Category: Uncategorized

I was coming out of the gym of a hotel in San Francisco, around 6 a.m. local time. A woman working for the broker whose conference I was attending was on her cell phone telling somebody, “A plane hit the World Trade Towers.”

I checked a Bloomberg near the elevators, and the top story was exactly that: an airliner had hit one of the towers.

I rode up the elevator with another guy, speculating on which airline the plane belonged to, because the stock would get crushed on the opening. It sounds callous, but that’s how you think in this business—or did, before 9/11.

When I got to my room I turned on the TV and the second tower had been hit, and the government announced it was shutting down the airports. I used to work at One Liberty Plaza and saw the towers burning.

I thought, “Market closed for a week. Conference over. Drive home.”

I left the room and it was strange: nobody was up. Newspapers hung on the doorknobs and the lobby was quiet.

I asked the concierge to get me a car, told him I would return it 3,000 miles away and he didn’t blink, just said it’d be out front in about 20 minutes. I checked out, went back to my room and packed, called my partner, called home, called traders and left the room for good.

Back to the lobby and all hell had broken loose. Phones ringing, people from the conference walking around on cell phones, and a long line at the concierge desk for rental cars.

A young woman was pacing frantically, shouting into a cell phone that her friend worked on the 93rd floor and she couldn’t reach her.

Then I overheard one of the conference minions telling somebody that the morning sessions would be delayed until they figured out what the markets were doing, and I wanted to strangle the guy and tell him the conference was over, but the car had arrived.

I turned down California Street, got on Route 80 and headed home.

Where were you when it happened?

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.

There’s on old Seinfeld episode in which Elaine hosts a baby shower for a woman she’s trying to impress; and when things go wrong the unimpressed woman says, “Elaine, who catered this…Sears?”

That “Sears” had become a one-word punch-line in a popular sitcom pretty much sums up the problem Sears Holdings has with efforts to rejuvenate its brand—especially under the Eddie Lampert regime.

Lampert, whose track record in finding value in public companies—notably AutoZone—is among the best ever, shmooshed K-Mart together with Sears to create a retailing giant whose customer base is either dying off or increasingly shopping elsewhere.

That’s not mere opinion: sales at the combined Sears and K-Mart stores declined nearly 4% last quarter. Happily for Sears’ shareholders, however, margins were up—illustrating the major theme of the Lampert-engineered business model, which is to sacrifice unprofitable sales (something retailers hate to do) for the sake of fatter margins and excess cash flows (something shareholders love).

Wall Street’s Finest have been slow to embrace the Lampert makeover, mainly because they suspect that Lampert is starving the Sears/K-Mart store base of necessary capital. Unlike, say, natural gas pipelines, retail brands require intensive care and feeding every year to maintain their cash flows, because a fickle shopper has many alternatives.

Nevertheless, Lampert’s strategy worked wonders at AutoZone, the ubiquitous auto supply store, and Lampert appears to see no reason it can’t work at Sears/K-Mart.

But there is good reason it may not work at Sears/K-Mart—mainly that, unlike Sears and K-Mart, AutoZone is a convenience-based supplier of mostly specialty parts selling to mechanics and car-guys who couldn’t care less about a crack in the floor tile or whether they could find the same product cheaper in another store a half hour away.

To paraphrase Jim Morrison, they want that timing belt and they want it now.

Blue jeans, laundry detergent, diapers and washing machines are a different story. So Sears/K-Mart runs the very real risk that traffic continues to decline store by store until the business loses its customers and its cash flow.

To quote the Lizard King, “When the music’s over, turn out the lights.”

Still, Sears is not doing nothing. A recent story in the New York Times touted the company’s online efforts to market to college students for the all-important back-to-school season.

To whit:

Sears Holdings… has gone further than most other online retailers in appealing to college students this year by creating a Web site, SimplySearsCollege.com. Like other online executives, Lorna Sargent, director of e-commerce content for Sears Holdings, struggled to explain why retailers chose this year to pursue college students with such zeal.

“Everyone just kind of realized there was this untapped market out there,” Ms. Sargent said.

This sounds pretty good, as does the site description:

Perhaps fittingly, the site is designed for visitors who might like to relax a bit, browse articles and interact with various features, rather than rushing through the purchase process. Visitors are greeted with background music ranging from retro rock to contemporary metal, and a screen that bristles with features like idea lists and articles and videos about surviving freshman year.

Unfortunately, as with so many other recent attempts to recharge the Sears shopping experience (Lands’ End being one; Sears Essentials being another), this one has that Seinfeld feel to it.

“Today’s specials” highlighted on the first page include a “3 Shelf Bookcase” for $49.99, a “Manchester City Convertible Sofa”—whatever that is—for $299.99, and a “Back 2 School TXL Mattress Pad”—whatever “TXL” means—for $12.99.

(Hint to Sears: not many college students are looking for bookcases these days.)

For the record, I am not deliberately picking the least desirable stuff to show how dull the site is. I have even less time to bother with this than a college student trying to fill his apartment with—as the site calls it—“The Gear.”

For comparison’s sake, Sears’ laundry selection for the college-bound contains 8 items, 5 of which are laundry hampers ranging in price from $20 to $50. I am not making that up.

I don’t know about you but my college experience did not involve a major emphasis on laundry hampers. Nor would I have spent fifty bucks for the “Supreme Laundry Sorter” offered by Sears, or even twenty bucks for the “Collapsible Hamper.”

For one thing, the “Supreme Laundry Sorter” would have occupied most of the available free space in our cramped room. For another, if you asked a nineteen year old male what he would do if he had fifty bucks, the first thing he would not say is, “I’d buy a Supreme Laundry Sorter.”

He would probably say, “I could play foosball at Smuggler’s Tavern for the rest of my life or as long as I don’t flunk out of school,” not that I spent much time playing “foosball” at “Smuggler’s Tavern” when I was nineteen. (I was actually twenty at the time.)

And in fact, given the space issues in our dorm room by which only one of us could be standing at a given time, plus the finance issues, my laundry solution was a cheap old cloth laundry bag I could stuff under the bunk bed that probably cost five bucks.

For comparison’s sake, I checked out Bed Bath and Beyond’s web site—to take a real growing retailer, not a cash-cow being milked for all it’s worth—which has a college tab with actual products that a nineteen year old might need, at great prices. Including, by the way, laundry bags for five bucks.

New York Times puff-pieces aside, SearsSimplyCollege or SimplySearsCollege or SearsSimplyNotHappening or whatever the heck it is appears to be a cobbled-together effort to market existing Sears merchandise on the cheap, and in fact the company spokeswoman admitted as much.

Ms. Sargent said SimplySearsCollege.com, which was introduced late last month … represents another first for the company, in that Sears Holdings has never before integrated products from Lands’ End, Kmart and Sears on one site.

“Sears has generally approached back-to-school from a school-kid age demographic,” she said. “So this is a new demographic for us.”

Any college students out there buying it?

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.

$1 Shipping*
Ending Tomorrow!

That email, from an online retailer, appeared in my inbox last Wednesday. And while the prospect of getting something as big and bulky as a bed, for example, delivered to my house for a mere $1-with-an-asterisk might sound appealing, I paid no attention to it.

Aside from the fact that I don’t have any particularly pressing needs in bedding, lighting, jewelry, furniture or electronics—the categories highlighted in the email—the reason I paid no attention to it is that I’d seen the same kind of email, from the same web site, before.

In fact, it was just weeks earlier that I got a similar email promising $1-with-an-asterisk shipping from that web site, as a quick search of my never-discard-anything Google inbox disclosed. August 21st to be precise:

$1 shipping*
This weekend only!

And that was a month after the previous “This weekend only!” $1-with-an-asterisk shipping offer hit my inbox, on July 19th.

In fact, I’ve gotten these “Last Day” for “$1 Shipping” emails almost every month this year:

June 21st: “$1 Shipping – Last Day.”

April 21st: “$1 Shipping – This Weekend Only.”

March 19th: “$1 Shipping – Ends Today!”

February 27th: “$1 Shipping – Extended – Today Only”

January 23rd: “$1 Shipping – Extended – Today Only”

Consumers are not this dumb—as Sam Walton, the founder of Wal-Mart, knew when he dropped the this-weekend-only! kind of promotions that drove mass merchandise retailing during the 60’s and 70’s and switched to everyday-low-pricing.

And consumers have become even less dumb thanks to the Internet, which provides pricing transparency never before easily available to the average shopper.

So why on earth a web site would blast-mail “$1 Shipping, Today Only!” offers month after month is anybody’s guess.

While I have no specific insight into whether this particular web site’s repeated ‘one-time only’ offers are turning off, rather than turning on, buyers, the company has reported a marked slowdown in sales growth—from the 100% early last year to sub-10% currently—which management attributes to deliberately easing up on the marketing gas.

Meanwhile, the CEO has told Wall Street’s Finest that he has taken over the email marketing program, with no apparent impact on the repeated “Today Only!” $1 Shipping offers. These are his words from a recent conference call:

I’ve taken over the internal marketing personalization, email — well we call it internal marketing as opposed to online marketing and offline marketing. So the website and everything related to customer analytics.

Sounds clear enough, until he goes into details later on:

And then the Teradata data warehouse, we have super sized it with a new system. I think I’ll leave it to Teradata – they’re going to announce some time soon what they’ve done here. But they have super sized the system and that’s important for a bunch of reasons like we’re now personalizing e-mails, but we had trouble personalizing more than about 500,000 e-mails — we send nearly 10 million.

We have 22 million addresses, but we sent 10 million about three times a week. And we could personalize about 500,000. We’re actually through some brands in IT group, I think, figured out a way to get about 2 million. But with the super size system we’ll be able to handle a lot more and we’re very glad we upgraded.

What all this means I have no idea, nor did any of Wall Street’s Finest follow up on what it actually meant, so I suppose it’s no surprise that this weekend another email arrived, with an even better deal than the recurring one-time only $1 Shipping offers:

FREE SHIPPING*
This Weekend Only!

But I’m not biting. Something tells me this isn’t the last “FREE SHIPPING”-with-an-asterisk “This Weekend Only!” email I’m going to see from this web site.

Oh, I almost forgot. The web site is Overstock.com.

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.

Is an Apple-Sun merger in the works?

Commentary: Why Apple really put Google’s Schmidt on board

So reads the breathless this-could-be-big MarketWatch headline above a column by John Dvorak, the old-time PC Magazine columnist whose musings on the state of the computer industry used to be followed closely by anybody with an interest in the business.

That was up until around, oh, 1984 or so, when Dvorak—a longtime Apple-basher—dismissed the new-fangled invention called a “mouse,” which Apple had begun shipping with its machines, by saying “There is no evidence that people want to use these things.”

(Yes, kids, it’s true: computers used to be controlled by keystrokes. Ask your Mom or Dad about the “F” keys at the top of your keyboard.)

There are few computer-related innovations more revolutionary than the mouse—which was not developed by Apple but rather by the poor shlubs at Xerox PARC (Palo Alto Research Center), who invented a whole bunch of cool stuff, including the graphical user interface (ask your parents about that, too, kids) and Ethernet, without making a dime for themselves or Xerox.

Legend has it that Steve Jobs, on a tour of PARC, saw the “mouse” in its primitive stages, grasped its significance, and made it happen. Nowadays, of course, a personal computer without a mouse—what Dvorak dismissed as “these things”—does not exist.

In any event, for reasons that escape me, the world still pays attention when Dvorak produces one of his deliberately attention-getting columns, as it did with his “Apple-Sun” merger piece this week.

Let’s examine Dvorak’s evidence for making the case that, as he wrote, “Schmidt [Eric Schmidt, the Google CEO who recently joined the Apple Board of Directors] may have been brought in as the set-up pitcher for what may finally be the often rumored merger between Apple and Sun.”

Dvorak’s Exhibit A: Eric Schmidt used to work at Sun.

His [Schmidt’s] executive training began at Sun and he is still close to the company and its founders. Being the CEO at Google, a somewhat goofy high-energy creative company, should enable him to handle the Apple side of things. Nothing could be harder to manage than Google.

Think about this for, oh, thirty seconds—as Mr. Dvorak apparently did not.

Eric Schmidt is a guy who for one brief shining moment after leaving Sun had one of the biggest stacks of chips at the high-tech poker table, when he was CEO of Novell during its late-1990 glory days. Then Microsoft came along and destroyed Novell’s networking franchise in about as much time as it takes to say “I call.”

After Schmidt spent what must have seemed like a couple of decades, but was in fact only a year or two, missing earnings, laying off engineers and taking hits from Wall Street’s Finest, he left Novell, took his few remaining chips and went all-in by taking a job as CEO of a funky little search engine called Google.

And as everybody including Dvorak knows by now, Eric Schmidt drew an inside royal straight flush on the river card at the final Texas Hold ‘Em table at Binion’s. For one thing, he’s a billionaire; for another thing, he runs what many people think is the coolest, most revolutionary, and most zealously missionary technology company in the world right now.

So Eric Schmidt is going to give up all that (excepting the billion dollars) in order to figure out which software engineer from Sun should get which cubicle in Cupertino?

I don’t think so.

Dvorak’s Exhibit 2: Apple’s stock price is high, Sun’s is low.

As of this writing the two stock prices have never been more skewed, making the deal attractive to Apple.

It’s true that Apple’s $50 billion market valuation (net of cash) is more than triple Sun’s $15 billion market value.

But Apple is, in fact, profitable, while Sun is not. So whatever Dvorak means by “the two stock prices have never been more skewed” (and I think he means one is simply larger than the other), Sun’s stock is in fact far more expensive than Apple’s.

So Jobs would be better off buying Apple’s own stock than buying Sun’s operating losses, whether or not one integer happens to be larger than the other in the stock tables.

Dvorak’s Exhibit 3: It seemed like a good idea 200 years ago, so maybe it still does.

In the past the deals have always fallen apart before they began because (among other reasons) the combined companies would not have an acceptable CEO. Neither Scott McNealy nor Steve Jobs nor John Sculley nor Mike Spindler (not to mention Gil Amelio) seemed capable of handling a combined operation.

With today’s two CEO’s, Steve Jobs at Apple and Jonathan Schwartz at Sun, this continues to be true. But with Eric Schmidt in the game as a middleman it’squite possible that he could take the reins of such a combined operation and make it work

Dvorak really dredges up ancient history here, with names like John Sculley—the John Delorean of the computer business—and Gil Amelio, a guy maybe ten people remember, who briefly ran Apple during the dark days of the mid-1990s.

Which leads to the fourth and weakest piece of his evidence that Sun and Apple are headed for a merger—

Dvorak’s Exhibit 4: Apple wants to sell more servers.

Apple is looking to make a splash in the server market to solidify its position there, but it does not have the credibility of a Dell, HP, IBM or a Sun despite the quality of its offerings, and it would love to grow that very profitable side of the business. Sun is positioned to make another run at server dominance as this is written, thanks to its superstar engineer and co-founder Andreas von Bechtolsheim.

I don’t know Steve Jobs, and I don’t know Eric Schmidt, and I don’t know Andy Bechtolsheim, and I don’t know John Dvorak.

But anybody who thinks that Apple—which revolutionized the personal computer industry and then the music industry, and is now on the verge of revolutionizing the television and movie industry—is going to spend $15+ billion to “make a splash in the server market,” well, they might as well be wishing for Simon to get back together with Garfunkel.

Or, even less likely, I think, a return to the pre-mouse days, when computers played pong and were controlled by F-keys…and people wrote columns to explain how to operate the damn things.

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.

.Mr. Cruise and his production partner, Paula Wagner, say they will finance future films with money raised from unnamed hedge funds.–The Wall Street Journal
Dear Tom,
Thank you for your proposal regarding a hedge fund investment in your production company, “L. Ron Hubbard Presents…”

But I think we’ll pass.

It’s not so much the heavy up-front spending nature of the movie development business, or the fact that returns are highly dependant on the successful control of artistic variables such as writing, filming, acting and editing, not to mention uncontrollable forces such as audience taste, weather patterns, economic concerns and Acts of God.

Our concern is that you are, in short, a whack.

During the course of an extensive due-diligence process (which consisted mainly of reading Page Six of the New York Post religiously), we discovered a number of disconcerting episodes in which you felt the need to—let’s be kind—inflate your resume with a number of tales of heroics you supposedly performed outside the movie theater.

Like the time you were filming in New Zealand and, according to your publicist, helped a family change a flat tire on a country road—and then “assisted a young girl in catching her runaway horse.”
(What, precisely, did you do? Rope the poor beast from your private helicopter?)

Or the time, a few years before the horse-wrangling episode, you supposedly helped a woman being mugged “on a London street and stopped thieves from making off with more than $150,000 in jewelry.”

Hello, Tom, you’re one of the most recognizable celebrities in the world, with bodyguards 24/7, so what happened—the thieves dropped the jewelry and asked for your autograph?

We hedge funds have enough to deal with in the realm of CEOs who pretend to be something other than they are, and we’re not about to hand over money to yet another guy who, well, makes it up.

And here’s a tip when it comes to your efforts in securing hedge-fund financing: in the future, you might want to play down the fact that your religion—not that there’s anything wrong with religion—touts the use of something called ‘electropsychometers’ to “locate areas of spiritual distress or travail.”

I am not making that up. As part of our due diligence we also looked at the Scientology web site, and it’s a little scary, pal:

“The E-Meter is a religious artifact and can only be used by Scientology ministers or ministers-in-training. It does not diagnose or cure anything. It measures the mental state or change of state of a person and thus is of benefit to the auditor in helping the preclear locate areas to be handled.”

Now, I’m sure Scientology has done wonders for you and your career, and it’s not like other religions don’t have their share of odd beliefs.

But I think, for now, we’ll pass.

Good luck with it.

Jeff Matthews
This One I Made 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.

Former U.S. Treasury Secretary Robert E. Rubin has resigned from the board of Ford Motor Co., citing a potential conflict of interest with his duties as a member of the chairman’s office at the banking company Citigroup Inc.
—Wall Street Journal

Thus one of the world’s most successful bankers, whose career arc has taken him from the head of Goldman Sachs to the head of the entire United States Treasury Department to the head of Citigroup, has stepped down from his board seat at Ford.

“Citigroup’s multi-faceted relationship with Ford could raise a question whether my relationship with Ford and Citigroup creates an appearance of conflict. Although no conflict currently exists and while I would have liked to remain involved, I have with great regret concluded that I should resign from the Board at this time,” Mr. Rubin said in the letter.

This comes on the same day the news wires are reporting interest in Ford’s luxury car group, specifically Jaguar—obnoxiously pronounced “Jag-You-Wahr” in TV ads, as if giving it an upscale accent suddenly makes the losing-money-hand-over-fist brand more valuable—by at least two groups, one of which includes Jacques Nasser, the man who, as CEO of Ford, wasted Ford’s cash hoard on not one, but several really terrible acquisitions, including Jag-You-Wahr.

I have no idea how things will shake out at Ford—whether it will turn itself around or whether it will hit the proverbial wall—but if I were a private equity guy, I’d be cranking numbers on the conglomerate like there’s no tomorrow.

For all its problems, Ford has $40 billion in cash on the books, so it’s not like they’re going to file Chapter 11 tomorrow. Further, the current equity value is a modest $14.9 billion, which any private equity guy could match with a few phone calls—one being to Bob Rubin at Citibank, I would think.

Now, what would a private equity buyer get for their $15+ billion?

Well, for starters, they’d get Ford’s 30% stake in publicly-traded Mazda—408 million shares worth $6 each, or $2.4 billion by my calculator.

Second, they’d get the “Premier Auto Group,” which sells over $30 billion of the kind of brand names you’d think anybody would want to own at the right price—Land Rover, Volvo, Aston-Martin and Jag-You-Wahr—yet manages to lose money doing so.

And that’s just scratching the surface. Who knows what other hidden assets—along with the many well-enumerated hidden liabilities—exist within Ford?

After watching Clayton Dubilier (insert euphemism for “steal” here) one of those hidden assets, Hertz, from Bill Ford last December with a mere $2.3 billion equity investment, how many other private equity firms are now lining up behind the scenes to see what else they can (insert euphemism for “steal” here) from the desperate scion of a once-proud family that owns all of 5% of the common shares yet acts as if Ford is their own private employer-of-last-resort?

My guess is, with Bob Rubin resigning from Citigroup’s board in order to avoid “potential conflicts,” there’s a whole bunch of ‘em.

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.

The stranger rode up out of the darkness on his bicycle in the quiet of the late-evening that covered the woods in muted darkness, then reached out and held onto our horse-drawn carriage with one hand and started gabbing with the carriage-driver for the rest of the ride back to our hotel.

The bike-rider’s name, it turned out, was Bobby, and he is native to this island—“born and raised here, like my parents and their parents.”

And however many statisticians the Fed has in Washington feeding those gajillions of lines of data into whatever number of computers they employ in their seemingly endless effort to figure out what is going on right in front of their faces, Bobby has them all beat: Bobby runs a chicken grill in town.

Without knowing Bobby at the time, a year ago I reported from this part of the Great Lakes (“Report from the Midwest”) on not just the rising cost of everything a businessman like Bobby needs—from the charcoal he uses to cook the food and the staff he needs to help tend the customers, to the diesel fuel that runs the ferries that delivers both his food and his customers—but also on the new-found ability of the restaurants and hotels and ferry lines to raise prices to cover those rising costs. (“They’ve all raised prices,” my report concluded. “Let the bond market beware.”)

What a difference a year makes.

Last night Bobby, the stranger on the bike, expounded in great detail on the factors affecting his very small business…and if Bobby’s business is a leading economic indicator, that indicator is slowing down pretty sharply.

Bobby’s Grill is as basic as it gets: a big charcoal cooker set up outdoors on the lawn near a church in town, with a table for fixings and chairs for the people while they eat. He gets the grill going around 9:30 in the morning, and by 11 he’s ready for the customers that line up every day for his grilled chicken.

On a normal day in a normal summer, Bobby told me he serves 50 to 75 chickens at lunch. Lately it’s down to 25. “I’m not getting the blue-collar workers,” he said. “Still get the higher income people, but not the blue-collars.”

And that’s despite cutting his price from seven bucks a meal to $6.25.

Being in the Midwest, and being a half-dozen hours north of Detroit, what we have here is the real-life impact of those GM and Ford oops-we-make-gas-guzzlers-and gas-is-$3.00-a-gallon headlines, multiplied across dozens of factories and thousands of lives dependent on those companies and their gas guzzlers for work.

(What is GM’s response to all this? Why, GM is bringing back the Camero, a gas-guzzling muscle car, of course! I am not making that up.)

Meanwhile, the Fed’s statisticians, in their infinite wisdom, will certainly ignore Bobby’s Grill as any kind of useful economic indicator for the simple fact that it is what the Fed likes to think of as a statistical aberration—part of those pesky food and energy sectors that get eliminated from the consumer price index in order to “smooth” the data into irrelevance.

But it’s not just GM and Ford that are laying off “the blue-collars,” as Bobby calls them. It’s Toll Brothers and Centex Homes, too.

And pretty soon—this is just a guess, but the food chain isn’t too hard to follow—Lowes will slow down its hiring and Home Depot will put on the brakes…and long after the bond market has begun another bull market on the anticipation of a slowdown and price deflation, one of those computers down in Washington will figure out that back in late 2006 we began to enter something called a “recession.”

But Bobby’s recession began last month.

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.

Joe Biden’s color picture jumped out at readers from the pages of this week’s New York Times.

Wearing a starched, striped, open-necked shirt beneath a crisp grey suit, his longish graying hair catching the breeze, the Senior Senator from Delaware looked passionate, raw, and inflamed with rage and indignation.

Precisely what is it that had gotten the 34-year Senate veteran and ex-Presidential candidate so indignant?

The failure of the Bush administration’s post-war policy in Iraq? No.

The state-sponsored holocaust cartoon exhibit now on display in a country (Iran) whose leader maintains the holocaust is a “myth”? No.

Child pornography, perhaps? No, sadly.

Not even the price of gasoline was on the Senator-who-would-be President’s mind.

What was on the Senator’s mind—what had him really steaming—was Wal-Mart.

Returning to Des Moines (the scene of his infamous “I started thinking as I was coming over here…” speech in which he went on to plagiarize the speech of a British politician; a speech which existed, unfortunately for Joe and his soon-to-be-abandoned Presidential campaign, on a video handily provided to the media by the Dukakis campaign) Biden took to a podium and ranted for a reported 15 minutes against one of the greatest economic success stories in American history:

Biden summed up his problem with the largest non-government employer in the nation as follows, and I am not making this up:

“My problem with Wal-Mart is that I don’t see any indication that they care about the fate of middle-class people. They talk about paying them $10 an hour. That’s true. How can you live a middle-class life on that?”

Now, I don’t know where in the Constitution it is written that retailers must provide a “middle-class” life for their employees. I don’t imagine the woman who vacuums Biden’s nice Senate office every night is being paid a “middle-class” wage. Nor, I would bet, is the guy who starched Biden’s nice, striped, this-will-look-good-on-camera shirt at the dry cleaners getting a “middle-class” wage.

But that vacuum lady and that dry-cleaning guy don’t concern Biden precisely because they are not employed by a company that has thus far been unsuccessfully targeted for organizing by Big Labor.

And Big Labor wants to unionize Wal-Mart big-time, which is—let’s be honest—the real agenda here.

Personally, I couldn’t care less if Wal-Mart employees decide to unionize or don’t decide to unionize. Having met Sam Walton and toured any number of Wal-Mart stores with senior Wal-Mart managers and junior Wal-Mart managers and just plain Wal-Mart associates made rich through “Mister Sam’s” generous stock grants over the years, I have a hard time believing people with that kind of strong, proud culture will throw in its lot with the work-rules crowd. But anything is possible.

I just think when a guy who’s claim to fame is that he’s been in the U.S. Senate for 34 years decides to pick on the most successful retailer ever created, it bears some looking into.

For starters, Biden is being cute when he says the folks at Wal-Mart “talk about” paying $10 an hour. They don’t talk about it—Wal-Mart actually does pay ten bucks an hour.

And ten bucks an hour is, for the record, double the minimum wage.

Second, Wal-Mart did not exactly act like the British Navy when it came to hiring the 1.8 million individuals who now work there worldwide. (The Brits, in the early decades of their naval history, used press gangs to “recruit” seamen for their ships by, among other techniques, getting poor sods unconscious-drunk onshore and carrying them offshore before they came to.)

In fact, a recently opened Wal-Mart superstore in one of the most anti-Wal-Mart locations—Northern California—had 11,000 applicants seeking 400 of those lousy, non-middle-class-enabling $10-an-hour jobs that Senator Joe finds so problematic.

Here’s the story:

Wal-Mart has accepted more than 11,000 applications from Bay Area job seekers, marking the largest volume of interest it has received at any of its Northern California stores, said Wal-Mart spokeswoman Cynthia Lin.

“I needed a job ASAP, and they had their doors open,” said Virginia Ford, 19, of Oakland, who had applied for 25 jobs in three months before she landed one as a cashier at Wal-Mart in Oakland on Tuesday.

—San Francisco Chronicle, August 2005

Doesn’t sound like Ms. Ford was kidnapped and forced to work at gunpoint: sounds like she just wanted a job; and Wal-Mart provided it, as Wal-Mart has provided 1.799999 million other jobs around the world.

Now, for comparison’s sake, let’s look at Joe Biden’s record on creating middle-class jobs, since he’s the one complaining about it.

This is what his web site says on the topic:

Recognizing that America’s 25 million small businesses employ nearly half of the private work force, generate more than half of the nation’s gross domestic product, and are the principal source of new jobs in the U.S. economy, Sen. Biden helped secure an upgrade of Delaware’s Small Business Administration branch office to full district office status. Prior to this announcement, Delaware was the only state in the nation without a district office.

So, there you have it: what Joe Biden did to create jobs was he got the Feds to shell out for an SBA “district office,” the web site of which lists five individuals.

Thus by my math one could say Senator Joe has, in his 34 year career, created five jobs that might not otherwise have been created if he had not spent those 34 years in the U.S. Senate.

By comparison, when Joe Biden was sworn in back in 1973, Wal-Mart had just over 3,500 “associates”—the term Sam Walton used for “employees”—and generated $167 million in sales. (If you get a chance, look up one of the old annual reports on the Wal-Mart web site: they are straightforward, earnest and touchingly old-timey.)

Today, Wal-Mart employs 1.3 million associates in the U.S.—and another 500,000 outside the U.S.—which together amount to a very large a number of people who’ve willingly accepted one of those non-middle-class-enabling jobs. For the record, Wal-Mart’s U.S. job growth compounds at an astonishing 19% over the 34 years that Fighting Joe Biden has been on Capital Hill.

A little back-of-the-envelope math makes the numbers even larger: assuming turnover (people who leave) at Wal-Mart runs about one-third of total employment each year (and that’s a guess: most low-end retailers run far higher than that) then Wal-Mart has employed, over the last 34 years, an additional 2.5 million Americans on top of the 1.3 million currently working in dead-end, unattractive, non-middle-class jobs at what is now double the minimum wage.

So that means as many as 3.8 million Americans have found employment thanks to Sam Walton’s low-cost retailing model—compared to the five bureaucrats wangled out of the U.S. budget by Fighting Joe Biden.

Clearly Wal-Mart knows a thing or too more about creating jobs than the Senator running for President.

But is $10 an hour a “livable wage,” as Biden and the other Democrats-who-think-they-can-become-President-but-don’t-realize-Hillary-already-has-the-nomination-locked-up clique would argue it is not?

For many Americans, including the reporters—and I count two of them as friends—who despise Wal-Mart, it is not. But for many Americans, it clearly is—otherwise, nobody would work for Wal-Mart.

They’d go to 7-11 or McDonalds or Circle K, or somebody offering a job at minimum wage. But they don’t. Almost 4 million of them—by my calculations—have gone to Wal-Mart for work.

And I haven’t even gotten to the economic benefit accruing to the 100 million Americans who shop at Wal-Mart each week in the form of lower prices than they would otherwise pay if Sam Walton hadn’t revolutionized discount retailing.

Assuming consumers save ten bucks each visit over the pre-Walton era of every-day-low-pricing, that amounts to a $1 billion-a-week benefit to American consumers, or $52 billion a year. Not bad.

How much has Joe Biden or any of his anti-Wal-Mart peers done for the average American? Let’s look at Joe’s own self-promoting web site for clues.

Here’s Senator Joe fighting drugs:

As Co-Chairman of the International Narcotics Control Caucus, Sen. Biden has a long record of accomplishment in passing bills to combat drug use and help drug addicts kick their habit. He wrote the 1988 law creating the nation’s “Drug Czar,” who oversees and coordinates national drug control policy. Today, Senator Biden continues to work to stop the spread of new drugs such as Ecstacy, Rohypnol, and Methamphetamines.

Given the current meth epidemic sweeping the American middle-class, I’d say not much has changed since Joe “wrote the law” creating a “Drug Czar.”

As for the environment…

Sen. Biden believes we should strengthen the Clean Air Act to cut cancer-causing emissions. He also helped lead the effort to make polluters pay for the clean up of toxic waste sites. When polluters don’t pay, taxpayers do. That’s why Sen. Biden wants to restore the Superfund Trust Fund and force corporations to take responsibility for their actions.

“When polluters don’t pay, taxpayers do.” Tough talk from Delaware’s Senior Senator! However, I see no record of how Joe has ever applied that tough talk to two of the largest employers in his state, DaimlerChrysler and General Motors, whose main product happens to pollute the atmosphere.

Perhaps it’s because he’s been spending so much effort “fighting for”—to use a favorite phrase of the Senator Forehead-types of all parties and persuasions—education. Here’s what his web site says about that:

Investing in education is one of Sen. Biden’s top priorities. To better prepare today’s students to meet the technology challenges of tomorrow, he has undertaken bold initiatives in the Senate to close the “digital divide” and ensure that all students have access to the on-ramp of the information super highway.

Talk about your controversial stance! It’s like my own Attorney General, Dick Blumenthal, bragging about “taking on the tobacco companies,” as if that was somehow a risky thing to do.

And here’s how Joe spins his vote to go to war in Iraq:

As a longtime member of the Foreign Relations Committee, Senator Biden knows that no foreign policy may be sustained without the informed consent of the American people. And of all the mistakes the Bush Administration made in Iraq, perhaps the biggest was they never leveled with the American people.

If Senator Joe honestly believes Bush’s “biggest” mistake of the war in Iraq was that Bush “never leveled with the American people,” rather than, for example, “they never planned for how they’d run Iraq after the war,” then he is even less insightful than I imagined from his Wal-Mart diatribe.

But with Biden, as with most Senators, whatever their party, the issue is not intellectual honesty. The issue is “What can I do to get elected to something bigger?” And since Biden is one of those poor souls—whose ranks include Chris Dodd, Mark Warner, John Kerry and John Edwards—who believes he stands an actual chance to become the Democratic Presidential nominee over Hillary, then he is going to do stupid, short-sighted stuff like castigate the country’s largest private employer.

Or plagiarize speeches from British politicians.

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.

I give “Wall Street’s Finest” a rather hard time on these virtual pages, and, I think, for good reason.

Having been one once, I know the drill: work hard, know your companies, schmooze with your clients, and above all, don’t upset anybody—bankers, brokers, and buy-siders, not to mention CEOs and CFOs.

Cynic though I may be about the process, it ain’t as easy as a bystander might think, and the ones who do all those things well while at the same time picking good stocks are few and far between.

So my metaphorical hat goes off to the folks at my alma mater, the Merrill Lynch equity research department, for their continued in-depth work on the options back-dating scandal now spreading through Silicon Valley like ammonium perchlorate through an aquifer.

In a report that hit my email this morning, called “Risks of options irregularities at Apple (and Pixar),” Merrill’s Richard Farmer details the various issues involved in possible instances of back-dated stock options at both companies—and quantifies them, including the size of potential earnings restatements.

But Farmer goes further, and discusses as well the potential that Steve Jobs’ job is at risk, particularly owing to his presence on the board of Pixar, where “Statistical analysis suggests [option] grant pattern [is] unlikely due to chance.”

I won’t get into the details, and please don’t ask for them—ask your friendly Merrill rep.

But you will not find many analysts with the intellectual integrity—not to mention guts—to write something like this:

“…our review of Pixar disclosures does not allow us to rule out the possibility” that key Pixar executives, including Jobs, “might have been involved in creating options irregularities at Apple or Pixar.”

I can tell you that that sentence is much easier said than it was written.

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.

Greenland Ice Melt May Be Faster Than Thought

That headline is not from the New York Times or the Boston Globe or Rolling Stone or the Village Voice or any other bastion of liberal thought you might expect. Nor is it a press release from Al Gore or John Kerry, or even Ned Lamont.

It is, rather, from a newspaper whose editors frequently dismiss the fact that the earth is warming unnaturally quickly—which any human being who has lived more than forty or fifty years has observed first-hand—as a crackpot theorem being used as political propaganda by drug-addled softies led by Al Gore and various Hollywood starlets.

Indeed, this newspaper’s editors are so skeptical that global so-called warming is anything more than a politically-engineered scare-tactic designed to recapture Congress for the Democrats that they regularly host, on their op-ed page, scientists for the purposes of explaining why glaciers which suddenly decide to melt after five thousand years is an entirely normal event and not the harbinger of impending doom.

Nevertheless, the newspaper in question reported the facts of the Greenland ice-melting case without so much as a single snide reference to Al Gore or the environment whack-jobs whose desire to protect what remaining species we have would spell almost certain doom for an entire generation of California real estate developers who are living the good life thanks to their God-given abilities to cut the tops off of worthless, lizard-infested hills along Interstate 5 and put up thousands of homes for speculators whose trips to Vegas would be endangered if the environmentalists were allowed to have their way:

Greenland’s ice sheet is melting more rapidly than expected, according to data obtained from two National Aeronautics and Space Administration satellites that measure the gravitational pull of the earth’s rivers, mountains and glaciers.

The finding, reported today in the journal Science, adds to concern that global warming may cause faster sea-level rises than predicted, potentially increasing risks to coastal cities and areas.

According to the new satellite measurements, Greenland lost about 57 cubic miles of ice in 2005.

That figure is more than double some previous annual estimates, and the rate of melting appears to be increasing, said Jianli Chen, a researcher at the Center for Space Research at the University of Texas at Austin, and the lead author of the study.

Added to other recent observations, Greenland appears to be “losing ice significantly faster now than just a few years ago,” said Jonathan Overpeck, director of the Institute for the Study of Planet Earth at the University of Arizona. While scientists have long predicted changes to the immense ice cap, “it is disquieting to see how fast they are taking place,” said Dr. Overpeck, who wasn’t involved in the Chen study.

“Disquieting” may not be the right word for what R.E.M. referred to as “the end of the world as we know it.”

Even after the usual qualifying statement that scientists disagree about the cause and effect of global warming, the article continued reporting the “disquieting” facts of the Greenland ice-melt:

Scientists say it is important to understand the ice loss because Greenland holds enough snow and ice to raise sea levels by 20 feet, were all of it to melt.

Current predictions are that sea levels will rise between a few inches and three feet in the next century. However, some researchers think those predictions may underestimate the effects of global warming and the speed of future sea-level increases.

“I think what is happening in Greenland right now is not predicted by any of the models,” said Eric Rignot, a senior research scientist at the Jet Propulsion Laboratory in California, who earlier this year reported estimates of Greenland ice loss similar to Dr. Chen’s. “Sea-level rise of one meter over one thousand years is a lot different than one meter over a hundred years,” Dr. Rignot said.

Sea levels have been rising slowly since the end of the last ice age, more than 10,000 years ago, as glaciers and snowpack have melted, and because warmer temperature causes ocean water to expand.

Currently, the average height of the oceans is increasing by about 1/10th of an inch a year.

The paper’s editors offered no commentary on this “disquieting” news. Not even so much as an anti-Gore dig.

Perhaps that has to do with the accumulating evidence of global warming’s accelerating impact on the real world, already reported in the same newspaper as recently as July 18 in “For Icy Greenland, Global Warming Has a Bright Side”:

Stefan Magnusson lives at the foot of a giant, melting glacier. Some think he’s living on the brink of a cataclysm. He believes he’s on the cusp of creation.

The 49-year-old reindeer rancher says a warming trend in Greenland over the past decade has caused the glacier on his farm to retreat 300 feet, revealing land that hasn’t seen the light of day for hundreds of years, if not more. Where ice once gripped the earth, he says, his reindeer now graze on wild thyme amid the purple blooms of Niviarsiaq flowers

Lest you think this newspaper is presenting Mr. Magnusson’s cock-eyed optimism as the only prism with which to view the current warming trend, the newspaper reported a similar story, except from the point of view of the loser rather than the winner, in “Is Global Warming Killing the Polar Bears?” on December 14, 2005 (which I have quoted in a previous piece that drew much skeptical howling from the global-warming-is-a-statistical-aberration crowd):

It may be the latest evidence of global warming: Polar bears are drowning.

Scientists for the first time have documented multiple deaths of polar bears off Alaska, where they likely drowned after swimming long distances in the ocean amid the melting of the Arctic ice shelf. The bears spend most of their time hunting and raising their young on ice floes. In a quarter-century of aerial surveys of the Alaskan coastline before 2004, researchers from the U.S. Minerals Management Service said they typically spotted a lone polar bear swimming in the ocean far from ice about once every two years. Polar-bear drownings were so rare that they have never been documented in the surveys.

But in September 2004, when the polar ice cap had retreated a record 160 miles north of the northern coast of Alaska, researchers counted 10 polar bears swimming as far as 60 miles offshore. Polar bears can swim long distances but have evolved to mainly swim between sheets of ice, scientists say.

The newspaper in question which has reported such disquieting facts regarding global warming is none other than the Wall Street Journal.

And whatever the Journal’s editors think about the cause and effect of global warming, the central problem with the entire scientific debate over cause and effect is, in my view, as follows.If the greens are wrong, and if global warming is no more than a temporary and self-correcting blip well within the bounds of statistical fluctuations, and if we spend zillions of dollars attempting to mitigate and reverse a normal self-correcting blip in the weather, well, we’ve spent a bunch of money unnecessarily and crimped the lifestyles of a lot of real estate developers and land speculators, to boot.

But if the browns are wrong, and if global warming is in fact the product of more than 600 million motor vehicles screwing up the works, and yet we do nothing about it now, then our grandchildren will be dealing with issues of unfathomable catastrophe—literally, the end of the world as we now know it.

So I sure hope the browns are right, although after reading my Wall Street Journal about shrinking ice caps and dying polar bears and retreating glaciers and happy Greenland farmers, I wouldn’t bet on it myself.It’s a bet nobody, even the editors of the Wall Street Journal, can afford to lose.

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.