Categories
Uncategorized

Get Yer Microsoft Vista™ Model-Train Enthusiast Edition Today!

Vista is much prettier than previous versions of Windows. Its icons look better, windows have translucent borders, and items in the taskbar and in folders can display little previews of what they contain. Security is supposedly vastly better; there are some new free, included programs; and fast, universal search is now built in. There are hundreds of other, smaller, improvements and additions throughout the system, including parental controls and even a slicker version of Solitaire.

—Walter Mossberg, Wall Street Journal

So reads the second paragraph of computer-usability-guru Walter Mossberg’s review of Microsoft’s newest version of Windows in today’s Wall Street Journal.

For those of you who can’t wait to get their hands on “a slicker version of Solitaire,” now’s your chance. Only it will not, according to Mossberg, come cheaply:

To get the full benefits of Vista, especially the new look and user interface, which is called Aero, you will need a hefty new computer, or a hefty one that you purchased fairly recently. The vast majority of existing Windows PCs won’t be able to use all of Vista’s features without major hardware upgrades. They will be able to run only a stripped-down version, and even then may run very slowly.

In fact, in my tests, some elements of Vista could be maddeningly slow even on new, well-configured computers.

Furthermore, seems Microsoft still hasn’t solved the security problems that drive users batty trying to keep track of which version of Norton or McAfee they bought to protect their Microsoft computer and why that version of Norton or McAfee no longer protects this particular computer from whatever security problem they thought it was aimed to stop when they bought the software, which turns out to be six years ago, forcing them to buy yet another version of Norton or McAfee…

According to today’s review:

Also, despite Vista’s claimed security improvements, you will still have to run, and keep updating, security programs, which can be annoying and burdensome.

Summing up Mossberg’s conclusions—although I heartily recommend reading the real thing, for it is an excellent and eye-opening piece—is this priceless sentence:

Nearly all of the major, visible new features in Vista are already available in Apple’s operating system, called Mac OS X, which came out in 2001

There you have it: five years in the making, at a cost of who knows how many billions of dollars, and we have a newer, less secure version of what you can already buy with a Mac.

But the best part of all? In keeping with Microsoft’s past tendencies to flood the market with all kinds of confusing product upgrades and special editions, Vista comes in six—six, count ‘em—versions, including “Home Premium” and “Home Basic.”

My suggestion? Wait for Microsoft to introduce the version that fits your own special needs—the Microsoft Vista ™ Model-Train Enthusiasts’ Edition, for example.

Meanwhile, stick with your Mac.

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.

Categories
Uncategorized

Walking in Memphis


“Walking in Memphis” is a catchy, emotive song that everybody’s heard but nobody quite knows what it’s about, other than a guy who ends up walking in Memphis while having a vaguely religious sort of music-inspired, soul-stirring experience.

The irony is this: while in Memphis not long ago, I was advised by the porter at the hotel not to go walking in Memphis.

And I am not making that up.

It was the day after a conference had ended and I was planning to walk to The National Civil Rights Museum, a mere six blocks down South 2nd Street from the hotel, in broad daylight. When I asked the porter for directions, he shook his head somewhat apologetically and told me to take the trolley instead.

Now, I know Memphis is no Disneyworld, but not since Giuliani cleaned up New York City can I recall somebody advising me not to walk a few blocks in a big city in broad daylight, so I wasn’t sure I’d heard him correctly. He said I had. “Take the trolley,” he repeated, pointing up the block.

So I took the trolley, which was actually pretty cool, being a rickety, ancient, wood-paneled affair out of the 1930’s—the Lexington Avenue subway this was not. There were only a handful of other tourists on board, and the windows were down, letting in a warm breeze from the bright sunny street. We rocked along at a fast walk without seeing much of anybody, threatening or otherwise. I got off at the museum stop and walked another block to the museum itself.

If you’ve never seen it, The National Civil Rights Museum isn’t your basic museum with huge drafty rooms lined with statues of dead Romans or glass cases filled with Anglo-Saxon farming tools. It is, rather, a modern structure grafted onto the actual Lorraine Motel where Martin Luther King, Jr. was shot and killed. And it is entirely dedicated to the events leading up to, including, and resulting from, that day.

“That day” was April 4, 1968—as any school child would know, not because they read their history books but because they’ve heard the other song about Memphis, the one from U2:

Early morning, April four
Shot rings out in the Memphis sky
Free at last, they took your life
They could not take your pride.

Being a rock star and all that, Bono got the date right but the time wrong—the shots in fact rang out in the early evening, April fourth: just after 6 p.m. local time (7 p.m. Eastern Standard Time), to be precise.

King was standing on the balcony outside his second floor room at the Lorraine Motel, with Jesse Jackson and Ralph Abernathy. He was talking to Andrew Young, who was in the parking lot just below with some associates who were going to take King to dinner.

And that is when James Earl Ray, one of those strange losers who make American history what it is, fired a rifle from the bathroom window of a second floor boarding room on the other side of a vacant lot across the street from the Motel, killing King with a bullet in the neck.

Now, earlier in the week I’d made the pilgrimage to Graceland, which sits in a somewhat swankier neighborhood only 7 or 8 miles south of the Lorraine Motel, and had been thoroughly disappointed by the experience.

The ghost of “Fat Elvis,” as John Lennon referred to Presley’s declining years, hung over Graceland like a sequined jacket: everything from the parking lot to the peeling skin of the Elvis jet parked behind a chain-link fence seemed worn and unkempt, and a decrepitly cheesy atmosphere permeated the souvenir shops and the three—three!—fast food places at the visitor center..

(For some weird reason—Graceland is not much more than 10 minutes from the hotels and restaurants of downtown Memphis—the availability and supply of fast food appears to be as much an overriding concern of visitors to Graceland as it was to Elvis himself.)

I got out of there as fast as possible, with a pair of Elvis keychains for my daughters.

Yet the Graceland-infused trepidation I carried into The National Civil Rights Museum vanished immediately upon passing through the ticker counter and entering the very first room, which could in no way be confused with the Rockabilly Diner in the food court at Graceland.

That first room contains—and I am not making this up—a photo gallery of people who have been shot. Not shot and killed, but shot and still alive. Disfigured faces and disfigured bodies are presented plainly to the camera, while below each photograph is a page of text in which the victim tells his or her story first-hand.

The victims are women shot by their boyfriends, young men shot by gangs, innocent middle-aged bystanders shot by thieves—maybe 20 or 30 in all, but you lose count as you become immersed in their stories, which are graphic, brutal, and astonishingly detailed. After not at first wanting to actually read them but to get on with the museum itself, you want to read them all. The point—that people with guns destroy lives in the most random, unexpected, shocking, painful ways—is emphatic.

Next, there is the small auditorium with the obligatory introductory film about Martin Luther King Jr.’s times—a modest disappointment after the powerfully graphic photo gallery, being long on stirring words and short on details.

Finally, however, you leave the theater and enter a long, twisting, gently-sloping corridor that slowly takes you to the second floor of the Lorraine Hotel as it was when King died there. Along the walls, the story of the Civil Rights movement slowly unfolds through black-and-white pictures, recorded speeches, newspaper stories, the voices of those who participated, and key documents.

There are the famous Life Magazine photographs of police dogs and fire hoses being turned on young men and young women, of sweating Civil Rights marchers, firey speech-makers, and smiling KKK men facing trial in friendly courtrooms; and then there are the more gruesome photographs that didn’t make Life: lynched bodies slouching from nooses tied to tree branches. There is, as well, the burned out Freedom Rider bus itself and a life-size recreation of the famous lunch counter scene. The cumulative effect of all this is to enumerate the hardships, setbacks, atrocities and small breakthroughs of the era in a way no A&E documentary can do.

Finally, on the second floor, you come to King’s own room and the balcony beyond, the voices of Andrew Young and others with him at the end ringing in your ears.

You emerge from the motel blinking and dazed, shocked to recall how this country was dragged kicking and screaming into some semblance of tolerance and legal notions of equality.

But that’s not the end of the museum.

Across the street and through a tunnel beneath the vacant lot is an elevator that takes you up inside the boarding house where Ray sat by a window, waited for his moment and shot King. After the powerful images of the Lorraine Motel, the displays of James Earl Rays’ personal effects and the story of his two month flight and subsequent capture at Heathrow Airport are mundane, banal and pathetic—and therefore easily as striking as the images of the movement he thought he could stop.

After spending far more time than I’d planned to spend at what is commonly called the King Shrine, I emerged into a bright sun, walked the six blocks back to my hotel on hot, mostly empty sidewalks, and left for the airport.

Go to Graceland if you must, but visit the Lorraine Motel for sure.

Jeff Matthews
I Am Not Making This Up

© 2006 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.

Categories
Uncategorized

“Plant a Tree, Save My Company!”



Michael S. Dell, who made his name building computers, has a new goal: planting trees.

In a speech Tuesday at the Consumer Electronics Show here, Mr. Dell urged the electronics industry to foster the planting of trees to offset the effect on the environment of the energy consumed by the devices they make.

—New York Times

While Steve Jobs was, once again, changing the known world—this time with a device whose major flaw may be its name (the “iPhone” is no more a mere “phone” than it is a tomato)— Michael Dell, who once dominated the personal computing world with his low cost, low reliability, low service business model, was rather desperately attempting to change his company’s image with a challenge:

“I challenge every PC vendor in the industry to join us in providing free recycling.”

What Mr. Dell means to do is to recycle the carbon emissions generated by the electrical demand from computers through the founding of a program called “Plant a Tree for Me.”

Nice as the thought is that one of our Captains of Industry is interested in something other than building the biggest house in Portola Valley or sending paying customers on rocket-based joy rides to the outer atmosphere from the Texas flatlands, there does not appear to be a whole lot of thought behind this notion.

According to the Times:

Customers would donate $2 for every notebook computer they buy and $6 for every desktop PC. The money would be given to the Conservation Fund and the Carbonfund, two non-profit groups that promote ways to reduce or offset carbon emissions, to buy and plant trees.

Now, if you’re thinking what I’m thinking, you’re thinking “What kind of tree does six bucks buy, let alone two?”

Answer: a Dell Tree.

Let’s just hope the Conservation Fund and the Carbonfund have better customer service reps than the folks at Dell. They’re gonna need ‘em.

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.

Categories
Uncategorized

The Tragedie of Home Depot

DUNCAN
Is execution done on Cawdor? Are not
Those in commission yet return’d?

MALCOM
My liege,
They are not yet come back.
But I have spoke
With one that saw him die; who did report
That very frankly he confess’d his treasons,
Implored your highness’ pardon and set forth
A deep repentance: nothing in his life
Became him like the leaving it…

—William Shakespeare

So Shakespeare describes the death of Cawdor in The Tragedie of Macbeth, a play whose title character engaged in what some might regard as only a slightly more aggressive form of corporate ladder-climbing than modern investors have seen from the likes of Dennis Kozlowski, Jeff Skilling and Bob Nardelli.

.

Which is to say Macbeth actually physically murdered his enemies, with knives and stuff, instead of killing them off through other, bloodless means.What Malcom famously says of Cawdor—that “nothing in his life became him like the leaving it”—cannot, however, be said of Bob Nardelli, if the Wall Street Journal’s excellent account of his recent leaving of Home Depot is even halfway accurate:

Mr. Nardelli submitted a one-page list of perks he was willing to drop, including personal use of the six corporate jets, according to one person involved in the matter. But he dug in his heels about his guaranteed $3 million annual bonus and his hefty supplemental pension arrangement.

Were Shakespeare alive to rework Macbeth in a more modern corporate setting, where the price of utter failure is no longer death by sword but rather, using Ovitz, Grasso and Nardelli as the new benchmark, a $200 million severance package, that key scene might look a little different than Shakespeare wrote it…

DUNCAN, Board Chairman
Did we fire his sorry you-know-what yet?

MALCOLM, Lead Director
Well, sir,
Not exactly.
The lawyers say he has us by the you-know-whats.

DUNCAN
But he’s an idiot!
He almost destroyed our franchise
With that stupid Six Sigma crap…
(Pouring a scotch although it is only 10 a.m.)
I’d like to Six Sigma his sorry you-know-what…

MALCOM
Sir, there’s no time for that.
We need a decision.

DUNCAN
What is it this time?

MALCOM
He wants the corporate jets.

DUNCAN
He wants to use the jets???
Son of a…
(Downing the scotch and exhaling slowly.)
What for—he can’t fly home to Nantucket on Delta?

MALCOM
I think he actually lives on St. John’s Island, sir.

DUNCAN
Whatever.
(Pouring another scotch.)
You want one?

MALCOM
No thank you, sir.
We need a decision, sir.

DUNCAN
(Stirs ice with fingers reflecting on something.)
He looked so good on paper.
Number two at GE!
MBA!
Football player!
What the hell went wrong?
MALCOM
Sir, our lawyers need an answer.

DUNCAN
About what?

MALCOM
About the jets.

DUNCAN
Oh, right.
(Tasting the scotch.)
Well, we have three freaking jets, right?
MALCOM
Six, sir.

DUNCAN
Six? Jesus. Well, see if one of ’em is free.

Tell the pilot to take that S.O.B.’s sorry Six Sigma you-know-what wherever it has to go.
And good riddance.

MALCOM
Sir, you don’t understand.
He wants the jets.

DUNCAN
He wants the freaking jets????

MALCOM
Yes Sir. All six of them.

DUNCAN
(Shouting.)
Tell him to go pound sand!
Tell him to go pound Six Sigma sand!
Tell him I’m sure a Six Sigma guy like him
Can pound sand better than anybody else ever pounded sand!
Tell him I said that!!!!

MALCOM
Sir, it’s in the contract.

DUNCAN
What contract?
MALCOM
The one you signed when we hired him.
If he gets fired for cause, he gets the corporate jets.

DUNCAN
(Pouring another scotch.)
I hate this job.

End of Act I

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.

In memory of Jack Woodward.

Categories
Uncategorized

The Wall Street Journal Reports: Fred Fillmore Wants to Make YOU Rich!


Is it my imagination, or does the new, thinner, Wall Street Journal look less like the Wall Street Journal and more like Parade Magazine?

Sure, there’s some great content in today’s new, thinner paper—first and foremost a behind-the-scenes look at how Abbott jacked up the price of an AIDS drug by 400% for no other reason than to get people infected with AIDS to switch to a new Abbott AIDS drug, and also to hurt Bristol-Myers.

Not for science, not for their customers, not for people’s lives, but because it helped their P&L.

Plus there’s a timeless quote from Henry Kravis about the perils of doing private equity deals simply for the sake of doing private equity deals in an era of almost-endless private equity deal-making:

“Any fool can buy a company,” says Mr. Kravis. “You should be congratulated when you sell.”

But for some reason my eyes have a hard time focusing on the real stuff, like Abbott’s shenanigans and the wisdom of Kravis, because everything is so scrunched together—like Parade Magazine, which people only notice because it comes in the thick stack of color inserts that makes your Sunday newspaper heavier than a car.

Even the legit stories in today’s B Section have that cheap, desperate appearance of one of those “Fred Fillmore Made a Fortune in Mortgage Backed Securities…and Now He Wants to Make YOU Rich!” fake testimonials in Parade.

So now I have even less reason to read the physical copy and more reason to do what I’ve been doing for the last year or two. Which is to say, read the online version.

Progress marches on.

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.

Categories
Uncategorized

Forsythias in Bloom


Sell the kids for food
Weather changes mood
Spring is here again…

—Nirvana, “In Bloom”

Spring is here again, at least in one small corner of New England: our forsythia is, as Nirvana sang, in bloom.

I am not making that up.

Just yesterday an odd, misplaced flicker of yellow in an otherwise brown and bare back yard caught my eye. Upon further inspection I discovered half a dozen flowers blooming on the tip of a few slender branches of the forsythia, something I’ve never seen before March, at the very least.

Forsythia, as any gardener knows, is a harbinger of spring—not New Year’s Eve. It’s even defined that way in the gardening texts:

a shrub belonging to the genus Forsythia, of the olive family, native to China and southeastern Europe, species of which are cultivated for their showy yellow flowers, which blossom on the bare branches in early spring.

I knew it had been a mild winter, but not that mild.

Meanwhile, the Bush administration is finally acknowledging that global warming is, in fact, here and now, by proposing to add polar bears to the list of threatened species. Said our Secretary of the Interior, “the polar bear’s habitat may literally be melting.”

It’s about time somebody charged with our land resources figured this out—too late though it may be to benefit anybody, let alone the polar bears.

In “So, What if the Browns are Wrong?” this past August I raised the point that even the Wall Street Journal, whose editorial page is routinely filled with anti-Green rants, had carried the following headline as far back as December 2005:

“Is Global Warming Killing the Polar Bears?”

Putting polar bears on a mere list will, of course, do nothing to stem their demise. We will dither, and we will debate, and with every cold spell that hits some part of the country the Browns will scoff—all science aside—at the notion that 600 million cars, hundreds of thousands of factories and millions of trucks have anything to do with it.

Yet in the meantime, the forsythia have, for now at least, been fooled into thinking spring is coming.

For they are in bloom. In southern New England. In December.

Jeff Matthews
I Am Not Making This Up

© 2006 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.

Categories
Uncategorized

Stock Upgrades I’d Like to See

IBM upgraded to Buy From Sell at ThinkEquity

That’s the first half of the headline on Briefing.com this morning, and I am not making it up.

Nor am I making up the second half of the headline:

Tgt raised to $110 from $70

“Gosh,” you might be thinking: “something profound must have changed to account for this $41 per share increase in the fellow’s ‘price target’ for IBM!”

And you would be wrong.

What has changed—let’s be honest about this—is the price of IBM’s stock itself.

As anybody with a Bloomberg machine or even Yahoo! Finance can see, IBM’s shares are 95 bucks, which happens to be much closer to $110—the new price target of the ThinkEquity research gurus—than to $70, which was the previous price target of the ThinkEquity research gurus.

And since it’s close to year-end, and since it doesn’t look like IBM stock is going down to $70 any time soon, what better time to upgrade the shares using some highfalutin excuse like, oh, this:

Increased performance and profitability in IBM’s Global Service segment, together with strong software sales, causes us to reconsider our SELL rating and now recommend it as a BUY for this quarter.

And that’s precisely how the ThinkEquity gurus start their multi-page about-face research report.

However, I believe there is an entirely more straightforward rational, and if I’d written the research report, and had been as wrong about IBM stock as the ThinkEquity folks have been—and believe me, I’ve been even wronger, to coin a word, on more stocks than the poor fellows in this case—it might instead start like this:

We are changing our rating on IBM from “SELL” to “BUY” and raising our price target from $70 to $110 for the following reasons:

1. We’ve been so wrong on the stock that it makes my head hurt when I wake up in the morning and realize “this is not a dream.”

2. My research director thinks I’m an idiot.

3. The sales people won’t make eye contact with me in the hallways—it’s like I’m dead meat. And when we marketed in Appleton last week the sales guy kept rolling his eyes while I talked. And I swear he was making those “he’s crazy” circles twirling his finger around his ear behind my back.

4. It doesn’t look like the stock is going to $70 any time soon. In fact, the chart looks like it blows through $100 and doesn’t stop until $110. At least, that’s what Cramer says. What the hell do I know?

5. Every time I look at the screen I know there are probably sixty or seventy stock tickers up there, but the only ticker I can see is IBM. It’s like my brain can’t focus on anything else but that stupid stock. It goes up every —-ing day.

6. It’s year-end: I can score points with clients upgrading into year-end. So why not?

Why not, indeed?

Jeff Matthews
I Am Not Making This Up

© 2006 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.

Categories
Uncategorized

The “Best Ever” Press Release.



No, this is not about the “best ever” press release I have seen in 25-plus years on Wall Street.

Rather, this is about the “Best Ever” press release that Amazon.com’s P.R. minions keep in their Word files for release, like clockwork, the day after Christmas (except in 2004, when they released it the day after the day after Christmas).

I am not making this up.

The following are the post-Christmas headlines from the last five years via my Bloomberg:

12/26/2006 “Amazon.com’s 12th Holiday Season is Best Ever”

12/26/2005 “Amazon.com, Inc. today announced that the 2005 holiday season finished as its best ever…”

12/27/2004 “Amazon.com’s Tenth Holiday Season is Best Ever…”

12/26/2003 “Amazon.com Wraps Up Its Ninth Holiday With Busiest Season Ever.”

12/26/2002 “Amazon.com today announced it has finished its busiest holiday season ever…”

Now, any company is entitled to boast when it achieves a new all-time sales record—especially companies in seasonally-sensitive businesses like Amazon.com, where a few days of bad weather or bad news can disrupt an entire year’s worth of planning and preparation, and, therefore, hurt a years’ worth of sales and earnings.

But unless I am missing something, Amazon.com has been in business all of twelve years.

Furthermore, it is the largest Internet-based retailer on earth, and thus still benefiting from the secular shift of consumer spending online.

Finally, it is based in America, and as we have seen from the morning’s headlines, the entire American economy had its “best ever” holiday season last week, even if the numbers were not quite as spectacular as some had anticipated.

So do we really need yet another press release from Amazon.com boasting of its “Best Ever” holiday season?

Not for nothing, but it seems highly likely that even Amazon’s money-losing competitor Overstock.com experienced its “Best Ever” holiday sales these last few weeks, while poor old Circuit City did in fact just report its best Thanksgiving weekend sales in five years, but at such lousy margins that Wall Street’s Finest couldn’t downgrade the stock fast enough.

So maybe Amazon’s P.R. minions should save their dry powder for the day the company does not experience its “Best Ever” holiday season.

They’ll need all spin they can get when that happens.

Jeff Matthews
I Am Not Making This Up

© 2006 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.

Categories
Uncategorized

Since When Did “Hedge Funds” Stop Hedging?

“Shorts? Listen, my previous fund got hammered on the short side.”

That is a quote from a fellow sitting at a table squeezed next to me in a major metropolitan Starbucks.

The individual in question, who has a few grey hairs like yours truly, is marketing his fund to two younger men who—based on the sophisticated nature of their espresso drinks as well as the unsophisticated nature of their questions—appear to be fund-of-fund investors.

While I don’t know the man with the grey hairs, I vaguely recognize him from company meetings in years past as a fellow hedge fund veteran.

And what I find interesting about the whole thing is that, based on the quote above as well as snatches of conversation I can’t avoid hearing from three feet away, he is quite vociferously playing down his reputation as a hedge fund guy who actually used to hedge his portfolio with shorts.

He is doing so for the purpose of talking up his current, non-hedged hedge fund to his audience, by which I mean the two fund-of-funds managers who, based on their questions thus far, I frankly would not let invest my dog Lucy’s biscuit money, let alone the millions or billions of fund-of-fund money they appear to be investing on behalf of institutions seeking a slice of the hedge fund pie.

I say this not to disparage fund-of-fund managers as an asset class, but when I hear one of these financial middlemen earnestly explain that “the problem with shorting is that your potential gain is limited to 100% while your potential losses are infinite”—as if that insight just occurred to him, and he had to pass it along before his flash of brilliance got lost in the ether—it does not reflect glory on his peers.

Now, what’s the point of all this? you might well ask.

The point is that hedge fund managers appear to be shedding their short-selling identities in order to attract money, precisely at a time when markets are hitting new highs.

I find this a fascinating, particularly now that Iraq has turned into a full-fledged civil war, whatever the euphemism of the day, while cost pressures are rising around the world and we’ve had a currency panic in Thailand, not to mention the forcible appropriation of multi-billion-dollar natural resources from public companies by a thug masquerading as an elected President in Russia, who not for nothing is probably the single most powerful person on earth.

And since we know that what goes around, as they say, comes around, it seems to me that maybe now that grown men are eagerly disposing of their past life on the short-selling side of the hedge fund equation, we might be closer to a time when it could actually be worth looking for shorts rather than longs.

After all, if “hedge funds” don’t hedge, they’re not “hedge funds,” are they?

Jeff Matthews
I Am Not Making This Up

© 2006 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.

Categories
Uncategorized

Gussied-Up Land-Flippers?

The first thing I learned in this business that I had never grasped from the accounting books we “studied” in between games of foosball at Smuggler’s Tavern came during a trip to a furniture plant in Altavista Virginia.

In those days, America actually manufactured quite a bit of the furniture bought by American consumers, much of it in plants in the general vicinity of High Point, North Carolina, where the annual furniture mart is pretty much the whole point of going to High Point in the first place.

Since then, of course, a lot of furniture plants have closed—including, I’ll bet, every one I visited back then, although not necessarily for the reasons put forth each night on CNN by Lou Dobbs in his hysterical, How-America-Is-Prostituting-Itself-to-Foreign-Mercenary-Scum-Sweatshops tirades.

The fact is that some of those plants I saw even in their heyday were so out-of-date and inefficient it was hard to imagine anybody could competitively manufacture anything in them except workers comp claims.

One I remember in particular actually had a multi-story manufacturing line—they moved partially completed wood furniture from floor-to-floor on a big old rickety elevator. Not exactly “world class,” and not long for this world even back then.

Still, the companies in those days were generally pretty smug about their central role in furnishing America’s bed rooms and living rooms and dining rooms—after all, who could possibly make a big, bulky dining room table in Asia and ship it all the way to Los Angeles for profit? And even if somebody could, who’d want to buy it?

A lot of people, it turns out.

Imported furniture is now more than half the U.S. business, up from next-to-nothing back when I was sitting in an old-fashioned office just off the long-gone production line of the Lane Company in Altavista, Virginia, getting my first real lesson in free cash flow from an actual Chief Financial Officer.

I don’t recall what year this was, but business in general was slowing down after a long period of prosperity, and what surprised me was this: not only was the CFO not upset about the slowdown, he was actually getting pretty excited talking about all the cash he’d be able to generate from inventory and receivables now that sales had leveled off.

Being a slow learner, I asked for specifics, and he gave them so clearly that even I could grasp the mechanics of how, when you collect receivables and work off inventory, the difference goes into the bank. (Back in those days a CFO could talk to you about these things without putting out an 8-K and going on CNBC to explain himself.)

And that was how I learned how much cash a business can chew up when it expands, and how much cash it can generate when it contracts. Not exactly the secret of life, for sure, but good to know at an early age in this business.

Which is why the most puzzling part of yesterday’s conference call with Hovnanian Enterprises—the homebuilder whose business has slowed quickly after a decade or so of non-stop growth—was the discussion of free cash flow, or rather, the lack of free cash flow, now that things are easing up.

“For the full [fiscal] year, we generated adjusted EBITDA of $753 million, which covered interest 4.5 times,” management said on the call. So far, so good. But then:

“Due to the slowing velocity of deliveries…our inventory turnover and thus interest coverage is expected to decline in 2007.”…

Not only will inventory not decline as you’d expect in a slower environment, this company expects inventories to grow in the near future:

“Our inventories are expected to grow through the first two quarters of fiscal ’07 as we invest in new communities and the associated land development and home construction. But for the full year, we expect the net change in inventories to be close to zero, and thus we expect to be marginally cash flow positive for the full year.”

If they’re not going to be cash flow positive now, when are they ever going to be? The company can’t even buy shares back beyond the dilution from stock options:

“Although we believe our stock remains undervalued, we intend to maintain only the current pace of share repurchases at this time.”

Somehow, Hovnanian’s financial model negates every known benefit of a business slowdown: the ability to reduce working capital and generate free cash flow not needed for reinvestment when growth opportunities are lacking.


How is this possible? I can think of no explanation aside from one.

Could it be that homebuilders—profitable though they may appear to be during a long upturn—are no more than gussied up land flippers?

Informed rebukes are welcome.

Jeff Matthews
I Am Not Making This Up

© 2006 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.