specific investment.

In finance, risk has no one definition, but some theorists, notably Ron Dembo, have defined quite general methods to assess risk as an expected after-the-fact level of regret. Such methods have been uniquely successful in limiting interest rate risk in financial markets. Financial markets are considered to be a proving ground for general methods of risk assessment."

As a general meaning, I think this is not far from the mark.

To me, risk is the probability, typically expressed via some variant of standard deviation, that actual returns or profits will be less than expected. It is an asymmetric concept, in my opinion.

To use symmetric measures, such as beta, or full, bi-directional standard deviations, is incorrect. Upside variance or deviation is good and, therefore, not 'risk' as we mean it here.

That said, my discussions with others has brought an agreement that the various technical meanings of risk tend to differ because of context.

For instance, I began to describe to the young woman in question, a college student, four different contexts in which one could measure risk: fixed income rating; loan underwriting for portfolio holding; equity investment management, and; institutional trading.

All four scenarios have risk which must be expressed quantitatively and managed.

Rating agencies like S&P, Moody's and Fitch want to minimize unexpected, quick downgrades of their prior ratings. Loan originators and portfolio lenders want to limit negative surprises which cause downgrades of their loans, and the loss of principal. Equity portfolio investors want to minimize the likelihood that a firm's future performance during the expected holding period will be worse than expected. The same is true for traders, although their timeframe is the shortest of the group.

Essentially, risk in its various contexts requires measurement of downside variance of actual from expected returns over different time horizons. Risks which a trader would not accept, may be, and often are, completely acceptable to me, as a longer-term equity portfolio manager.

For me, after choosing the appropriate time over which to calculate downside standard deviations of historic actual from expected returns, these may be used to adjust the actual returns. No matter what the context or duration of holding period, the concept of measurable downside variance, with which to adjust nominal returns, seems to be a valid and transferable approach to describing, measuring and managing risk.

Madonna's New Music Deal

You can say a lot of things about Madonna, but you cannot call her an inept businesswoman.

As Michael Wolfe, of Vanity Fair, opined on CNBC this morning, the one-time Material Girl has made a beautiful timing move, playing off two entertainment distributors and hedging her risk for the next, probably last decade of her career.

In an industry in which music album sales are declining swiftly, Madonna has forsaken a conventional distributor, Warner Music, to sign with Live Nation, a concert promoter, for $120MM.

The singer's advance is $17.5MM for the 10 year pact, which weighs in at a nice million dollar-plus annual compensation. Madonna then receives 90% of concert admission, 50% of licensing revenues, and 70% of merchandising revenues.

In some ways, this deal reminds me of Howard Stern's contract with Sirius. The talent ends up taking more risk then the distributor, because a failure of the latter to perform leaves the former short of promised revenues and having nobody to make good on the contract.

Nobody seems to think Warner is making a mistake letting Live Nation take this deal. Madonna is, at best, a matured entertainer. Never exactly a signature voice to begin with, she's extended her career with ever more risque acts in which to position her rather uninteresting voice and commonplace songs.

Whether she will pay off for the concert promoter is anybody's guess, but Madonna certainly seems to have paid off for Madonna.

No matter how quickly recorded music continues to fade as a revenue source, she's locked in a rich price for Live Nation's right to present her artistic efforts for the next ten years.

If only the CEOs at some of our larger companies, like GM, GE and Ford, had the Midas touch that Madonna has.

Some things just aren't taught in school, are they? Or, evidently, by Jack Welch.

Auto Makers, The UAW & CAFE

Holman Jenkins wrote a superb editorial in yesterday's Wall Street Journal on this topic.

In his piece, Jenkins points out the forgotten burden still bedeviling Detroit's auto makers- government-mandated CAFE standards.

Much as I argued in my post yesterday, here, that government works best when it simply sets minimal standards and allows people to create value, I feel, like Jenkins, that the CAFE concept is an abomination which violates this idea.

In an ideal world, people would be free to choose whatever mix of automobile features they wished, including the vehicle's gas mileage. Each person's individual weighting of this feature would be their own.

Not so in our real world. In our world, do-gooding legislators have decided what the range of fuel economies will be among vehicles you will be allowed to purchase.

As Jenkins so elegantly puts it,

"One analyst shop, Global Insight Inc., reckons that under a realistic CAFE scenario, by 2020 one-third of the new car fleet would have to be diesel-powered and half would have to consist of diesel- or gasoline-electric hybrids. This implies massive investments on which the auto makers would not earn a decent return. Why not? Because consumers do not value these improvements highly enough to pay the price for delivering them.

How do we know? Because car makers would be delivering the prescribed mileage improvements already if there were profits in it. Cars that get 50 mpg-plus are a snap, going back to the 1954 Nash Metropolitan and 1990 Geo Metro XFi. But consumers have shown over and over that they value energy-efficiency gains (which auto makers have duly delivered) not to maximize miles per gallon in absolute terms, but to afford heavier, roomier, more comfortable cars, with more horsepower, at any given gasoline price."

See the point? If you just leave the manufacturers to figure out what makes money, they'll supply fuel economy when it pays. And not, when it doesn't.

As it is, Jenkins writes elsewhere in his column,

"Detroit is making genuine headway on one of its perverse burdens -- wage contracts that turned labor into a "fixed cost," requiring the Big Three for decades to churn out cars at a loss to meet "job security" commitments. But the other stanchion of perversity -- CAFE, which has exactly the same effect -- remains in place and will likely become more perverse.

Ford's new CEO Alan Mulally, recently arrived from Boeing, described for Barron's his astonishment upon discovering this reality: "For all you read about it, it was difficult to understand the degree to which the CAFE regulations distort the market . . . Ford had to put out two small cars and discount their prices to get people to take them, so that we could also make and sell cars customers really wanted."

Can it be any clearer than that?

And, while you can blame auto executives stretching back to the 1950s for making boneheaded choices regarding non-cash benefit promises to union employees, CAFE is not their direct fault.

No, this is something created by the gang that's now trying to criminalize buying incandescent lightbulbs.

So, as the nearby, Yahoo-sourced chart indicates, the remaining two publicly-held US auto makers, GM and Ford, have been declining or stuck in neutral since the end of 2003.

Or, in Holman Jenkins' words,

"If the restructuring of Detroit's costs now underway is so epoch-making, why haven't the stock prices of the two remaining publicly traded auto makers noticed?

Maybe because investors recognize the elephant in the room, one whose presence has been a central preoccupation of the UAW and the auto makers, even if ignored in media reports. That pachyderm is known as CAFE, aka the government's Corporate Average Fuel Economy rulebook. How could pending congressional changes in the mileage rules blow sky-high the labor concessions being negotiated by the Big Three? Let us count the ways."

To which I would add Detroit's continuing demonstration of inept basic design and marketing of vehicles. Put it all together, and it spells continued dark days for anyone foolish enough to be the last person stuck holding Ford or GM equity.

I'm gratified that someone else, notably Mr. Jenkins, has identified some of the other reasons why, the recent UAW pacts at GM and Chrysler notwithstanding, American auto makers are still in deep trouble for the long term.

Honda, The UAW & The Republican Presidential Candidates' Economic Debate

Today's Wall Street Journal features a page one article discussing the clash between Honda and the UAW over the former's hiring practices at its new plant in Greensburg, Indiana.

Having just watched the Republican Presidential candidates' economic "debate," and I use the term very loosely, on CNBC yesterday afternoon, I couldn't help but frame my reactions to the article in light of that candidate debate. I'll be writing a related post over on my 'Conservative Insights' blog, found on my link list on the right, later today. Be sure to check there for more on this topic.

The central issue in the Honda case is that the state of Indiana, when it extended certain tax preference to Honda for locating its new plant there, did not choose to stipulate that hiring must be open to all state residents. Therefore, Honda chose to limit its employment offers to current residents within an hour's drive of the new plant site.

You can read the article to learn the particulars. Basically, the UAW feels that Honda is unfairly limiting employment to a largely white, rural area which will tend toward a non-union shop.

Honda alleges that they want employees living close to the factory, so that weather is not a factor in having workers show up for their jobs in the winter. It's simply coincidental, Honda says, that this limits employees to largely non-UAW applicants.

Predictably, there is a hue and cry, as one Indiana town, Anderson, recently lost the last of three GM factories, idling 1,500 people. All of whom are ineligible for the Honda employment offer.

If you need to see a clear example of capitalism, governmental support, investment and employment opportunities which showcases the existing divide between Democrats and quasi-socialists, versus Republicans and conservatives, regarding economics, this is one.

For whatever reason, the Governor of Indiana, a Republican, chose to extend to Honda conditions of tax preferences devoid of conditions requiring statewide worker applications. It doesn't take a genius to figure out that the Governor, Mitch Daniels, calculated what he'd have to offer, on behalf of his state, to get the Honda jobs, payroll and business tax revenues. To beat out Ohio, he must have realized he had to allow Honda to avoid paying UAW-mandated wages.

Fair enough. If Indianans don't like this, they'll toss Daniels out at the next election.

Meanwhile, Honda is bringing 2,000 jobs to Indiana. Nobody is holding a gun to the applicants to force them to work at Honda. In just three weeks, Honda closed applications for the plant, having sufficient workers available for their needs.

Sounds like an economic success story, doesn't it? It does, and it is, if you accept individual responsibility and the historic economically-driven mobility of the US population.

And yesterday, Senator Fred Thompson noted this, when, in response to a question, replied that nobody guarantees Americans that they will have their job, in perpetuity, in their current location.

I think this, frankly, is the central economic issue of the day.

Government does not plan the economy. We don't, by and large, run a socialist or fascist economic system in America.

Instead, the idea is that government sets certain conditions of law, safety, taxation, etc., then lets individuals, either solely or collectively, decide how to operate within those parameters to pursue their dreams and achieve economic prosperity.

This has resulted in several characteristic American trends. For one, our being a nation of immigrants. The ultimate 'mobility' is to leave your country to enter America, destination probably little-known, in order to simply participate in its prosperity. Having crossed oceans to arrive here, it's unlikely this population pool will really care to which state they must move to realize their economic dreams.

Second, even within the country, as far back as the 1700s, we've been a nation of economic pioneers. Being born in Illinois, I am familiar with the migration of farmers from the played-out fields of New England to the Midwest, and beyond. For decades, people simply moved west when the local conditions left them economically disappointed.

This is, quite simply, our heritage. Nobody guaranteed the early Dakota farmers unemployment insurance, social security, or health insurance. They'd have laughed at the very idea!

Instead, they were more than willing to measure and take their risks, in exchange for homesteading, in order to work and acquire their land.

Where did we suddenly get the idea that being an American entitles you to remain in situ, and simply have an adequate job delivered to you?

This is where the other side of the economic issue is found. Democrats, or liberal Republicans, like, sadly, Mitt Romney, some of the time, will be found here.

Romney, in response to the employment/recession question in yesterday's debate, right after Thompson, said something like,

'We can't let Michigan be in a one-state recession. This is personal for me. We've all got to get together and work to come up with a solution for this state.'

No, Mitt, actually, we don't.

That would be the job of the Governor of Michigan, and her tax-raising colleagues in the state legislature. Unfortunately for the citizens of the state of Michigan, they've unwisely concentrated their industry in the automotive sector, allowed the UAW to price their workers too expensively, and ignored the inept management of the three large auto makers located in Detroit.

Together, these trends have resulted in an economically troubled state.

Oh, well. Luckily, for Michiganders, there's a little economic zone known as the United States of America, of which they are a part. Forty-nine other states are available, sans passport or governmental permission, to which residents of Michigan are free to move to find better economic prospects.

See the parallel with our economic history? And Indiana's competitive economic attitude?

The only problem with Michigan right now is that too few of it's citizens take individual responsibility for their own economic welfare. They sit on their asses, waiting for a union, a large employer, or 'the state' to take care of them.

To listen to the Democrats, you'd think that we are in a recession, and all need governmental planning to rescue us. Two CNBC-chosen questioners at yesterday's debate, Bartiromo and Matthews, who are pretty much already self-identified liberals, kept pressing the candidates to admit that the US is, or shortly will be, in a recession.

But we're not. Thompson didn't take the bait. Instead, he noted that our government fosters opportunity, but it doesn't guarantee employment.

You need look no further than Indiana, per the Journal piece, to see that there are ways to foster growth, even in the Midwest, at auto plants.

Of course, the jobs may not be UAW-sanctioned. So what?

In a topic discussed at the end of the debate yesterday, unions were described by the candidates as being,

'some good, and some bad.'

Just so. Nobody wanted to name any 'bad' unions, for obvious reasons of vote-getting and fund-raising. However, again, it doesn't take a genius to note the shrinkage in working UAW membership over the past decade, and realize they have ineptly managed their members' situations.

Is Indiana doing something bad to foster non-union employment at Honda in Greensburg? Evidently, not according to the Governor.

Until our politicians become humbler, and return to the roots of America's economic success and vitality, which is based on mobility, we are probably cursed with a continuation of this needless hand-wringing about union jobs in states like Michigan and Indiana, rather than the celebration of new jobs in Indiana.

Some Thoughts On Fox's New Business Channel

Last Friday, the idea for this post sort of popped into my head. While cycling, I think. While cranking out the miles on my faithful Giordana Columbus, it suddenly occurred to me how easy and natural the Fox Business News Channel's positions will probably be.

Then, yesterday, I read a Wall Street Journal interview with Roger Ailes, Rupert Murdoch's go-to guy and architect of the new Fox network debuting next Monday.

If my interpretation of the Ailes interview is correct, then I'm not far off with my view of how Fox Business News plans to compete in the cable business news product/market. All Fox has to do is repeat it's Fox News Channel approach- news with a balanced/optimistic outlook- and it should have CNBC running for cover in short order.

To start with, you need to realize that CNBC is very, very liberal, even as a (financial) business news channel. You'd think there isn't all that much wiggle room to inject politics into financial news, but you'd be wrong. After all, the parent is NBC, one of the most politicized networks, with left-leaning Tim Russert and now-retired lefty Tom Brokaw. Both the kind of up-from-the-people sort of anchors that instinctively distrust conservatism, with its message of self-reliance, even though they are examples of the latter.

You can count the non-liberal CNBC anchors/on-air staff on the fingers of one hand- Larry Kudlow, Joe Kernen, Becky Quick, and Erin Burnett. Possibly Michele Caruso-Cabrera.

Among guests, it's basically John Rutledge, Brian Wesbury, and Alan Murray, of the WSJ. After that, whichever guests and staff are not neutral, are heavily biased to the liberal side.

In this group are prominently counted on-air anchors Mark Haines and Carlos Quintanilla, with David Faber a close third, and Washington political correspondent John Harwood bringing up the rear. Long ago, prior to Squawkbox's, CNBC's morning news show, reshuffling, Haines, Joe Kernen and Faber used to comprise the anchor team, and Kernen was heavily out-weighed by his two liberal colleagues. When Becky Quick was added to the team, the balanced got a little better, but was offset by having Haines dominate the next two hours of air time after the morning show ended.

Friday morning, for example, the Friday Labor Dept. jobs number came out. It was 110,000. Much better than expected, especially following the prior month's dismal value. The result?

CNBC guest Robert Reich, former Clinton Secretary of Labor, found much wrong and engaged in massive, 'the economy is in the toilet....again...' hand-wringing. Rather than accept the topline number, he dug until he found one weak entry somewhere in the bowels of the jobs report, and pounded away on this one factoid.

Then resident economically-challenged 'chief economic reporter' Steve Liesman, who has no economics nor business degrees, by the way, weighed in with his worries. The camera cut to one guest who, at that point, solemnly intoned that the US is headed for recession, and this report is error-prone anyway.

After President Bush's speech noting the positive economic expansion evidenced by the job growth numbers, anchor Mark Haines promptly shook his jowly face in a worried frown, solemnly intoning something like,

"Well, I guess he has to try to sound upbeat when the news is good, eh?"

John Harwood, the liberal CNBC Washington political correspondent, then chimed in that, despite Bush's budgets including fighting a shooting war, he spent too much in the past, so he has no credibility now. And that he's simply taking cheap shots at the Democrats now running the Congress.

What I realized during this barrage of gloomy interpretation of upbeat job numbers was that, nearly uniformly, the anchors, reporters and guests on CNBC look for the cloud on the horizon. Forecast the rain squall. Hunt diligently for the worst spin and implication of any economic or business news.

Meanwhile, the equity markets took off like a rocket, with the S&P500 ending the day up nearly one percentage point. Our equity portfolio doubled that Friday.

On CNBC, the US is in a perpetual economic night of crushing debt, both public and private, near-recession, income-inequality of stupefying and near-revolution-inducing scale, and on the brink of economic peril.

Not to mention that with Larry Kudlow being dumped into the deadly 7-8PM time slot on CNBC, the network is sending the signal that he and his economic optimism must be shoved to a slot where it can wither and die in peace. Maybe Kudlow will be available to join a network that actually shares his values- Fox Business News?

All Rupert Murdoch will need to do is hire staff that is willing to look at positive implications of economic news. Not such a hard thing.

And, when you think about it, precisely for which the Wall Street Journal's editorial page is famous. Rather than affecting, or damaging, the great business paper's "objectivity," Murdoch's ace in the hole is, I think, to simply unleash economic realists and market-oriented people like Alan Murray to speak honestly, balanced and maybe even optimistically about the US economy and business affairs.

Which is what they've always done. Now, however, they'll have an entire global video business news channel on which to do it.

I don't know why it took me this long to realize how simple Murdoch's task will be. In a sense, he and his new channel's staff will be shooting fish in a barrel. CNBC is so liberal/negative in its political economic bias that I really think it cannot change. It is, after all, the child of a rather liberally-oriented network, NBC.

Even this summer's programmatic reshuffling on CNBC only resulted in busier, more frenetic information feeds and on-air shouting matches among multi-windowed talking heads. The overt negative, liberal economic biases remain prominent.

Then, I read yesterday's Ailes interview in the Journal. And all my thoughts seemed to coalesce in his responses to Rebecca Dana's questions. It's worth reading the entire piece, but some quotes are:

"...We compete with everybody who has a television on in the sense that we're trying to get more viewers. So I think the CNBC Fox Business Network so-called rivalry could be overblown. It certainly has been in their minds because they've spent an enormous amount of money putting on the screen what they think I'm gonna do. I just think we're gonna launch a very credible business network and I will call a lot of audibles at the line once the play starts. I will not stand around the sidelines with a gamebook and a set of plays that I'll stick to. I'll change many things in the first year I'm sure.

WSJ: What specific things has CNBC done in anticipation of Fox Business? Did they make any programming changes?

MR. AILES: They did that last week in anticipation of our schedule which we haven't put out yet.
They reached out to talent to give it a fresher look. They're still living on shows that in many cases I oversaw the development of 12 years ago when I was there. You know, Squawk Box and Power Lunch. I even built them their set before I left. Their newsroom. Now they've changed it because they went to the new building. They've embraced capitalism suddenly. They've put on shows: what? Capitalism's good! What a plan.

I've made them extremely uncomfortable because they used to just be uncomfortable with corporations and profits because they always only wanted to embrace capitalism on the day they negotiated their own contracts, and they've been forced now to see that it's probably a good idea over all and it creates a lot of charity and a lot of jobs for people and is a good thing. So, if nothing else, it's dragged some of them kicking and screaming toward reality.

WSJ: Has the perspective of the network changed?

MR. AILES: They are, let's be honest, there aren't a lot of. They probably don't reflect the business community in terms of their own economic and political views in many cases. Not that they should, but they should be able to report on it accurately and I think that they've you know, look, they got burned. They rode the bubble up. They flogged the bubble. They got burned. They got tied to a sort of day traders and good market information and it blew up on them and they didn't know quite how to scramble out of that. And rather than come up with a new way of covering it, they blamed the economy and the bubble and all of that for their woes.

I mean, there are some very good individual reporters, anchors and talent at CNBC. I found that when I went there. Everybody thought I would go in there and fire everybody and clean house. It turned out there were a lot of good people there. They lacked a mission and a focus and leadership. Oftentimes that's the case. I think they've improved. They're better. They've certainly had two years to figure out what we might do.

They've had The Wall Street Journal for seven, eight years. So I'm expecting them to come out of the gate the day we launch with some brilliant programming based on The Wall Street Journal. They've been holding it in reserve I think and they're gonna flood me with a tsunami of brilliant ideas and programming on Day One.

We're not particularly targeting CNBC. CNBC does a narrow kind of programming. Unless they do what they could do which is jump us with a whole lot of Wall Street Journal stuff, programming. If they do that, the good stuff will eventually become mine. Cause they're my R and D department.

WSJ: What will become of the WSJ-CNBC deal?

MR. AILES: Unclear. I think that's being sorted out right now. Clearly we're being blocked from using it, but they've enforced that so strongly in the last seven years that they haven't even used it. So, it must be a real tough enforcement.

WSJ: The Fox New Channel reported a 41% rise in operating income in the fourth quarter from higher affiliate fees and advertising growth. How did you accomplish that at a time when viewership is off and ratings are waning for cable news?

MR. AILES: Well, the ratings aren't off much. If you look at Bill O'Reilly the other night. He beat the other prime-time networks five and six to one. He had a one in the demo if you count his two shows. Our morning shows are starting to show growth after a dip last year. We accomplished it by getting our cable deals done, by having a good sales force, by blocking and tackling every day and by having more compelling television than our competitors. That's how it is. A lot of people like to come to Fox News. You'd be surprised. I get hundreds of emails a day from American people saying, "God, you're the only thing we watch." So, we feel a real responsibility to get the story straight and balance the story in some ways. If you watch some news -- I always say to my people, when I see something particularly horrible about America that I think is a little out of proportion to what is actually going on, I call up the desk and say, "Do you have any pictures of people lined up at the border trying to get out?" They say, "What do you mean?" I say, "I just watched that and hell, we've got to get out of here, America's a terrible place. We need to get out fast. There must be guys stacked up at the airport trying to get out of here." No. It turns out everybody's trying to get in, and nobody's trying to get out. We've got to keep that perspective in mind when you cover the news. It doesn't mean you don't cover the bad news about America. You do. It means you don't get up in the morning hating your country. And so, until somebody shows me lines at the border trying to get out, I think there's some good news.

...kids come out of journalism school, some nitwit professor who never had to earn a living and hates capitalism, and he's a jerk, and he grades papers according to his own personal philosophy. People get addicted to that crap, then they have to turn around someday and say, "Hey, it's not that bad. I like my paycheck. What a great country."

WSJ: What do you think of Alan Greenspan's recent criticisms of President Bush?

MR. AILES: You can't sell a book in America if you don't dump on Bush. That's the cheapest shot in the world. You cannot get an advance, and you can't sell a book because the publishers are all people who hate Bush and hate Republicans. The quickest way to get an advance and to get a lot of money. Once he did it -- I know Alan. Here's a guy who's worked for Republicans all his life, but he couldn't get a book deal, so he said, "Hey, Bush'll understand. I'm gonna make several million dollars here; I gotta get the dough." Alan understands money, and therefore, I don't, you know, look -- everybody's gotta do their thing. For the next 50 years, anybody who dumps on Bush will get a higher advance.

WSJ: What do you think about the state of the Democratic Party right now?

MR. AILES: I don't have a view of politics. The only thing I would say is that we've had the Whig Party and the Know-Nothing Party and a lot of different parties in America, and you've got to be very careful or you could turn into the moveon.org party. If you're going to take orders from them, that's who you will become.

WSJ: What do you think of the state of the Republican Party?

MR. AILES: I don't think they have any chance of losing their name or their compass. As you know, politics is split on both sides: economic, socials, that kind of stuff. Any time you come to the end of two terms of any party, there's a certain period of running out of gas and revival and so on, and those are cyclical changes that in my judgment are good for the country because they strengthen the two-party system. It gives everybody a chance to strengthen their ideas and move on themselves."

It's now apparent to me that the new Fox business channel, due on the air at the beginning of next week, is likely to simply share its sister News Channel's approach of fair, but positive and optimistic reporting.

What could be simpler than that? People like to hear the truth about good economic news. Despite what the heads of CNBC and NBC may believe.

And that is why I believe that Murdoch's/Ailes' new Fox Business News Network will, in time, eclipse CNBC, perhaps even raiding some of the better, more balanced/conservative talent, too.

Alcatel's Failed Acquisition of Lucent

The Wall Street Journal published a critical review of Alcatel's acquisition of Lucent last Thursday. As I read the piece, I looked at my own prior posts on this bad idea last Spring, here, and here.

Sadly, it appears that another of my dismal predictions has come true. The acquisition has failed to produce a firm that can create superior shareholder returns. And the CEO, Pat Russo, who led Lucent into this situation, is foundering, as expected.

Russo is reputed to be just steps away from the axe. The 'merger', as it was billed, but was, in reality, an acquisition of Lucent by the French telecom company, Alcatel, has failed. Falling margins, from sales bought at too low a price, are now crippling the sales the firm has managed to win.

The Journal's Thursday article lays out in detail how things have gone from bad to worse for the combined telecommunications giant. How one major competitor, Sweden's Ericsson, took advantage of the period of transition and turmoil at Alcatel to press customers and win accounts from the newly-combining firm.

The Alcatel situation highlights a fundamental reality of the marketplace. Two mediocre firms with struggling product lines cannot, by combination, magically fix their problems and become an excellent firm. Instead, they become one, larger, usually confused mediocre firm.

Sector excess capacity usually results, over the long term, in the better players taking share, while the losing players consolidate and shrink. Alcatel has done the first part of that already, and Russo seems to be presiding over the second step.

Growth, Risk Management, & Attendant Excesses in Financial Service Firms: The Merrill Lynch Case

As I read yesterday's Wall Street Journal, it occurred to me how Merrill Lynch's recent firings, sub-prime experience, and diversification are a textbook example of why large financial service firms almost never provide consistently superior total returns for shareholders.

In case you missed the piece, or other news stories about it, Merrill fired its global head of fixed income, his deputy, the co-head of fixed income for the Americas, and the former co-head of institutional securities. According to the article, an unnamed analyst estimated that Merrill will be writing off nearly $4B in losses from its sub-prime mortgage holdings.

While other firms, such as Bear Stearns and UBS, have also ejected senior executives, I want to examine the Merrill situation in more detail, because of its size and business scope.

Mr Kim, Merrill's recently-fired co-head of institutional securities, had led the team and area which bought First Franklin Corporation, a subprime mortgage originator, for $1.3B.

A dissenting executive, Jeff Kronthal, was fired as the team bought the sub-prime firm.

Once purchased, of course, First Franklin became a machine with which this fixed income team churned out lots of CDOs, becoming the #1 underwriter of the instruments since 2004.

According to the Journal article, the former global head of fixed income, Mr. Semerci,

"and Mr. Kim were known for putting a greater priority on expanding market share than on risk controls."

And there you have the crux of the phenomenon.

At diversified financial service firms, managers compete for promotions, compensation and control. In order to win these, they must out-grow their peers.

So they take excessive risks in the mid-cycle of a business, riding high growth and turning it into more explosive, riskier growth.

Sometimes, this approach works and the executives involved rise to lead the firm. If not, they still get compensated well, and the firm takes the hit to its balance sheet when the risk catches up with the earnings.

When I was at Chase Manhattan Bank in the early 1990s, the Real Estate division pushed for high, risky growth via construction lending in Manhattan. Eventually, that bubble burst, leaving the bank to take several hundred million dollars in writedowns in 1990. Meanwhile, the executives who made the loans, often found, upon later auditing, to be improperly documented, if documented at all, received large bonuses for making loan origination quotas.

In a large, diversified financial services firm, this drama plays continuously. That is why some element of a diversified financial conglomerate like BofA, Citi, Chase, Merrill, et.al., seems to explode in fantastic losses every few years.

So long as these giants incent managers to get ahead by growing their businesses, which, in financial services, must, to sustain growth over time, lead to riskier business, this will be a permanent feature of the sector.

That's why my equity selections process never identifies a non-acquisitive diversified financial conglomerate as an investment. Sans acquisitions, which prop up revenue growth artificially for a time, these giants are continually prone to the sort of losses being recorded at Chase, Citi, Merrill, Bear Stearns, and UBS this year.

Merrill can axe three highly-ranked fixed income executives, but that won't stop this from happening to the firm again. The story is as old as Lehman's original fist fight in the partner's board room that saw Lew Glucksman, the firm's one-time trading titan, oust Pete Petersen, who went on to co-found the now-famous private equity BlackStone Group.

Glucksman went on to binge on trading and, subsequently, trading losses, in the next few years, leading the firm to fall into the lap of American Express.

Only the faces will change. The culture and internal climate of any diversified financial services firm will guarantee repetitions of the recent Merrill experience for years to come.

When financial service firms rely on one, or, at most, a very few businesses to fuel their value creation, and manage risk accordingly, only then will they avoid these recurring risk-management failures.

In short, it's risk management that brings down large, diversified financial service firms every time. More than anemic growth, excessive growth in one or two businesses inevitably leads to excessive risks, which are typically hidden from the credit and audit functions, as well as senior management. After all, the executives are playing with the firm's money, so it's a win/win or lose/win proposition for them. Either way, their firm takes any losses.

The days of smallish Wall Street partnerships in which risks were well-understood, acknowledged, and managed, because the partners owned the risk, are long gone now. Instead, diversified financial mega-firms such as Merrill and BofA own many business units, in which managers play a risky game to advance their careers.

Thus, the entire complexion of financial service businesses, markets, and the risks inherent in them, have changed irrevocably, as a function of the sector's current organization. That's why you can expect something like the current Merrill writedowns and firings every few years at one or more diversified financial giants.

Vindication: The Wall Street Journal Officially Buries "Wal-Mart Era"

Yesterday's Wall Street Journal featured a prominent, front page piece entitled, "Wal-Mart Era Wanes Amid Big Shifts in Retail."

As such, I'm going to declare yet another of my predictions vindicated. I wrote pieces on this blog, here, and here, as long ago as September of 2005, when I began writing this blog.

Among the quotes from my earlier posts are these from April of this year,

"Friday's Wall Street Journal ran a piece in their Money & Investing section on what ails Wal-Mart, and how to fix it. Trouble is, they mostly asked a group of money managers. Why they think those guys would have a lock on such knowledge is beyond me.

In my opinion, most of them are barking up the wrong tree. Wal-Mart isn't 'coming back' as they knew it. It's big, sluggish, and hard to manage with its saturated markets.

Rather, Wal-Mart is likely at a crossroads. If it desires to regain consistently superior total return performance via growth, then it needs to do a better job identifying those markets which will sustain its traditional, logistics-dependent strategy for dominating the low end of retail merchandising. Whether this means staying or leaving Japan, I don't know. But Wal-Mart's management should.

My own view is that it's unlikely that Wal-Mart will regain its former consistently superior outperformance record. Its size, need to be in multiple countries and exposed to radically varying cultures and logistics environments probably presents the firm's management with too many challenges to overcome simultaneously.

But, since I'm neither a broker, nor a current investor in Wal-Mart, I don't have a stake in convincing others to either buy, or sell the firm's stock based upon expectations. I'm just writing what I have observed, from both my proprietary research, track record of portfolio selections, and the recent media coverage of Wal-Mart's performance."

And these sentiments, from September, 2005,

"Back when I was earning my degrees in Marketing, there was a theory which was taught that went by the name of “the wheel of retailing.” It essentially observed that every so often, a new, low-cost retailer will arise that rips through the existing sector structure like a hot knife through butter, growing at the expense of outmoded, expensive older giants.

That said, the Wal-Mart saga since the 1980s is both remarkable, yet not surprising. What the company did is not all that new. It upended several existing chains of general merchandisers who had grown inefficient, insensitive to consumer needs and wants, and basically moribund. How it did it was with the latest version of what the lowest entrants on the wheel of retailing always use- low-cost supply of large volumes of goods. It looks glitzier now, with integrated IT functions shared among vendors. But if you go back to the architect of Sears’ great transformation, you will find that Robert Wood, the creator of that transformation, learned his supply skills as quartermaster on the Panama Canal, one of the more challenging logistical projects of that era.

What is puzzling me is why there is all this attention paid to the mid-late life growth pangs of a retail success. Retailers who began life at the bottom always try to extend growth, once they saturate the market with stores, by moving up-market. And they nearly always fail in doing so.So will Wal-Mart. The company appeared briefly as a selection in the large-cap equity portfolio I manage. That was back in the 90s. But it hasn’t performed in a consistently superior fashion in over a decade."

I'm quite proud of the fact that I called the demise of the "Wal-Mart era" two years ago. It's sort of sad that as fine a business newspaper as the Wall Street Journal both missed the boat for this long and, even now, in their comprehensive article yesterday, can't come up with a reporter who is familiar with the 'wheel of retailing' concept. Or Schumpeterian dyanmics. Because both figure in this story.

The 'wheel of retailing' is an old, but still valid, marketing concept which observes that, over time, low-end retailers eventually attempt to move upmarket, making way for new entrants, while tending to stall in their new product/markets. This is Wal-Mart, to a "T." Schumpeterian dynamics explains, additionally, why, over time, Wal-Mart sowed the seeds of its own competition, as well as became a target for regulatory and social activist forces, sapping its energy and tarnishing its reputation.

As it is, the article thoroughly documents Wal-Mart's troubles amidst shifting consumer values which place style and convenience above price. Further, having dominated their product/market spaces for so long, they became the target at which to shoot. Consequentially, the article mentions that many competitors, such as the drugstore chains, Walgreens and CVS, simply redefine their offerings to avoid head-to-head competition with the retailing giant. Krogers does the same in food, offering semi- and fully-cooked meals to differentiate itself from Wal-Mart's grocery stores. Tesco, the British food retailer, is about to enter the Western US market with a portfolio of store types, taking on Wal-Mart in this large product/market.

The Yahoo-sourced price chart in this post demonstrates, compares Wal-Mart's performance since the early 1970s with the S&P500. It's clear that, except for a brief 2-3 year period in the late 1990s, Wal-Mart's market performance has been stalled since 1992, i.e., for 15 years!

That's an awfully long time to be waiting for a turnaround, isn't it? That's why I called the company dead as a consistently superior total return performer. The Wall Street Journal article echoes my own research findings and observations about the retailer- it's simply grown too large and stable to respond with alacrity anymore to changes in consumer tastes. Further, with such a large, inertial sales volume, significant growth is no longer easy. Wal-Mart's ventures abroad have disappointed, suggesting their management style is not transferring well or easily to China, Europe, et. al.

As the chart above shows, if you had bought Wal-Mart stock over 30 years ago, and simply held, you'd still have outperformed the S&P for the period by a stunning margin. But you'd have to have sat and watched it tread water for this entire decade. Simply put, Wal-Mart's best days are behind it in terms of consistently superior shareholder return performance.

And you read it here first. Two years ago.

Chuck Prince's Nine Lives

I'm beginning to think Citigroup CEO Chuck Prince is some sort of shape-change artist out of Harry Potter, who is, in reality, a cat. A nine-lived cat, to be precise.

How many mistakes can a CEO make and still keep his job? Perhaps due to Prince's example, GE CEO Jeff Immelt figures he has lots of time left to continue to mismanage his firm.

But, back to Citigroup. Having taken the helm from Sandy Weill in 2003, after the latter's excesses of merger-mania, Prince has presided over a performance that underruns the S&P for the timeframe.

As observed in the nearby Yahoo-sourced chart of stock prices for Citigroup and the S&P500 Index for the last five years, Prince has led the banking firm to a clear underperformance during his tenure.
Despite the company's major shareholder, Saudi Prince Alaweed bin Talal, commenting,

"No financial institution is immune from the financial turmoil in global markets....It's a hiccup in our journey to reach normalization at Citibank,"
Prince never seems to do more than 'normalize' mediocrity. As the two-year price chart nearby shows, even before this summer's fixed income markets crises, which have led to Citigroup posting third-quarter earnings that are 60% below last year's similar quarter, Citi was already lagging the index, suffering a plunging stock price since early this year.

As I wrote in these posts, here and here, in May and January of this year, Prince has been mismanaging Citigroup for quite some time. It has nothing to do with the market troubles of this summer.

Here's what continues to confound me. Prince would probably not suffer performance like his own in a lieutenant for as long as his board has suffered his own mediocre performance, without firing them.

Why is Prince still CEO? As I have written in prior posts, he's out of his depth trying to run the overly-diversified Citigroup. And financial service firms so diversified almost never manage to post consistently superior total returns.

As I wrote in my last (linked) post,

"Ideally, Citi needs to be split up into more easily led and managed, standalone units which may more nimbly respond to market and competitive forces in their particular financial service sectors. As a financial supertanker, Citi has proven unmanageable in a manner that performs consistently better than the markt for its owners. Can it really do worse as a number of smaller, more responsive entities?"

And Prince should go- break up, or not. He is simply overmatched by the firm's and market's complexity. It would be nice if the Saudi Prince considered other shareholders, and voted to boot the American Prince.

American Century Investments & Lance Armstrong

This past weekend's edition of the Wall Street Journal featured an article on the recent management turmoil at American Century Investments. I last wrote a post about the firm here, in February of 2006, when I noticed that Lance Armstrong had formed a relationship with the firm.

As I mused in that post, it seemed odd that Armstrong would represent a service like mutual fund management, which is so prone to changes in fortunes.

And, as it happens, that's exactly what is occurring at American Century now. According to the Journal article, it has a number of poorly performing funds which have had management shake ups.

Meanwhile, the article tells us, the founding family of American Century, the Stowers, have moved on to endowing a medical research institution nearby to help cure the cancers with which both elder Stowers have diagnosed.

Between the family's focus on the medical institute, and Kansas City's declining attraction for many of the investment firm's managers, the talent drain began recently, seeing 20 or more managers and senior executives leave the firm. Some complained that the benefit to the institute of a rise in the price of American Century shares had eclipsed their use as long term incentive compensation for fund managers at the firm.

As for Armstrong, his own foundation receives more money from American Century when the investment firm's results exceed a certain threshold. The former cyclist is quoted as saying that he thinks people "want to be involved with a company that's put themselves out there on such a human level."

Personally, I think the average retail investor simply wants better returns. Institutional investors, which are a new focus of the investment management firm, are even more focused on returns, and less on social issues.

One of American Century's funds, Ultra, seems to be moving in the right direction this year, with its performance back up to 15%. However, it seems to me that the entire episode of wholesale management changeover, and a drop in returns of many of the firm's funds, until recently, demonstrate how risky it may be for someone of Armstrong's ilk to tie his fortunes to such a financial services vendor.

Home Depot Again: Stories from the Front Lines

This weekend, I had the pleasure of seeing old friends who are the parents of one of my daughter's friends. Having moved about an hour away, several years ago, my visits with Jon and his wife are now, though less frequent, longer and more involved.

Jon has had success in startup ventures in the past, and is currently busy with another one. An engineer by training, he fills a number of roles in the venture, including that of supply officer for the firm's various hardware, testing and building materials needs.

This was news to me. Jon related how he has become a regular at the Home Depot located within a few miles of his firm's offices in Northern New Jersey. Typically not that observant of details at stores, such as Home Depot, so Jon says, he has noticed a number of things this summer that corroborate my many posts describing the building supply chain's woes.

For example, he cited the many times he wanders the aisles, while knots of orange-aproned employees are busy talking among themselves, leaving him to fend for himself.

The aisles, he says, are far from presentable. I think he described them as cluttered and messy, when the shelves weren't empty.

But the best story he told involved product mix changes. Specifically, a ban saw.

His group does lots of research and experimentation, so they need power tools for building things on their test benches. Jon had recently bought a ban saw. Within a few weeks, they'd worn the blade out, and he returned to Home Depot for replacement blades.

No luck. It seems that the supply chain had switched product lines, and now markets, as Jon puts it, a decidedly cheaper ban saw.

Well, he was there for blades, not another saw, right? So, no problem.

Ooops! Home Depot told him they don't carry legacy parts for the old saws- meaning spare blades. None. Nada. Zippo.

So they sell him a fairly expensive power tool one month, only to drop support of the consumable blades the next month. No offers to search other stores, or order the blades, or even provide contact with the manufacturer.

My friend was both displeased, as well as bewildered as to how a major chain such as Home Depot could engage in such dysfunctional and unsupportive behavior.

At least when Apple dropped the price of its iPhones, the old ones still worked. In this case, Home Depot simply drops support for their customers who are foolish enough to buy a fairly expensive tool which requires spare parts support.

The nearby Yahoo-sourced chart displays prices for Home Depot, Lowes, and the S&P500 Index, for the past two years. While HD and LOW have moved very similarly over the period, there's no mistaking that HD has diverged very sharply from the index in 2007.

Lowes seems to have popped up a bit more from its recent bottom, coincident with the summer mortgage-based woes, than has Home Depot. Looking more closely, Lowes was back to a positive return when the housing finance crunch hit, whereas Home Depot was in the red. Then it appears that market forces hit Lowes, as well, from which it rebounded a bit better than Home Depot.

What really struck me, of course, was that my friend could instantly detect serious failings in Home Depot, from his perspective as a customer. It echoed what I have seen in the performance data for Home Depot for at least the past year.

I have a feeling that the firm's troubles now run deeper than simply an arrogant, overpaid, now-departed CEO. And that it may be a while before Home Depot is back on track, both with consumers, as well as investors.