Month: June 2005

I bought Time Magazine today for the first time since…probably since 9/11, when I bought every newspaper and magazine available with a cover story on the World Trade Center attacks. The relevance of a weekly “news magazine” these days is, after all, right up there with “Book-of-the-Month” clubs and the Sears Catalogue.

Nevertheless, I bought this new issue of Time Magazine because the front cover is titled “Home Sweet Home” (stamped in large letters, the “S” converted into a Dollar sign) with an illustration showing a man covetously hugging a house. The sub-title reads: “Why we’re going gaga over real estate.”

I bought it, quite simply, because this Time Magazine is as good a “cover story” kind of market-mania, surely-we-are-approaching-a-top indicator as I have ever seen.

Now, careful readers who’ve been asking about the promised follow-up to last Thursday’s piece on internet-jewelry retailer Blue Nile will have to excuse me. As fun as it is to chronicle the bizarre public musings of Overstock.com CEO Patrick Byrne and his company’s failure at pretty much every new venture he touts to Wall Street—the latest being a Blue Nile knockoff—the current issue of Time is both fecund and worth a good look.

So we will get back to Doctor Byrne and his false-rumor-spreading appearance at the Bear Stearns conference, eventually.

It’s just that, when a Time Magazine comes along declaring “Record home prices are inflaming passions—and pocketbooks—as never before,” well, as Willy Loman’s wife said, attention must be paid.

After all, this is still a magazine with a circulation of something like four million, and its sole function in the world is to sell as many copies as possible before they get recycled into cat litter or something else.

Obviously, the editors of Time believe that a feel-good article about the joys of home-ownership—actually, more precisely, about the ability of average people to strike it rich by buying, flipping, or just putting down deposits on as-yet-to-be-built condos—will sell a lot of copies. Making it, of course, red meat to anyone who’s seen more than one cycle on Wall Street.

So let’s take a look.

Opening the “Home Sweet Home” cover of this latest Time Magazine, one finds an article titled “America’s House Party” which begins with the Siren Song of all bubbles, whether the South Sea Bubble of the 1700’s or the Internet Bubble of the late 1990’s or the Tulip Bubble of the 1600’s or the Oil & Gas Bubble of 1980: the guy who sees his friends doing it:

“I saw so many friends and colleagues getting rich,” John Williams, a disc jockey from Long Beach, tells the magazine, “I wanted to get rich too.” So Williams is buying houses, fixing them up and, according to the article, “flipping them for a quick profit.”

Furthermore, unlike most of the Housing Bubble stories recently appearing in various newspapers and magazines, this article is a straightforward encomium to the financial rewards of buying, selling, trading or owning a house:

The stock market may be dragging, but home prices are soaring, fueling a national obsession with real estate.

Your house is now your piggy bank.

House gawking is a hobby; remodeling, both entertainment and an investment.

Folks brag about having bought their home in the ‘90s the way they used to brag about having bought Microsoft in the ‘80s.

Real estate isn’t so much about nesting today as it is about nest feathering.

And—I’m not making this up—that’s just in the first two paragraphs.

The article goes on, with the usual Time Magazine-ish snappy quotes from newly-minted tycoons; weirdly all-encompassing-yet-inane statements (“It’s about the giddy tabulation of how many plasma TVs your house’s appreciation could buy and the embarrassment of feeling too poor for your neighborhood as houses around you are torn down for McMansions…”); and, of course, simplified, happy graphics.

However, as in all manias and bubbles, lurking within the happy graphics are some potentially disconcerting statistics, if you really look at the Time Magazine charts.

They show, for example, that the number of second homes purchased in America stayed within a range of 300,000 to 400,000 a year from 1989 to 2002—then suddenly doubled to over 800,000 in 2003 and broke 1 million in 2004. Home equity loans have also spiked, at the same time that rates appear to have bottomed and are moving higher. And in several non-sexy, non-condo, non-second-home-inflated states, mmortgage foreclosure rates have tripled.

But you will not read about all that in the article itself, for Time readers presumably do not want to read about anything except how much fun this house flipping thing is.

There’s a trivia “test,” although it is not designed to test the reader’s knowledge of issues that might have a bearing on whether they are familiar with ARMs and IOs and transaction costs—knowledge that might be useful as they toss their chips into the game.

Rather, it asks things like “Which of these entertainers has sold at least seven homes in the past 10 years?” (Answer: Courteney Cox, although why anybody would care about that is beyond me.)

More interesting than the graphics or the cute quotes, is a look at a single block in a Chicago neighborhood, detailing how the real estate boom has affected seven different houses:

House 1 has a middle aged owner who did a tear-down/rebuild on the house, and is reinvesting the equity in other properties, the profits from which “will put my kids through college.”

House 2 has a long-time owner “using it as a piggy bank,” via home equity loans.

House 3 is an eventual tear-down whose long-time owner hates what has happened in her neighborhood.

House 4 was sold by its previous owner after property taxes rose 1,059% in 10 years.

House 5 is being sold by its long-time owner to support her retirement.

House 6 has been flipped twice in seven years.

House 7 was inherited; the owner did a recent tear-down/rebuild.

Further on, and like the dot-com stories from the late 1990’s, the article is chock-full of real-world people throwing off the shackles of benighted thinking and plowing their worldly savings into housing.

Maybe you’re like Mike Oakley, 43, who has poured $100,000 into redecorating his Chicago house, figuring it is already worth $150,000 more than when he bought it. “Rather than invest in stocks,” Oakley says, “invest money in your home.”

You shouldn’t get the impression that you can make six figures in real estate by snapping your fingers. Just ask Max Kaiser. It once took him a whole hour.

“Buildable land here [in Las Vegas] is running out. We have only one place to go, and that’s up.”

“We might be riding that wave,” he [a General Mills operations manager considering switching to the real estate business] says. “But the wave is there. So I’m going to get on it.”

And it’s not just Young (and-never-seen-a-down-cycle) Turks grabbing for the gold who are being celebrated here; it’s the old-timers, too:

Of course, you don’t need a portfolio of condos to have made a pile. Average homeowners who bought in the ‘90s…are now, like modern-day Clampetts, sitting atop newly discovered gushers of wealth.

As I recall the “Beverly Hillbillies,” the kids were morons and Granny was a lunatic. The only smart one in the bunch was Jed Clampett, a cagey old redneck, and he had wisely sold his “newly discovered gusher of wealth” and put the money in the bank…giving Jed the right to drive poor Mr. Drysdale insane.

Of course, nobody here in Time-land is doing anything of the sort, except a few renters, as the article notes in a brief piece called “The (Surprising) Case For Renting” appended to the end of the eight-page “America’s House Party.”

Yet buried within the “Case For Renting” is a cautionary paragraph containing the seeds of what will, I expect, mark the germination of the seed containing the eventual reversal in the Housing Bubble:

The Choes aren’t alone in finding value in the rental market. With so many people buying homes in the past few years, landlords in certain frothy markets, like San Diego, Miami, Las Vegas and Washington, have gone begging. Not a few are collecting less rent than they are paying in mortgage expense. Their bet is that in the end, rising values will make up for their losses.

They “will make up for their losses,” of course, because, as we have been told by a Las Vegas player earlier in the article, “We have only one place to go, and that’s up.”

Anybody who reads this article—and I mean anybody, whether they are the last remaining Communist still farming onions on a collective outside Vladivostok, or a jet-setting, highly-leveraged real estate mogul who pretends to be worth more than he is, like Donald Trump—will feel that internal sense of failure, jealousy and greed that they, too, are missing out on something more.

Gushers of wealth…nest feathering…piggy banks…getting on the wave…only one place to go, and that’s up….

It’s all here in Time Magazine, available on your newsstand today: The Case for Owning Real Estate in America.

You have to excuse homeowners for getting a little giddy. When they look at the rest of the economy, they see little else to be excited about. Employment has picked up, but wages haven’t [not true: just last week it was reported that wages rose 6.3% last quarter, the largest first-quarter increase in years]. Inflation has risen from the grave. The stock market is crawling to get back to where it was five years ago [also not true: most stocks are higher than they were five years ago]. Savings accounts throw off barely enough interest to feed a parking meter [also not true: short rates have tripled in a year].

So people see their homes as their last, best hope for prosperity—as not just houses but also lifeboats.

Compelling, is it not?

Very nearly as compelling as a previous Time cover story on a similarly widespread investment mania that also, according to many, looked like the “last, best hope for prosperity.”

You may recall that Time Magazine cover story. It was published in the fall of 1999—September 27th, to be precise. It was titled:

“Get Rich.Com: Secrets of the New Silicon Valley.”

Jeff Matthews
I Am Not Making This Up

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.

“They all behave the same, and they all look the same.”

With that sentence, Democratic firebrand and Party Chairman Howard Dean labeled the entire Republican Party—and, by definition, his own Democratic Party as well—according to today’s New York Times. In this, The World According To Howard, the political party to which I belong is “pretty much a white, Christian party.”

Well, he’s got me—Republican, white and Christian—although I’m not sure if I’m precisely the kind of “Christian” Howard Dean is talking about.

There is, you see, a very broad spectrum of Christians—ranging from Catholics to Episcopalians, Presbyterians, Methodists, Lutherans, Baptists, Congregationalists and Unitarians, with probably a few in between that I left out.

Catholics, of course, have the most rigorous and dogmatic faith; Unitarians, on the other hand, pretty much agree that some kind of God probably exists, more or less, somewhere in the universe, now and then, most likely. (I was best man in a Unitarian wedding: it was all very laid-back.)

Even within Christian doctrines, there are sub-spectrums: Northern Baptists—the people who came over with Roger Williams and settled Rhode Island—share a faith and a lack-of-organizational-structure remarkably similar to Congregationalists, of which I am one. In fact, during the summer I attend a small Baptist Church in Rhode Island, and except for the large baptistery (a Jacuzzi-like tub) built into the wall behind the altar, you wouldn’t know the difference between a Northern Baptist and a Congregationalist church service.

Southern Baptists, on the other hand, are most likely the kind of “Christians” Howard Dean has in mind with his “white, Christian,” label—and apparently Howard doesn’t like their kind.

Whether we Republicans are Baptist, Congregationalist or Episcopalian, one thing is clear in The World According To Howard: “Republicans are not very friendly to different kinds of people.”

Dean’s brand of weirdly intolerant liberalism struck me as particularly interesting this morning, having attended a fundraiser last night for a local elderly care center with which I am involved.

This was an old elementary school converted into a welcoming center that helps care for a relatively small number of elderly people during the day, while their children are at work. They come from families that can not afford home nursing or do not want their parents in nursing homes. The facility generates a great amount of local support within our community, precisely because it works, and thus has touched many lives.

I sat at a table with a couple who are good friends of mine who happen to be a member of the Political Party that is “pretty much a white, Christian party,” according to Howard Dean. Except they somehow missed the indoctrination seminar, because they are, in fact, Irish Catholics—not the Southern Baptists of Howard’s stereotype.

Furthermore, across the table from us was another long-time friend with whom I served on the board of a local senior housing commission a few years ago. She and her husband are both Democrats, and, as it turns out, white—somehow crossing Howard’s color line. I am not sure of their religion—they share an Irish Catholic surname, but, of course, she may in fact be a Southern Baptist or possibly Jewish by birth.

Gosh, just thinking about the whole thing the way Howard Dean thinks about things, I’m not sure how it is possible that the six of us—Republicans, Democrats, Catholic, Congregationalist and possibly Jewish—even bothered sitting together, given all the differences we have.

It’s a wonder we even attended the same function.

Just thinking about it makes me ponder whether I should stop being friendly to Manny, my friend, who happens to be non-white, and, therefore, “different.” On the other hand, Manny is a Republican, so he is one of “our kind,” according to Howard.

Maybe I should straighten out the whole mess by informing Manny that he signed up for the wrong political party after his boat trip across the Florida Straits, Manny being both non-white and Republican. Also my pal Art—who is both Jewish and Republican.

Or, perhaps, in the interests of his new brand of intolerant liberalism, Howard Dean can come to my town and explain to all of us why it is we shouldn’t live together and work together and give time to a local elderly care facility together, given all our differences.

Then we could be functioning about as well as Washington, D.C.

Jeff Matthews
I Am Not Making This Up

Yesterday’s panic-selling in Google—in response to a report that internet search pricing was weakening—may or may not be rational, given the fairly high altitude Google’s stock has achieved in recent weeks.

However, there is no weakness in internet search pricing that at least one large internet word buyer, online jewelry retailer Blue Nile, is seeing.

And Blue Nile should know better than most, because it spends about a third of its online advertising on search.

I saw Mark Vadon, the founder and CEO of Blue Nile here in New York today, and for what it is worth, I think he runs a nice, consistent business. Every time I see the company, I want to buy the stock—although the valuation always holds me back.

The business is a bit like Price Club meets Tiffany: sell the product at a significant discount to retail, collect the money the next day from the credit card company, and pay the vendors 45 days later.

Negative working capital with 23% gross margins and no stores: not bad.

Tomorrow we will explore other aspects of online jewelry retailing, with a different slant, as we return to the antics of someone whose “Build Your Own Jewelry” business ought not to cause Blue Nile to lose any sleep at all.

Jeff Matthews
I Am Not Making This Up

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.

Walking the nine blocks between Grand Central Station and the Four Seasons Hotel to see some companies, I made three observations, and for what they are worth–you paid nothing to read them–here they are.

First, I witnessed an as-close-to-bodily-injury-as-an-accident-gets-without-actual-death-or-dismemberment, when a woman in a hurry to get to her desk in a high-rise office building tried to cross 52nd Street in front of a cab. She barely made it unscathed, thanks to quick breaking by the cabbie. It was entirely her fault: for some bizarre reason the cab was neither traveling above the speed of sound or running a red light when she made her move.

Observation #1: Sometimes we risk an awful lot for a very little.

Second, there is the sad phenomenon of office-workers-who-stand-in-front-of-office-buildings-smoking-and-looking-generally-pathetic. They are almost always in pairs: the better to chat while they smoke, so they don’t appear to be standing on the sidewalk doing nothing but smoking. And there is no glamour attached to what they are doing–they are not ripping power chords on stage at Madison Square Garden; they are not sitting around a campfire reliving the day’s roundup; they are not hanging out in a French cafe.

I don’t know about you, but all I can think of when I see these clumps of people is “I will be paying your medical bills when you are dying.”

Observation #2: Frequently we risk future pain for near-term pleasure.

Finally, I am writing this while drinking coffee at Starbucks, which has created an entire ecosystem for people who drink coffee. There is now food, there is now wireless, and there are tables to meet and conduct business. When Starbucks came public, a lot of people–including me–snorted that it was just a coffee shop. But a lot of people–especially me–were wrong. Starbucks has probably added more value to the American white-collar-worker’s daily experience than any service company in its time.

Observation #3: Sometimes we–especially me–are so smart we miss great long term investment opportunities even while we are exposed to them every single day.

Jeff Matthews
I Am Not Making This Up

Today’s New York Post–which despite its lowly pedigree does in fact have a must-read business section that occasionally scoops even the Giants of Journalism (mostly in matters of corporate takeovers)–reports today that certain U.S. newspaper chains are planning to go head-to-head, or, at least, toe-to-toe, with Google.

That’s right: as Google moves into local search (if you haven’t tried Google for local search, you should, because its mapping product is so superior to Mapquest…put it this way: Google Maps is to Mapquest as broadband is to dial-up internet access) the newspapers are getting worried about losing their local advertising base to the Google monster.

So what’s the newspapers’ solution?

Their “solution,” according to the Post, is to opt out of Google Adsense and keep their local ads “in-house.”

So when you do a Google search for lunch delivery in Greenwich, Connecticut, you would no longer, as I interpret this, find “The Plaza Diner” in Greenwich because the Plaza Diner would be advertising in the Greenwich paper, which would not be part of Google Adsense.

So you’ll get all the other diners delivering lunch to businesses in Greenwich, Connecticut that use Adsense.

This reminds me of the early days of Microsoft Windows, when the boys at Lotus Development Corp (makers of the Lotus 1-2-3 spreadsheet program–remember that, kids?) decided to fight Microsoft’s shift from a DOS operating system to a Windows operating system.

Which, it turned out, was the functional equivalent of a 98-pound Little League batter digging his cleats into the dirt, crowding the plate, and daring Roger Clemens to throw the high, hard stuff.

Microsoft obliged–as would Clemens if given the chance–and Lotus was carried out on a stretcher, into the waiting arms of IBM.

Anybody used Lotus 1-2-3 lately?

Will the newspapers’ plan work?

Not bloody likely.

Jeff Matthews
I Am Not Making This Up

Remember Gerald Ford’s “Whip Inflation Now” campaign?

If you don’t, no matter. It was a lame attempt by a lame-duck President to encourage Americans to defeat inflation during the highly inflationary 1970’s.

Precisely how Americans were supposed to do this was not clear, and the plan failed, overwhelmed by Market Forces.

Speaking of Market Forces, my morning research is awash with inflationary reports, ranging from the rebound in crude oil prices and a surge in heating oil prices to the fact that the airline industry is running at its fullest capacity in years–crude oil prices notwithstanding–while cement shortages have “spread to most U.S. regions” (according to the Wall Street Journal)–crude oil prices notwithstanding.

And demand is so strong–crude oil prices, again, notwithstanding–that the average hotel room-rates are expected to be up 4.3% this year, to an all-time record $89.97.

Somebody remind me again why the 10 year is trading below 4%–crude oil, of course, notwithstanding?

Jeff Matthews
I Am Not Making This Up

Well so much for our “Southern New England Summer Job Index.”

Despite the fact that Tommy Goodwin no longer has to bag groceries at the Stop & Shop in Westerly, Rhode Island—he got a job waiting on tables at a good restaurant, and who knows what might happen when they seat me at one of his tables (Tommy was my youngest daughter’s first boyfriend)—Friday’s jobs number was the worst in two years.

I guess oil prices do matter, after all.

(We’ve been told by economists and talking heads and front cover stories in Forbes that rising oil prices don’t matter like they used to, because the economy is so much more energy-efficient than it used to be. Which must be why people drive Hummers that get, literally, 9 miles per gallon—because there’s so much energy left over from all the efficiency going around these days.)

Speaking of oil and energy, there was important, and bad, news Friday from the other side of the world, where half of our newly found oil has been coming from.

Russian Czar—er, President—Vladimir Putin stole—er, purchased—another asset for the State of Vladimir, having “ordered” the owners of Izvestia (the Russian equivalent to the Washington Post), to sell a controlling piece of that newspaper to Gazprom.

Gazprom happens to be the Russia state gas monopoly, which happens to also own NTV, a television channel that was known for going after Putin’s administration…until Gazprom happened to buy NTV and install nicer reporters.

So don’t expect much groundbreaking journalism from Izvestia any more.

And don’t expect much new oil from Russia, either. Because the really bad news from Friday was this: Russian oil production is stagnating thanks to the Kremlin’s heavy-handed takeover of Yukos (you recall the sometimes-deleted scene in The Godfather where the Godfather’s button-man slaps around the casino owner and chases him out of the building?—that’s about the way the Kremlin took over Yukos).

Yukos is Russia’s largest oil producer.

Now, try to imagine what a large oil company run by, say, the New York City Council might look like.

More specifically, try to imagine Gifford Miller—the slick-haired, perpetual New York Mayoral Candidate and, in his spare time, Speaker of the New York City Council-who-has-never-held-a-real-job-but-he-sings-on-the-campaign-trail—running America’s largest oil company, which would be Exxon.

For starters, every Exxon station in America would immediately have fifteen relatives of Al Sharpton, Fernando Ferrer and young Gif himself on the payroll, if not actually pumping gas.

And good luck getting your heating oil delivered on time.

Visualize, for a minute, budget meetings with Gif, Ferny and Al deciding what to do with Exxon’s $40 billion of cash flow…(think Homer Simpson dreaming of beer and drooling here)…

Then, move them to a smoke-filled room on the other side of the world; change their accents; give them all sharkskin suits, guns and heavy Russian mafia connections…and you now have an idea of who is running the largest oil producer in the Union of Decidedly Un-Socialist Vladimir and His Friends and Family.

Any wonder why Russian oil production is stagnating?

One Russian who sees the writing—and the higher oil prices—on the wall, is Andrei Illarionov, who told reporters (according to the Wall Street Journal) “it’s not possible yet to assess the scale of the damage” caused by the Yukos takeover: “We are on the edge and we’ve already put one foot over.”

Illarionov is not a Russian dissident who just got out of a Siberian prison camp: he is the Kremlin’s own “Economic Advisor.” (If Vegas is making odds on Illarionov’s life expectancy, I will take the under.)

Now, let’s look at some actual numbers, to see what the problem might be.

Thanks to the unleashing of the Soviet oil industry from the days when People Like Gifford Miller controlled the means of production, Russian oil output rose 50% from 6 million barrels-a-day in 1999 to 9 million barrels-a-day in 2004—a 3 million barrel-a-day increase.

Almost 7 of those 9 million barrels-a-day are exported. (Only Saudi Arabia exports more oil—between 8 and 9 million barrels-a-day—than Vladimir & Friends.)

World oil demand is running at 84 million barrels-a-day, up about 6 million barrels-a-day since 1999.

Therefore, Russia alone has satisfied half the total increase in world oil demand since 1999.

If that extra source of oil goes away—and Russian oil output has been flat for eight months in a row, for the first time since 1999—the world is looking at a very large mismatch in supply versus demand some time in the future.

The Oil Crisis of 200X awaits us, in my view, its precise date yet to be determined—weak jobs number on Friday or not.

So enjoy your Hummers while they’re not yet outlawed.

And keep an eye on the future political career of Gifford Miller, whose campaign slogan could be, “At Least He’s Not Running Exxon.”

Jeff Matthews
I Am Not Making This Up

During yesterday’s panic buying of longer-dated treasuries, with 10 year yields plunging to levels forseen only by truly smart guys like Bill Gross, I called a bond-trader-friend to ask what was going on.

“Guys are throwing in the towel,” he screamed over the din. “And Friday’s jobs report is probably going to [insert-filthy-bond-trader-language-here].”

He may be right about the throwing-in-the-towel stuff, but I don’t see how the jobs report is going to [insert-filthy-bond-trader-language-here].

If the ready availablity of summer jobs in southern New England for my daughters and their teenage friends is any indicator, jobs are all around us. Every teenage boy that darkens my door these days–and there are far too many of them for my taste, but that’s another discussion–has already lined up a job. Girls too.

And they’re not working at places-of-last-resort, like Mike’s Deli, where stacking firewood and putting together a hundred and fifty copies of the multi-sectioned New York Times on Sunday mornings drives teenagers to college. For the most part, they’re getting good-paying waiter and waitressing jobs.

Maybe this has no bearing on anything, but in years past, when things were tight all over, it was a lot tougher for the kids to find work.

(One summer, Tommy Goodwin ended up bagging groceries in the Stop & Shop, which was great because it allowed me to torture him mercilessly pretty much every Saturday morning. You can get a kid in a lot of trouble at a grocery store. Served him right for making our Friday and Saturday nights miserable.)

But what about the rest of the country? What’s the summer job index like out there?

Perhaps your own anecdotal evidence will tell us something about whether Friday’s jobs report is going to be as [insert-filthy-bond-trader-language-here] bad as the bond market expects.

Jeff Matthews
I Am Not Making This Up

Now that Steve Roach, Morgan Stanley’s Chief Economist, has jumped on the collapsing-long-bond-yield train, I feel safe in highlighting an investment idea whose success depends, in part, on Roach being wrong.

According to my Bloomberg, “the likelihood of a China-led slowing of Asia” has caused Roach to join PIMCO bond ace Bill Gross in looking for a 3% ten-year bond yield sometime in the future.

Only six months ago Roach was arguing for higher-than-expected rates—the non-intuitive result of an economic “Armageddon” caused by our unsustainable trade deficit leading to a Dollar collapse, forcing the Fed to raise interest rates more than Greenspan would like.

I’m not making up that “Armageddon” quote, by the way. A Boston Herald reporter got a copy of Roach’s presentation to Boston money managers last November, which was a lot more bearish than Roach’s public research: Roach told the group he saw a 60% “muddle through for a while and delay the eventual Armageddon” scenario, and a 30% chance at recession.

Roach gave it only 10% odds that we get through the trade-deficit, budget-deficit, consumer-savings-deficit, and listenable-new-music-deficit without either a recession or an eventual “Armageddon.”

So, if Roach is right, you probably don’t want to buy shares of Steelcase, the world’s largest office furniture manufacturer, based in the office furniture capital of the world, Grand Rapids, Michigan.

Indeed, if Roach is right, Steelcase—founded in 1912, IPO’d in 1998—is not going to be selling a whole lot of anything, because what it sells is the cubicles made fun of in Dilbert as well as the desks, chairs and fancy-shmancy conference tables from which Chief Economists like Roach make their morning calls to brokers around the world, warning of economic Armageddon.

(The brokers, of course, have been too busy flipping real estate on the Upper West Side and St. John’s Island to pay much attention to Roach.)

If Roach is right, in fact, you probably want to join the crowd of inside owners of Steelcase—all those Grand Rapids heirs to the company fortune—selling their stock in six-figure blocks every time it hits $14.

But, on the other hand, if Roach is wrong, Steelcase could be a nice, low-risk investment in a muddle-through world. We will explore its merits later this week.

For the record, I started in this business working at one of the big wire houses—not Morgan Stanley, but pretty much the same idea.

In addition to our equity research department, where shlubs like me toiled over the nitty-gritty of the actual companies which, to paraphrase Jimmy Stewart in It’s A Wonderful Life, did most of the building and growing and hiring and firing in this world, we had Big Picture Guys who thought Great Thoughts About The World without paying much attention to what it was all our companies were actually doing.

Those Big Picture Guys included a Chief Economist and a Chief Strategist and their staffs. They never agreed about much, and their forecasts didn’t particularly make a difference as far as I could tell.

But they put out a lot of interesting statistics.

On the other hand, I have immense respect for Bill Gross. Unlike Big Picture Guys, who get paid for making forecasts that don’t particularly matter, Gross manages money, which makes all the difference in the world.

Not only does Gross manage money, but he manages billions, successfully. And not only has he been doing it for decades, he tells you exactly what he’s doing and why.

And most of the time, as far as I can tell, he’s proven right.

Which is why the totally contrarian 3% bond yield call by Bill Gross is so appealing. But now that one of the Big Picture Guys has joined him, I have to admit, I feel a little better buying a muddle-through company like Steelcase.

Details to come.

Jeff Matthews
I Am Not Making This Up

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.