Category: Uncategorized

“I’m sorry, sir. I’m afraid I don’t understand your question.”

“When didn’t you say we couldn’t punish you? Don’t you understand my question?”

“No, sir, I don’t understand.”

“You’ve just told us that. Now suppose you answer my question.”

“But how can I answer it?”

“That’s another question you’re asking me.”

“I’m sorry, sir. But I don’t know how to answer it. I never said you couldn’t punish me.”

“Now you’re telling us what you did say. I’m asking you to tell us when you didn’t say it.”

Clevinger took a deep breath. “I always didn’t say you couldn’t punish me, sir.”

“That’s much better…”

—Joseph Heller, Catch 22

We have now reached the point where Wall Street’s Finest will upgrade a company’s stock to a “buy”—or at the very least, no longer a “sell”—after the company has announced it is to be sold for a substantially higher price than when the same stock was rated a “sell.”

I am not making that up.

It happened just last week—as alert reader Greg Buchholtz brought to our attention—in the case of Tribune Company, the beleaguered media giant whose announcement of its sale to Sam Zell added 6% to the existing share price, and one Wall Street’s Finest promptly upgraded the stock from “Underweight,” a euphemism for “Sell,” to “Neutral,” a euphemism for “We’re Not Sure What To Do With This Thing,” as follows:

TRB: TRIBUNE ACCEPTS OFFER TO GO PRIVATE. WE ARE RAISING OUR RATING TO NEUTRAL


The Prudential analyst also raised his price target on the shares to $34—which happens to be the very price at which Tribune’s board agreed to sell to Mr. Zell.

Of course, by the time the upgrade appeared, it was already too late to do anything about it.

If, upon reading about the after-the-fact upgrade, Prudential’s clients, particularly those who had already sold their Tribune stock for something less than $34 a share on the basis of the previous “Underweight” rating, felt the need to hunt down a familiar old book (quoted here at the beginning) and leaf through it to try to grasp exactly what logic prevailed behind such a move, they might have settled on this passage:

There was only one catch and that was Catch-22, that specified that a concern for one’s own safety in the face of dangers that were real and immediate was the process of a rational mind. Orr was crazy and could be grounded. All he had to do was ask; and as soon as he did, he would no longer be crazy and would have to fly more missions. Orr would be crazy to fly more missions and sane if he didn’t, but if he was sane, he had to fly them. Yossarian was moved very deeply by the absolute simplicity of the clause of Catch-22 and let out a respectful whistle.

“That’s some catch, that Catch-22,” he observed.

“It’s the best there is,” Doc Daneeka replied.

Of course, that was in war time. Here on Wall Street, Catch-22 means investors should not buy a stock until after it has gone up to the price it is being sold for.

Or, as Clevinger might have written the upgrade for Pru,

“I always never said you shouldn’t buy Tribune stock until it didn’t get to $34.”

Jeff Matthews
I Am Not Making This Up

© 2007 Jeff Matthews

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. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

Sometimes in the annals of things-that-strike-us-as-mind-boggling, an example comes along that is so clearly mind-boggling—no matter what an observer’s age, politics or religious beliefs might be—that it requires no commentary on our part to highlight how very mind-boggling it is.

Today’s example comes about three-fifths of the way through a front page New York Times story titled “New Jersey Diverts Billions, Endangering Pension Fund,” and if you ever thought your tax dollars were spent wisely, or, at the very least, not incompetently, you ought to read the entire hair-raising piece—not just the following excerpt.

And, no, I am not making this up.

…Mr. Beaver and Mr. Megariotis recounted a bit of history. In 2001, the Legislature voted to increase teachers’ pensions by 9 percent, raising the plan’s total cost by an estimated $3.1 billion. Because New Jersey’s Constitution forbids creating debts without creating a funding source, the lawmakers needed to pay for it. They looked back to June 30, 1999, the height of the bull market.

Records showed that the pension investments were worth $5.3 billion more on that day than the plan’s actuary showed, because actuaries phase in gains and losses slowly to avoid sudden swings in market value. The lawmakers seized on this paper gain of $5.3 billion, and voted to channel it as an actual windfall into a new reserve in the pension fund, to pay for the new benefits.

I.R.S. officials said that a company would not be permitted to do this with a pension fund.

By the time the Legislature did this in 2001, of course, the stock market had tumbled and much of the $5.3 billion had melted away. That appeared not to have concerned the Legislature. An election was looming, and the teachers’ union was complaining bitterly about past failures to put money into their pension fund.

Too bad the 2005-2006 batch of sub-prime home buyers can’t set their home’s current value at its peak a year and a half ago…

Jeff Matthews
I Am Not Making This Up

© 2007 Jeff Matthews

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. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

The company has completed a wage management initiative that will result in the separation of approximately 3,400 store Associates. The separations, which are occurring today, focused on Associates who were paid well above the market-based salary range for their role. [Emphasis added.]


“Separations.”

That’s how Circuit City, perennial also-ran to Best Buy in the electronics superstore wars, chose to describe ‘people getting fired’ when revealing yet another turnaround plan last week in a press release quoted above.

“Separations” certainly sounds much softer than “firings” or “layoffs.”

Even “downsizing,” which has for years been the euphemism of choice among corporate officers taking, on the one hand, multi-million dollar option packages for their own good while, on the other hand, “downsizing” the hourly work force and shifting production elsewhere, now appears too harsh.

Could be that The Office has made “downsizing” a much scarier word by revealing, in its hip, sardonic way, that “downsizing” means real human beings lose their jobs.

In any event, “separations” may become the new euphemism of choice. After all, as with marriages, “separations” is optimistic: it implies a temporary split, intimating a possible reconciliation at some future point.

Perhaps those Circuit City employees who have been “separated”—fully 8% of the entire work force—will indeed come back to Circuit City after a time. Like a contrite, philandering spouse, they may come to admit they had it too good for too long, and will accept their old jobs at newer, lower wages.

In which case, “separations” would be entirely accurate.

But I suspect it is not.


Jeff Matthews
I Am Not Making This Up

© 2007 Jeff Matthews

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. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

“I’m speechless right now. On that number. Can you repeat that again?”

—Michael Aberman, Credit Suisse
Alexion Pharmaceuticals conference call

“That number” to which the aforementioned analyst is referring is the wholesale price of a new biotech drug called Soliris, which will be the first and only treatment for a rare genetic blood disorder known as PNH.

PNH, for the record, currently afflicts 8 to 10,000 individuals in the U.S. and Europe. According to Alexion,

Patients with PNH may suffer from severe hemolysis, anemia, chronic fatigue, recurrent pain, pulmonary hypertension and intermittent episodes of dark colored urine, known as hemoglobinuria. Importantly, PNH patients are at increased risk of forming life-threatening blood clots, or thromboses, which are a major cause of death in this disease.

As with, for example, cancer, PNH can be diagnosed at any age, but the median age in a UK study was 42 years. The median survival period after diagnosis was 10 years, although fully one quarter of patients in one study survived 25 years following diagnosis with PNH.

You might think the good folks at Alexion who came up with what looks to be a much-needed and long awaited therapy for a rare disease would be sensitive to the raging debate on health care costs in general, and biologics in particular, now enveloping both politicians and bureaucrats—not just in Washington but in every state capital in the Union.

And perhaps they are.

But the price they came up with for Soliris, which as we have seen shocked at least one of Wall Street’s Finest into speechlessness, was $389,000 per year.

The full excerpt of the above-quoted dialogue, courtesy of the indispensable Street Events, is as follows:

Operator

Thank you. [OPERATOR INSTRUCTIONS] And we’ll take our first question from Michael Aberman from Credit Suisse. Please go ahead, sir.

Michael Aberman, Credit Suisse – Analyst

I’m speechless right now. On that number. Can you repeat that again?

David Keiser, Alexion Pharmaceuticals – President, COO

The annual cost of treatment on the wholesale level is $389,000 annually.

Michael Aberman, Credit Suisse – Analyst

And can you describe on the wholesale level what kind of cost for distribution and how you maybe compare to some other rare disease drug prices and how you came up with that number?

Vikar Sinha, Alexion Pharmaceuticals – SVP, CFO

Hi, Michael this is Vikar Sinha

Michael Aberman, Credit Suisse – Analyst

Sure.

Vikar Sinha, Alexion Pharmaceuticals – SVP, CFO

Compared to other drugs, we have — compared to — you’re talking about — compared to other drugs in terms of pharmacoeconomics, Soliris meets the criteria recommended by the Citizens Council regarding the decision to pay premium prices for ultra orphan drugs. And we have looked at the degree of severity of the disease, the treatment provides health gains, environment stabilizing of the condition, and the disease or condition that is life threatening.

Leonard Bell, Alexion Pharmaceuticals – CEO

Michael, as you’re aware probably most other drug for orphan diseases are dosed on a patient weighed basis and certainly Soliris is not. Due to weight-based dosing, the price of other therapies, as you know, can range beyond $1 million per patient per year. For example, the annual cost of a drug recently approved to treat an average size adult with [Pompe’s] disease would be over $400,000, and similarly the annual cost for a drug recently approved to treat average sized adults with Hunter syndrome would also be over $800,000. At Alexion, of course we focused on the key criteria that David outlined, that is, the rarity of the disease, the compelling clinical benefit that PNH patients experience with Soliris therapy, now that we have an approved label and we understand what those benefits are agreed to be. The cost of discovery, development, and production. Importantly our costs at Alexion to sustain our ongoing commitment to the PNH community.

Michael Aberman, Credit Suisse – Analyst

Okay.

Leonard Bell, Alexion Pharmaceuticals – CEO

Does that provide you context?

Michael Aberman, Credit Suisse – Analyst

I guess so. It’s just surprisingly high. I’ll get back in the queue as I think of an additional question. Thanks.

To Alexion’s credit, management spent even more time later in the call elaborating on the logic and assumptions behind the $389,000 annual therapy cost at a time when Presidential politics could potentially make Soliris a Poster Child of Why We Need Cost Controls in Healthcare.

And while at least one of Wall Street’s Finest raised his earnings forecast based on the much-higher-than-expected price, one actually reduced his forecast owing to the concern that the uptake of Soliris would be hindered by thoughts of price-gouging.

Readers interested in Soliris, PNH, Alexion, the controversy surrounding high-priced biologics, or all four topics ought to listen to a replay of the call.

Just don’t send a transcript to one of the Presidential candidates.

Jeff Matthews
I Am Not Making This Up

© 2007 Jeff Matthews

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. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

The least helpful call from Wall Street’s Finest thus far today is most certainly the downgrade of Vonage, that Poster Child of Failed Initial Public Offerings whose stock closed at $3.00 on Friday—a rather dramatic discount to its 52-week high and IPO price of $17.25—from “Peer Perform” to “Market Perform” by one of Wall Street’s Bigs.

Stated reason for the downgrade? “Too Many Risks.”

No, I am not making that up; and yes, the morning is still young.

Nominations for even less helpful calls than that are welcome.

Jeff Matthews
I Am Not Making This Up

© 2007 Jeff Matthews

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. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

BEHIND nearly every good bar fight is a beautiful woman – and the epic nightclub clash between Axl Rose and Tommy Hilfiger is no exception.

While some say Hilfiger popped Rose in the eye after the Guns N’ Roses frontman moved Hilfiger’s girlfriend’s drink at The Plumm last Thursday night, Page Six has learned that the combatants have been at odds since Rose started dating Diane O’Connor, the ex-wife of Hilfiger’s adopted brother, denim designer Michael H.

One source even went so far as to claim that the Hilfiger brothers had made a “pact” to pummel Rose on sight. While we’re not sure we believe that the preppie fashion icon – who just sold his empire for $1.6 billion – would engage in such premeditated thuggery, it might explain his seemingly unprovoked attack on Rose.—Page Six

It was the blandest of puff-pieces.

No, I’m not talking about the above-quoted Page Six report on last May’s bar brawl between the nightclub-hopping fashion icon Tommy Hilfiger and rock mega-has-been Axl Rose.

I’m talking about one of those formulaic he-worked-hard-to-gain-fame-and-fortune-then-met-adversity-and-is-now-making-a-comeback pieces of drivel common to television that appeared last night.

Most channel-surfers wouldn’t have paused more than a split-second before their brain snapped into instant pattern recognition mode, spotted the fashion-model images with the chirpy yet serious Talking Head narration for exactly the pap that it was, and directed their fingers to click onto a different channel.

Yet there was something in the vacuity of the questions and the fake sincerity of the subject’s answers so compellingly nauseating that the brain overloaded, synapses blew out, and the fingers couldn’t move.

It was a show about Tommy Hilfiger—Tommy building an empire! Tommy watching his empire begin to crumble! Tommy pondering whether to chuck it all for a movie-producing career! Tommy shaking off his doubts and deciding to rebuild his empire!

And it was worth every second.

We learn Tommy’s secret to putting on a successful fashion show. It is—are you ready?—“music.”
Yes, that’s the secret. Fashion shows are like concerts. They need great music.

You could almost hear the other fashion designers around the country slapping their foreheads and screaming, “Of course! Music! That’s the ticket!”

We learn Tommy’s secret to creating a successful new line. It is—are you ready?—they must have a “theme.”“Sacre bleu!,” Coco Channel is weeping from the heavens, “Nous n’avons pas des ‘themes’! Quel Idiot!”

Tommy proudly tells us how he decided that the theme of his most recent line would be—put down any sharp objects you are holding, or you might injure yourself, it’s such a revelation—color.All the models would be wearing lots of color. Everything, Tommy intones, would be color.

You could almost see Calvin Klein hurling his Blackberry at the nearest assistant’s forehead: “Good God, man! He’s done it to me again! Now he’s using colors!”

We learn how Tommy—he’s such a humanitarian—actually sewed the seeds of his own company’s crisis, by showing P. Diddy how to start an urban clothing line, just the type that would appeal to Tommy’s own hip, urban base.

And, because these superficial biographies always end on a reflective-yet-upbeat tone, we learn how Tommy faced the new competitive environment, when his multi-million paycheck from royalties paid by the public company bearing his name apparently veered dangerously close to single-digits, shook off thoughts of retirement, rejuvenated his management team and now occupies a good space in his life.

What did it? What sustained him? What brought him through such—hold your nose—adversity?

It is, we are told with a straight face, the “family values” that Tommy learned growing up in a large family with eight siblings.

I am not making that up.

The no-longer-married father with the “great girlfriend”—his words, not mine—and the Axl Rose grudge, owes it all to “family values.”Let’s go back to that Page Six story on the Tommy/Axl dust-up last May:

A spokeswoman for Hilfiger declined repeated requests for comment yesterday, and Rose’s manager did not return calls.

But Rose told Page Six in an exclusive interview after the brawl that Hilfiger may have been angry because the designer – whom Rose described as “foaming at the mouth” – had been told to move to make room for the rock god and his entourage.

Other witnesses said Hilfiger went nuclear after Rose moved a drink belonging to Hilfiger’s girlfriend.—Page Six

From now on, I’m getting my celebrity news strictly from Page Six.

Jeff Matthews
I Am Not Making This Up

© 2007 Jeff Matthews

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. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

We here at Not Making This Up strive to not make it up; and with that in mind we sometimes survey readers on topics of interest, such as the new iPhone (“Whose iPhone is This, Anyway?” March 4).

I am pleased to report that thus far we have received 41 thoughtful, intelligent responses to our eight-question survey.

I’m even more pleased the responses as a whole give some insight into the iPhone and its place in the “smartphone” marketplace. In fact, serious investors may learn something.

We are still compiling the results and will present our conclusions shortly, meaning, whenever we get around to it.

In the meantime, last-minute entries are welcome.

Jeff Matthews
I Am Not Making This Up

© 2007 Jeff Matthews

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. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

THE bell rang furiously and, when Miss Parker went to the tube, a furious voice called out in a piercing North of Ireland accent: “Send Farrington here!”

Miss Parker returned to her machine, saying to a man who was writing at a desk: “Mr. Alleyne wants you upstairs.”

The man muttered “Blast him!” under his breath and pushed back his chair to stand up. When he stood up he was tall and of great bulk. He had a hanging face, dark wine-coloured, with fair eyebrows and moustache: his eyes bulged forward slightly and the whites of them were dirty. He lifted up the counter and, passing by the clients, went out of the office with a heavy step.

—“Counterparts” by James Joyce

There is a man being fired from his job, just three tables away from me at the Starbucks.

It took a while for the conversation of the two men, one facing me, the other with his back to me, to penetrate the general hum of the place, but that is what is happening.

Their body language tells the story: the man facing me is dressed like a mid-level manager—not sharp, not sloppy. His shoulders are hunched over; he has a hanging face, blank yet grim; and his hands are clasped together between his knees.

His counterpart, though I can’t see his face, is dressed like a man with power—his jacket is off, he’s wearing a crisp white shirt with French cuffs, and he is speaking quietly but forcefully.

The peculiar acoustics of this room are just enough to allow the rest of us working nearby to hear what none of us wants to hear.

We can hear about forms that are going to have to be filled out; about the two weeks’ severance the man will be receiving; and about the health insurance coverage he is eligible for while he is, as the euphemism goes, “between opportunities.”

Worse, for it seems as if the man is not to be trusted, we can hear a question about the status of his computer, and any other office equipment belonging to the company which he has not turned in. And whether he has keys to any of the company offices around the state.

It turns out he still has a key to one office.

“That will have to be turned in,” says the man doing the firing.

Everybody in this room—it is a big room, with hard floors and echoing walls—can hear about the key, and what comes next.

The man pushes back his chair. “I’ll get you that key,” he says, then he leaves, quickly.

His counterpart sits for a few more minutes, looking out the window contemplatively while drinking the rest of his coffee.

Then he leaves, and we are all back to work.

Jeff Matthews
I Am Not Making This Up

© 2007 Jeff Matthews

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. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

“I don’t think anyone has proven that a random collection of people doing their own thing has created value.”

—Steve Ballmer, Microsoft CEO, on Google
The Wall Street Journal

“The lady doth protest too much, methinks.”

—Queen Gertrude
Shakespeare’s Hamlet

In previous columns touching the repeated failures of Microsoft, Bill Gates and his Strong Man, Steve Ballmer, to keep up with—let alone lead—the online transformation of the technology world, I have nevertheless heaped praise on Mr. Ballmer as a marketing powerhouse who helped a geeky technology company become the monopolistic underpinning of the modern-day computer age.

And I take back none of those compliments here.

But the more I read of the iPod-avoiding, Google-bashing Mr. Ballmer’s pronouncements on Where the World is Heading and How Microsoft Plans to Get its Mo Back, the more I think Mr. Ballmer is the obstacle rather than the solution to Microsoft’s problem.

Microsoft’s problem, as I see it, is simply this: its desktop operating system monopoly—which provides not just the cash but the mindset behind all its product development efforts—is increasing irrelevant in a wireless, digital world.

And the more Mr. Ballmer protests otherwise, the more it makes me wonder how much longer the shareholders of Microsoft will put up with a CEO who won’t allow his children to use an iPod or do a Google search.

Such a blinders-on, head-in-the-sand, not-invented-here mindset has heretofore been more closely associated with Detroit, where auto executives drive only their own company’s best cars. Small wonder the bigs at GM, Ford and Chrysler failed to grasp, before it was too late, the quality and innovation that allowed Toyota and other imports to eat their collective lunch.

Apparently, Redmond is now the New Detroit.

How else to take Ballmer’s dismissive comments about the folks at Google, who not for nothing have done more than any other organization in the world—IBM, HP, and Oracle included—to neuter the Colossus of Redmond?

The Wall Street Journal’s full quote on the subject is this:

He [Ballmer] went on to criticize Internet competitor Google Inc. for failing to achieve significant traction in ventures beyond its online search business. The company has been trying to double its staff in a year, he added.

“That’s insane in my opinion,” he said. “I don’t think anyone has proven that a random collection of people doing their own thing has created value.”

Now, the last quarter I saw, Microsoft had 71,000 employees, whose efforts generated about $3.5 billion in operating income.

Meanwhile, Google’s “random” collection of not quite 11,000 employees generated $1 billion in operating income in the same quarter.

Sharp-eyed readers will have already done the math, which is this: Microsoft generated only slightly more than three times the profit of Google despite having almost seven times as many employees as Google’s random collection of hipster do-good engineers.

That lack of productivity does not speak well of Ballmer’s aging time-card-punchers who, you might recall, now require dinners-to-go from Wolfgang Puck to keep them from seeking greener pastures than Redmond. (See “Microsoft Brings Back…The Comfy Chair” from May 31, 2006.)

Yet Ballmer retains complete confidence in his demonstrably less productive crew’s ability to turn back the encroaching tide—or at least he expresses such confidence—despite all evidence to the contrary:

“I like to think of us as a two-trick pony” with the company’s desktop and server software businesses providing those tricks, he said. “The third trick we’re trying to do is online.”

The fourth trick, he added, is mastering consumer products, such as the new Zune music player. “In a sense, I see kind of a “positive” in all of these areas,” Mr. Ballmer said during an on-stage discussion with Robert Joss, dean of Stanford Business School.

Anybody seeing “kind of a ‘positive’ in all these areas” might require a stronger pair of reading glasses.

The Zune is an unmitigated nothing—not even a failure, because that would imply the expectation of success, of which I believe there was none outside the Redmond city limits.

For the record, at this very moment not a single Zune appears until the rank of 21 on the Amazon.com MP3-player bestseller list, behind 11 iPods, five SandDisks, three Creative Labs and a Samsung.

And the second Zune on the list does not appear until number 58.

As for the Microsoft operating system franchise, the much-hyped new-age Vista operating system has had about as much impact as the Wall Street Journal’s experiment with front-page advertising and thinner layouts.

How bad of a let-down is Vista? I went to a Best Buy to play around with a Vista PC and see how it was selling…and after a couple of minutes of clicking icons on a Toshiba notebook I actually had to check with a blue-shirted Best Buy expert to make sure the notebook was running Vista.

Despite the much-hyped “translucent” pages and dispensing of toolbars, the thing looked and worked like only a slightly modified Windows XP computer.

Meanwhile, the random collection of hipster do-gooders in Mountain View are releasing web-hosted spreadsheets that work a lot like Excel, only much easier and without all the junk 80% of the world never uses, as well as web hosted calendars that work a lot like Outlook only much easier and without all the junk 80% of the world never uses.

And it appears only a matter of time before everything else the Microsoft Monopoly offers will be available online, only much easier and without all the junk 80% of the world never uses.

Yet Ballmer appears oblivious to it all—perhaps because he has never played around with Google Calendar or Google Spreadsheet:

“Leaders really do need to hit the right balance on the optimism-realism curve,” he [Mr. Ballmer] added.

He said Microsoft has come up with a list of 70 technologies that will “change the world” in coming years.

While Microsoft is compiling “lists” of such technologies, Google’s random collection of hipster do-gooders has been spitting out real products that, if they don’t change the world, then they are certainly changing the way millions of Americans are using technology.

Google Earth, for example, and Google Maps, not to mention Google Mail.

If Mr. Ballmer believes the Google Boys are “insane” to be hiring so many randomly creative, inspired individuals, perhaps he should keep in mind Hamlet’s admission to his erstwhile friends, Rozencrantz and Guildenstern:

You are welcome; but my uncle-father and aunt-mother are deceived….

I am but mad north-north-west: when the wind is southerly I know a hawk from a handsaw.



The Google Boys know a hawk from a handsaw.

Jeff Matthews
I Am Not Making This Up

© 2007 Jeff Matthews

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. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

On July 1, 2005, we acquired all the outstanding capital stock of Ski West, Inc. (“Ski West”), an on-line travel company whose proprietary technology provides easy consumer access to a large, fragmented, hard-to-find inventory of lodging, vacation, cruise and transportation bargains…. We paid an aggregate of $25.1 million (including $111,000 of capitalized acquisition related costs) for Ski West, and we may be subject to additional earn-out payment…

As part of this program to reduce our expense structure and sell non-core businesses, we decided during the fourth quarter of 2006 to sell the Company’s travel subsidiary (“OTravel”)…. As a result, OTravel’s operations have been classified as a discontinued operation and therefore are not included in the results of continuing operations.

—Overstock.com 2006 10K

Well that was fast.

Seems Our Man in Salt Lake City, a self-described “value investor” and Warren Buffett disciple, decided to hit the bid on Ski West, a business he’d bought a mere 18 months before the decision to sell.

And to sell at a discount to his cost basis, no less.

Just a year ago, Our Man in Salt Lake City was talking up the operating trends at that operation, as follows:

Ski West did okay. The business we bought made money through the second half of the year. We, on top of that, we already had started development of a travel business that we sort of integrated — we spent six months integrating into Ski West and writing off, we wrote off all the development costs of code and different things we have done, we wrote to zero.

So travel as a whole showed a loss for the second half of the year but the business we bought made money, made a nice little chunk of money. And then on top of that, we have gotten everything we think fixed and together in travel, so even in January, the whole business made money not just the business we bought but now everything worked together is making money. It made a nice little sum in January.

The only problem with that statement, which occurred on the February 7, 2006 conference call, is that Our Man in Salt Lake had hinted at far greater things on an earlier call, from August 2005.

Specifically:

SkiWest. I’ll give you some numbers on SkiWest and let me walk through the numbers and then I’ll give you sort of the footnote at the end. Last year Ski West revenue was $30 million. And that means from April 1 until March 31 was $30 million. And then for this year they plan to do at least $60 million. Last year on 30 million of revenue they made a $1 million. This year, meaning from April 2005 to March of 2006, they figure that they would be able to do 2 million, 2.5 million of income operating profit.

A few footnotes on that. If a company is growing that fast, and its April to March number is 60 million, then its July number will be higher. It will be 70 million, 75 million. In addition, they’re growing now at faster than 100% pace. So it’s possible to be talking about maybe 80 to 90 million in the July to June period, July of this year to June of next year period, 80 to 90 million. In which case, it looks more like something that could make 3.5, 4, something like that.

It looks like Ski West came nothing close to “something like that,” at least according to the following disclosure in the latest 10K.

The loss from discontinued operations for OTravel was $6.9 million for the year ended December 31, 2006, including a goodwill impairment charge of $4.5 million.

The lesson?

Talk is cheap—although it can be very expensive for shareholders.

Jeff Matthews
I Am Not Making This Up

© 2007 Jeff Matthews

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. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.