Below The Crowd

The De-Financialization of Everything

2008-07-01T19:14:35Z

For the past 25 years, the trend in the world's economy has been to financilization of everything. It doesn't matter what business you have been in, some form of securitization, new financial products, hedging, derivatives, financing, or other financial intermediation has been part of your world. Those of us who actually like to create stuff have been playing second-fiddle to those whose game has been moving the financial blocks around, slicing and dicing them beyond recognition, repackaging them into incomprehensible forms, and then trying to sell them back to us.

A Financialization Orgy

That world hit incredible heights. General Motors (NYSE:GM) and Ford (NYSE:F) have become shells of their former selves, making most of their money from financing. Automobile manufacturing has become practically a sideline, something they needed to do in order to have something to finance. Even General Electric (NYSE:GE) has become much the same kind of company, slowly shedding low-profitablilty manufacturing divisions, while securing the rights to provide financing to purchasers of the products that are manufactured by others yet still bear their name. Jack Welch's success wasn't so much in making GE's manufacturing divisions better as it was in making them less relevant to GE's financial results, depending more and more on easily game-able financial business results. (Jack Welch's greatest genius may have been realizing when it was time to get out with his money intact. His jumping off the financialization train was -- in retrospect -- an early signal that it was about to run off a cliff.) Even small companies with little financial sophistication were caught up in this. As Kevin Depew pointed out in December, little CKE Restaurants (NYSE:CKR) got caught flat-footed in a bad interest rate swap deal. Why an interest rate swap made any sense for a company in the business of operating fast-food restaurants is not clear to this relatively sophisticated investor. Hedging food costs? Maybe. But interest rate swaps? Most likely it made no sense to anybody other than the bankers who sold the deal and the auditors who were paid to tell management that it was a valid use of shareholder money. (Hint to all managers of small companies: Remember the poker axiom that if you can't see the sucker at the table, it's probably you. If you're sitting at the table with a bunch of investment bankers whose job is to create financial products, each of whom makes more in a year than the top ten earners in your company, then odds are you are the sucker.) Most of us have been suckers. It's just taken a couple of decades for the final cards to be dealt and the reality of things to kick in. ]]> Financialization of the Unquantifiable IPOs of every conceivable type have been part of the mix, and a key part of the Wall Street fee structure. We saw the dotcom insanity, real-estate related security insanity, and to this day still see hundreds of public companies out there with no earnings, no clear prospects of earnings, perhaps not even a clearly useful product. David Miller, who covers the biotech space, has often complained about how easy it is to manipulate the stocks of speculative biotech companies, increase their cost of capital, and in some cases force them out of business. I think he's missing the point. The reason these stocks are so easily manipulated is that they should never be public in the first place. Prior to 1980, companies with that kind of profile never would have been public. Financialization gave the companies' founders and early investors an "easy out" regardless of whether the company's product succeeded. Deals were done, risks were moved to mostly uninformed shareholders, Wall Street, VCs and company managements prospered. Money was cheap because financialization combined with Wall Street hype allowed these companies to build business plans based not on their ability to actually generate revenues, but on their ability to sell stock. In an definancialized world, these companies would have had to justify themselves to smart investors with much higher hurdle rates and expectations. Many of the marginal ones never would have gotten around to wasting investor money. And the ones that did finally make it to the point of being public would have been those with real fundamentals, not the subjective metrics that guys like David put forward as being fundamental.

Wall Street Balance Sheets: A Final Monument

Companies with real fundamentals don't worry about manipulation. You can only be manipulated if there are no hard facts. Hard facts tend to wipe out people spreading rumors. Biotechs, like the dotcoms, are easily manipulated because real fundamentals are either nonexistent or opaque to the point where few can understand them. They don't deserve to be treated as financial assets. It's only the wave of financialization that has raised them along with all the other boats in the economy. It's a somewhat fitting eplilogue to this two-and-a-half decade period of time that it should end with the implosion of the very institutions who benefitted most from this world. Bear Stearns, ultimately, was sunk by the fact that it was so fiancialized, so opaque, so far from being able to show real value, that it simply lost the trust of everybody around it. Should Lehman or any of the others fail, it will be for the same reason. Ultimately, they violated Tony Montana's first rule: "Don't get high on your own supply." They filled their own balance sheets with the toxic junk that they -- of all people -- should have known could kill them. In the end, the balance sheets of Bear, Countrywide, Lehman and untold others became the final monument to a world of financialization gone mad. That world is over.

What's Old is New Again

So where does it take us? It takes us to someplace that some of us can't even conceive of going. I was speaking with a friend of mine whose business is analyzing and rating the financial strength of banks. He's a genius at understanding these crazy derivative investments that represent a huge chunk of the assets on most of the banks' books. He knows how worthless most of their books are. Yet when pressed, he still told me: "This country's economy can't survive without structured finance. Some of it will go away, but too much of the nation's business is tied up in it. Obviously he benefits greatly from rating institutions that are so complex that few can understand them. But I think that beyond his vested interest, he really does have a tough time considering that banks may have to go back to being simple banks. That companies may have to finance themselves with relatively simple and comprehensible mixes of equity and debt, even that mortgage borrowers may have to justify themselves not to a securitization firm, but to a firm whose bankers will have to live off the long term spread between their borrowing costs and lending revenues, just like they did 30 years ago.

The Great Unwind

That's why I believe this unwind will be harder and longer than a lot of people think. Because my friend is right. Every company, from GE down to little guys like CKE restaurants has become a junkie to finanacialization. They've become addicted to the quick fix of predictable profits that come from investing in difficult to value (and thus easily re-valued) securities and derivative deals. They've become dependent on having balance sheets so complex that they can mean anything the company wants them to mean, even after Enron and Sarbanes-Oxley (one of the most useless pieces of legislation ever passed). The banks have become addicts to the predictablility of transaction revenue (everything from mortgage origination to account fees) but don't have to live with the long term consequences of those decisions. The bankers take their bonuses at the end of the year, regardless of whether their deals blow up on January 2nd. It was easy money. It's gone. We're going to have to go back to manufacturing good cars, not making our money from financing them. GE is going to have to figure out how to make business in appliances and other stuff that people want to buy, because they no longer trust your financial products. Many of the companies that have come to depend on financing rather than creating will be unable to get out of their current bind. They'll die. It'll be painful, but good riddance. My grandfather, whom I've written about before, came of age in the Depression. He never trusted banks, brokerages, and others in the financial world. He sought out safe investments with slightly higher returns than the banks in the neighborhood. He always kept his accounts below the FDIC and other insurer thresholds, and owned a lot of government and other safe bonds. He learned not to trust the various risk-taking strategies that he saw destroy the finances of so many people around him. The hardest part is not going to be unwinding the debt, though that will be part of it. The great unwind will be the unwinding of our social preferences. We're going to have to unwind conspicuous consumption and live within our means. Living for "stuff," the lifstyle that George Carlin lampooned so effectively, is going to have to be brushed aside. And it will be. Economics always tend to dictate fashion. The economics of the unwind will dictate frugality and economy rather than spending and bling. We'll go there. We've had an 60 year run of increasing financialization and now de-financialization is upon us. Many of the people who are currently living through the aftermath will never trust incomprehensible financial tools and products again. Like my grandfather, we'll all know somebody who lost a home or a livlihood. Banks like the ones my friend analyzes will face a stark choice: return to a business model that includes comprehensible balance sheets or become uninvestible. CKE restaurants will have to learn that their business is burgers, not interest rate swaps. If they choose otherwise, the folks who've live through this mess will tell them "no thanks" when offered their shares. As Kevin DePew notes often, we're going through a realignment of social preferences. Risk is getting cast aside. The financialization ad infinatum that has been fueled by our willingness to take risk is finished. Jim Cramer's latest New York article is right: The era of the big Wall Street payout is over. Their models are discredited, the products they've created are unwanted, and their jobs are unneeded. In the end though, it'll be a good thing. Our best and brightest will actually have to focus their attention on creating things, not financing them. And most people won't have a clue what an investment banker is. -btc

Google Adsense Sucks

2008-06-28T21:59:38Z

Well, I've lost my advertising here. Looks like Google is insistent that I validate my address by entering a PIN that they supposedly sent me. I've requested that it be re-sent twice, and still have not received one. They won't send me another. So I'm trying to deal with their customer service people, who apparently don't exist in any real form. My address is correct, I check the box a couple of times a week, and still nothing has arrived. They provide no other way for validating your existense. All of which begs the question of why Google would feel the need to do this in the first place. Don't they realize that their users are -- probably more than anybody else -- unlikely to do much snail-mail at all? Personally I don't even check the box most days of the week. I've gotten to the point where everything is electronic. Except, apparently, Google's mechanism for validating my existence. For a little guy like me whose ad revenues basically pay for the hosting and not much else, it's sort of a waste to have to deal with it. I may just remove ads altogether, or see if there's some other solution out there. In the meantime enjoy the Google PSAs. -btc

Brief Notes

2008-06-26T23:08:38Z

Finally feeling something close to normal again after starting a new relationship, seeing her go away for a few weeks, refreshing my WFR Certification and cleaning up the office.

So I see that Larry Kudlow is trumpeting "Home Sales Up!" in one of his 15 second mid-day promos on CNBC. Once again proving that he is nothing but an lying sack of shit scumbag shill for the Bush Administration who would have been fired long ago by any news organization that respected itself. If you haven't seen the real numbers, here they are courtesy of Barry Ritholtz at The Big Picture:
- Resales increased 2% to a 4.99 million annual rate (4.89 million pace in April) [note, this is month-over-month, and May is always higher than April, so big whoopee...]
- Median existing house price dropped 6.3% from May 2007
- Sales were down 16% versus May 2007.
- About one-third of total sales last month were “short sales'' that reflected foreclosures or distressed properties;
- Banks repossessed twice as many homes in May as in the same month last year;
- Inventory of unsold homes at the end of May fell 1.4% to 4.49 million; [again, month over month, so big deal....]
- Mortgage Bankers Association's index of loan applications to purchase homes fell last week to the lowest level in more than five years...
Yet from all this, Larry manages to conclude that "sales are up." Guess it just shows that if you have an agenda and are willing to pick the weakest and most irrelevant numbers, you can always find something to justify your pre-ordained point of view.
Of course, any self-respecting news organization would have fired Jim Cramer long ago too, especially after proving himself to be a scumball liar once again, as documented in the attached video. Jim, all those "critics" out there aren't "missing the point," "failing to understand how to watch the show," or anything else of the sort. They're merely noting that on Friday June 13, you told your viewers that your oscilator said the bottom was in and that the trade was to buy all the weak stuff -- financials, tech, etc. -- while getting out of everything that had been strong -- energy and commodities -- then exactly one week later you told them they were idiots and weren't paying attention to the show if they hadn't done the exact opposite. Guess what Jim, I have been paying attention and there's only one conclusion: You are nothing but lying scum.
With all due respect to my buddies Toddo and Cody, Fox Business News isn't much better. Too much fluff, too many half-truths, maniuplated numbers and failures to note stuff that should be obvious to anybody who looks even halfway behind the numbers. But I guess you don't get free rides on the Citi jet if you actually think for yourself and report accordingly.
All of which explains why on your typical day I don't do much other than running the TV with the sound off so I can see the ticker and maybe some of the scrolling headlines. Increasingly I don't even do that. It's all virtually worthless and in many cases has actual negative value.

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I really enjoyed the WFR recertification. Should have done it sooner as it really tended to hammer in a lot of the information from my WFR course three years ago. Doing it with a different instructor made a huge difference as well, I think. Getting the same information from a different person in a different way turned out to be really good for the learning process. I also found the setting at the UCSD campus to be really cool and the recertification group to be far more diverse than the initial class.

Have been out in my kayak a lot lately, particularly in last week's heat wave. From the looks of things at Marina Del Rey, the market for big yachts is a lot like the market for big SUVs. One guy I spoke with tells me that the only big business right now is in repos, and that some of the county owned lots are beginning to fill up with boats whose owners simply walked away, stopped making payments, or didn't keep up with their slip fees. The New York Times reports that this is a nationwide trend. Those who thought that Southern California would escape these trends have been wrong. They are likely to be wrong about real estate as well.

Nigel visited from Salt Lake a couple of weekends ago to see the Lakers actually win one against the Celtics. We took a bit of time going around looking at open houses as he wanted "on the ground" information about what's going on in this market. The bottom line to me is that:

Affordablility (as percent of income) still sucks
Owning is still a really bad deal compared to renting
Prices have come down, but not nearly enough
Financing around here, where just about anything requires a jumbo loan, is all but impossible for most people
Sellers are still not realistic about the market. One broker went so far as to show us "numbers" predicated on mortgage products that no longer exist and interest rates that haven't been available for a year or more.

My conclusion, in the absence of a real economic rebound with higher incomes, is that prices have further to fall. Nigel suggested that I am being unrealistic in my expectation that "resort town" prices would ever really fall in line with rental or other costs. While I agree that costs here, close to the beach, will always be higher than some other areas, the reality is that we're hardly a resort, just a residential neighborhood near the beach, with all the problems of traffic, crime, occasional gang activity, noise and everything else that you will find in any other part of the city. Yes, our prices will be higher close to the beach, but own vs. rent is going to come back in line. And that's still 20-30% away. Don't tell Larry Kudlow.

I'm sort of dating somebody fun right now. I say "sort of" because she left town for family reasons shortly after we started going out. We're still in touch, but I always hesitate to assume to much when something gets interrupted right at the start. I'll know more soon.

Fleck reports this evening that one of his sources says "behind the scenes, many parts of the credit/mortgage market were 'offered only.'" This, I suspect, is what some of the smart money knows and that much of the dumb money, including guys like Cramer, are completely missing. This credit contraction is hardly over. Want to know more? Subscribe.

I've spent the past couple of days going through my various credit card bills and accounts, and cancelling all sorts of worthless features that cost money every month or year. I've also moved a bit of money around to keep myself above the "monthly fee minimum" in all my accounts. Total savings will probably be about $300 a year, which is as much as the Federal government just sent me as "stimulus." Unfortunately for the banks, my stimulus for myself won't help them much. I did much the same with my cellphone account, and will save about $10 a month there. Not huge money, but certainly not money I feel a need to keep paying. I found it amazing that when I called to cancel features, how quickly the institutions were always able to find some comparable feature that won't cost me anything. On my Citibank Mastercard, for example, cancelling the $25 per year "awards" program led me instead to be switched to a "free" awards program that offers the same awards, but doesn't award as many points for certain purchases, most of which I don't make anyway. Verizon Wireless found an unadvertised text messaging plan that cut my cost in half and still gives me more than enough free text messages each month. (I never use pictures or video messages, and don't text much period.) Always worth checking it out for those fees and features that you don't quite need and seem overpriced.

Toyota puts crappy tires on their cars. I guess that shouldn't be much of a surprise since everybody else does too, but I was really annoyed to pop a sidewall after a very minor curb encounter. No tire I've ever had has torn that easily. Fortunately, I'm happy with the replacements which should last me several years.

Smile. Tomorrow probably won't be better.

-btc

Quote of the Year

2008-06-25T04:18:48Z

"Why is it that the people who are against abortion are the people you wouldn't want to fuck in the first place!?"

- George Carlin

Took balls to open a show at Carnegie Hall with that one. Goodnight funny guy. -btc

People are Getting Squeezed

2008-05-09T20:47:54Z

We contine to watch economic deterioration, and continue to see people looking to solve the problems created by excessive risk in the system by introducing more and new types of risk: On the deterioration front:

The strawberry guy at my local farmers market has backed off last week's 25% price increase. The justification of that increase (from $12 a 3-pack to $15) was increased transportation and fertilizer costs, combined with tight supply due to a couple of dry months. Now he's backed off to $13 and is still not selling out his produce by the end of the day. It seems that even in this rarified neighborhood in West LA, freshly-picked strawberries are a luxury good for which prices can only be raised so much. And the guy growing them is most certainly getting squeezed between increased costs of doing business and consumer's willingness to do without.
A lot less recruiters seem to be showing up to some of my regular networking events than in the past. Part of this is seasonal, as the meetings tend to attract fewer people overall this time of year. But part seems to be due to fewer openings. Also, quite anecdotally, the falloff in attendance appears to be at least partly influenced by the price of gas.
I spoke with an old neighbor of mine yesterday afternoon. Among other things this individual "entertains gentlemen," to borrow her euphemism. Since I met her almost a decade ago, she's been one of my best economic indicators. Her business, also a luxury, is sharply down the past few months. She'll be the first to admit that she's not quite as young as she used to be, but doesn't think that's driven such a sharp dropoff. It's the economy, she says.
While rents over the past three years are up in my little complex, my latest round of new neighbors have been able to negotiate rents downward. That hasn't ever happened, as far as I know.

Now for the new risks:

We've got a new type of option available to retail investors today. These are designed to be easier for retail investors to understand, as they tend to replicate sports betting. Note that these provide little or no benefit for anybody who is legitimately using options for hedging or adjusting risk. They are purely a gambling vehicle.
The House and Senate are busy passing bills that will allow the various government agencies to issue and insure even more questionable mortgages. Adding risk to the system seems preferable to letting the system work things out by allowing prices to fall. For better or worse, it won't help.
AIG (NYSE:AIG) clearly shows us that all the risk isn't priced in.
Citi (NYSE:C) still has no clue what they should do with their business, and still seem focused on raising capital. Why they would do this if they didn't see the risk of further writedowns is beyond me.

I think we are in the early stages of a process of reducing risk in the system, which will include taking a lot of flaky investments of all sorts out of the public markets, and forcing a lot of others to reduce their own embedded risk. More on this later. And for the record, I was into Citi for a trade on some short-term calls, thinking they might be able to do a bit better. Out of that trade at a small loss. Now believe you can't touch these guys because they absolutely have their heads in the sand. The Sandy Weill model has been failing for a decade, it's still failing, and somebody needs to finally kill it. -btc

Brief Notes

2008-05-08T21:15:42Z

No big developments today.

Well, more and more evidence that nobody trusts government. We all know that the Fed's machinations are designed to bail out multimillionaire bankers while destroying our purchasing power, and we don't trust them. Now there's plenty of evidence that we don't trust politically motivated pandering like the Clinton/McCain "gas tax holiday" which would only make more money for gas companies while not benefitting consumers at all. This, I think, is a positive development. We need to be thoroughly disgusted with all these guys before we toss them out. Sadly, we'll all be hurt by waiting so long. As I've noted before, I think it'll be the next generation -- the generation raised on interactivity rather than passive TV watching -- that will finally take control from the people in the middle who forget who they work for.
One story I haven't seen mentioned in may places is the upcoming leadership transition in Saudi Arabia. (Thanks to Stratfor for pointing this one out.) If Crown Prince Mishal, the most powerful member of the royal family who is currently in Geneva for "medical tests" were to die, a lot of uncertainty would enter the system even though the nominal king still lives. That situation could make oil at $150 a barrel a reality very quickly even if the new and untested Saudi succession planning actually works. I would not be short oil right here. Not long it either, but this is just another reason you can't short.
So, Warner Music Group (NYSE:WMG) is losing money and has to cut its dividend? I guess that says a lot about the strategy of suing your customers while simultaneously screwing virtually all the artists that you sign. I continue to be amazed at how self-serving the managements of these companies are. They will destroy their businesses rather than concede that their personal ego-gratifying empires are no longer sustainable.
Does anybody still believe government numbers? If so, could somebody please let me know why?
And more government lies. But a note at the end that I ultimately believe is positive, for the reasons specified above. A time is coming rapidly when people will be less inclined to believe any number that they can't touch, manipulate, react to and comment on. Imagine when the goverment has to simply publish the raw data in a framework that allows you to easily pull it apart yourself. Today the government can lie with impunity because the overall attitude is of the TV viewer: passive. But passivity is dying. By the time today's four year-olds can vote, it'll be dead completely. And so will the government's ability to lie to us.

-btc

Notes from the Homeowners Meeting

2008-05-08T18:58:39Z

Part of my reason for the Utah trip this past week was to attend the latest budget meeting for my property's homeowners association board. There are always some interesting tidbits in this one, as it allows me to look at the details of what's going on in an area far away from where I live most of the time. This year was no different.

I was surprised that the maintenance increase was kept to under 5% this year. Given the costs I am seeing elsewhere, I expected it to be closer to 10%. Part of this is due to the fact that some large improvements and upgrades have been completed and won't need to be repeated for some time, and much of it due to good managament.
Everything going to/from our property needs to be transported up a winding mountain road. Trucking and transportation is definitely getting squeezed. The increases are far smaller than one would expect given the price changes in fuel. The answer to this seems to be that on a national basis, demand is down somewhat, so fuel cost increases can't be passed on in their entirety.
The local market though is booming. We have a tough time keeping employees and salaries are going up even at the low end. We have had to hire new supervisory personnel because the inexperienced people we are able to hire for some basic cleanup and maintenance jobs just aren't experienced enough. I spoke this over with my friend Nigel later and he agreed that it's an issue in Salt Lake these days. He also believes it's at the core of the problem I had at Walgreens (NYSE:WAG). In his opinion low end retail help in Salt Lake is currently a disaster because of the difficulty in hiring and retaining anybody who is any good, even part-time high-schoolers.
All of which has me wondering whether maybe buying a small condo or other property in the Salt Lake Valley might be a good idea. I'd use it from time to time, and I suspect that the market won't get hit much from here. Besides, downtown Salt Lake has had a very nice resurgence, less of a Mormon influence than the rest of the state, and could make a nice temporary escape from the California economy if things end up as bad as they might over the next couple of years. Nigel thinks that's a good idea too.

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Property tax rates in Salt Lake County are going down, but assessments are still going up. We are fighting the latest increase in assessment and think we've got a good chance of winning given the prices of units in our (somewhat aged) facility. However, we also don't expect the rates to continue as low as they are. Even healthy states like Utah are in budgetary trouble.

We've got a number of energy (mostly nat gas) guys on the board, and we expect that over the course of the year prices will moderate. We've been able to lock in rates below the current market so won't get hit too hard on energy costs.

Upgrading to energy efficient appliances and switching lighting to CFLs makes a huge difference in operating costs. OK, I've notice this at home too.

Other thoughts, not directly from the owners meeting:

Bar traffic is down this year. Both bartenders have complained about this. Much of the bar traffic is local skiiers stopping in for a drink rather than driving down the road in peak traffic hours and that's where most of the pain have been felt. Those who go on vacation are still spending, but the locals are clearly cutting back.
The same seems to be true for local ski traffic as well. I've skied 51 days this year, much of it in the best conditions that I've seen in decades. Yet other than a few remarkable weekend powder days, there has never been much of a line for any lift. Part of this a result of some mountain improvements and a new lift, but part seems to be a falloff in traffic.
Snowbird still can't sell out its new shared-ownership property and they've extended sales out in to next year while delaying construction another year as well. If they make it (and I doubt it), it'll be three years of sales compared to the original plan of one year's sales to justify constuction.
The retailers on the mountain had to discount deeper and sooner than I've ever seen. I bought a new pair of skis for 50% off with a solid month left to the ski season. REI's current spring sale is echoing that experience.

-btc

The Godfather Doctrine

2008-05-08T02:11:15Z

Interesting opinion piece in today's LA Times called The Godfather Doctrine. Here's my comment, which may or may not actually be published:

There's no denying that Hulsman and Mitchell's advocacy of a "realist" position for the US in the world makes sense, as the centers of global power and influence have shifted, and nimble super-national or decidedly anti-national groups have risen to confront us. But they fail to sufficiently hammer home the key point: Proceeding realistically means abandoning most of the structures and rules of international operation that have governed our conduct since World War Two, including those which the US has been most instrumental in building. Are we willing to reconsider who we can kill and when? Michael Corleone decided that maybe the previous "mobster rule" prohibiting killing a police officer could be broken in some cases. Are we willing to consider that targeted assasination is preferable to outright war? Michael Corleone did. Are we willing to consider that the existing power structures and institutions -- the ones designed by Eleanor Roosevelt and members of her generation -- may be completely obsolete and no longer worthy of support or reverance in their current form? Michael Corleone certainly did this too. A realistic policy will force us to recognize and abandon long-held beliefs about everything from the usefulness of the United Nations, to the legality of killing foreign leaders pre-emptively, to the reality that in many places and at many times the distinction between "civilian" and "military" is no longer a meaningful one. Our adversaries have already either discarded these beliefs or never shared them in the first place. Michael Corleone discarded many of the rules that had governed his father's life when a changed reality turned them into liabilities rather than assets. The question for the next decade is whether we are willing to be similarly cold and ruthless about the realities of our world.

-btc

Brief End of Ski Season Notes

2008-05-08T01:03:14Z

It was a really nice end to the ski season, a great Sunday for the last tram at Snowbird. Now the tram is down for 40 days of major maintenance, a few chairs remain running on the weekends and my knees are ready to move on to something less damaging. It was the first time in many years that conditions were good enough for me to stick around until the last tram day and forgot the fun involved: Gaming the last tram boarding, the ride up, the "reception committee" with snowballs on the peak, the peak party, the party on "The Beach" above Lone Pine with Mt. Superior in the background, and the follow-on parties in the valley after finally making our way to the bottom. The last tram of the season was received with a traditional fusillade of snowballs on the top of Hidden Peak at Snowbird After everybody was kicked off the peak, the party continued out on "The Beach" at the end of the traverse. At least until the ski patrol kicked us out of there too. And somehow I missed my flight home Now it's truly back to reality.

I did get a call from the manager of the Walgreens (NYSE:WAG) store that I complained to on Sunday. She said the problem had been related to training and she went over things with the employee. Good enough for me, and a pretty good indication that this company does still care about their reputation. For better or worse, the labor market in Salt Lake is such that she probably doesn't have the greatest material to work with. More on that later
I just got an invitation to the Anderson School's John Wooden Global Leadership Award ceremony (formerly known as the Exemplary Leadership in Management Award). I've commented on this one in the past, suggesting that this award tends to be really good at picking guys who are either peaking or past their peak. So it's no great surprise that this year's award goes to Howard Schultz of Starbucks (NasdaqGS:SBUX). His getting this award certainly would not give me the warm and fuzzies about owning the stock.

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I've got a bunch of USPS "Forever" series stamps which will soon go up in price again. We've gotten to the point where they don't even bother replacing the stamps when they raise prices, and never get around to actually printing up first class stamps with the price noted on them anymore. It probably has something to do with the fact that nobody I know really uses them much these days. I have exactly one bill per month that requires a stamp. Everything else is electronic. When I finally move out of this rental place, that bill will go away too, leaving only taxes as my final reason for using the USPS at all. I suspect that over time, the post office as we know it will go away and mail delivery to residential addresses will turn into a once-a-week kind of thing. It just won't be worth doing anymore. Fine with me, as it'll mean less junk mail. In the meantime, I still have a couple of dozen stamps. A couple of years worth at my current use rate.

Even with the ski season effectively over, there is still a huge amount of snowpack in the mountains. I'm beginning to think that I'll really regret it if I don't get myself on a Yampa River trip in early June for what may very well be the biggest flows of the decade.

It's time for me to renew my Wilderness First Responder (WFR) certification. Looks like another trip to San Diego this time, though this time we'll be at UCSD not USD. Convenient as a cousin's brother and his family live right down the road in La Jolla.

I haven't said anything about the Fed because there's really not much to say. As has been noted in many places, the Fed has made its motives clear: They're there to bail out the big banks and bankers, and if they need to sink the economy and destroy the dollar to do it, that's fine with them. Sadly, the results will ultimately not save the banks and will destroy everything else.

I am not much of a political creature, but it's nice to see a guy I went to school with doing so well. And I'm increasingly pissed off at "The Clintons" and their allies apparently putting me and many others like me into the category of "traitors." Let's get things straight: I voted for Bill Clinton twice because I felt he was the better guy for the job both times. I didn't swear alleigance to the Clinton family, didn't support his wife, or his daughter, or any of their other friends, and don't appreciate those who feel that somehow I "owe" Hillary anything. My vote for her husband was strictly for him, and doesn't automatically transfer to other members of his family. We don't have royal families here, regardless of how much as some (Bushes, Clintons, Kennedys) might dislike that reality. If Hillary Clinton wanted my vote she needed to earn it. She didn't. Her husband did. This year Obama did. All seperate decsions. End of story.

I really wish it would warm up a bit more. I've got a nice used sit on top kayak and would love to get out in it, even for a quick paddle around the Venice canals or through Marina Del Rey. Got to do something now that the skiing is over.

It's been a year since I've had my Prius. I continue to be impressed with how nice a package it is. Unlike most other hybrids which are based on conventional vehicles, this one actually works really well without many sacrifices. All the others end up with all the disadvantages of the vehicles they are based on, plus all the disadvantages of the hybrid technology, like the need to sacrifice trunk space to shove in a battery. They Prius, which is designed from the ground up around the hybrid drivetrain, avoids many of these pitfalls and manages to put together a very nice package of features, all without a huge markup above what you would pay for a traditional vehicle with similar features and interior space. I suspect over time we'll see more vehicles like this, and perhaps some vehicles that are designed from the ground up to be adaptable to different types of drivetrains without giving one the feeling that the non-gasoline features were clumsily added on after the fact (which they were). It's mostly simple stuff like modularizing the vehicle. For example making it possible for a car to have either a large gas tank, or a small gas tank plus a batter, or a natural gas tank, or perhaps even just a single large battery, all of which could be fit into the same space.

[Edited for formatting, May 8 10:08] -btc

A comment to Walgreens

2008-05-04T15:21:53Z

I don't often get pissed off enough to actually send a complaint, but maybe I should more often. Here's what I told Walgreens (NYSE:WAG) about their store at 9400 S. 2000 East, Sandy, UT:

I entered your store on Saturday afternoon, May 3, in order to purchase three small items. I easily located all three items and proceeded to the front checkout, which was unstaffed at the time. An employee approached me and immediately informed me that he could not check me out at the main cash register because I had a "costmetic item" which could only be purchased at the cosmetics counter. The item? A tube of sunscreen. I have purchased this same off-the-shelf item at dozens of Walgreens stores around the country, and nowhere have I ever been told that it needed to be handled by a special department. But at your store, I was forced to wait for about 5-10 minutes behind two other people, also waiting at the cosmetics counter, also purchasing non-cosmetic items. Using the cosmetics counter offered me no additional benefit, and none was desired. All the while, the employee who had refused to check me out at the main cash register continued milling around at the front of the store doing -- as far as I could tell -- absolutely nothing! I can only hope that the issue was one employee's misunderstanding of your store policies, and not an unusual and inconsistent policy in this one store. There should be no reason that an off-the-shelf item cannot be purchased at any cash register I choose. Next time I happen to be in this area, I will surely go to the supermarket across the street where I expect that a tube of sunscreen will be handled quickly and efficiently at the express checkout.

For now, if you happen to be in this area, I'd avoid that particular store. As noted there is a Smith's, aka Kroger (NYSE:KR) store with a fully pharmacy section right across the street. -btc

A Screen Without a Mouse Attached is Broken

2008-04-30T21:34:25Z

Clay Shirkyon's piece entitled "Gin, Television and Social Surplus" on his Here Comes Everybody blog intrigued me when quoted by Barry last week, and even more so when I finally got a chance to read it in its entirety yesterday. The most revealing point he makes is a simple one about his four year old daughter, who interrupted her DVD-watching to look for the television's missing mouse:

Here's something four-year-olds know: A screen that ships without a mouse ships broken. Here's something four-year-olds know: Media that's targeted at you but doesn't include you may not be worth sitting still for. Those are things that make me believe that this is a one-way change. Because four year olds, the people who are soaking most deeply in the current environment, who won't have to go through the trauma that I have to go through of trying to unlearn a childhood spent watching Gilligan's Island, they just assume that media includes consuming, producing and sharing.

I came back to this article later in the day, after reading another article about Hollywood whining. This time it's Jeffrey Katzenberg whining about the fact that theater's haven't rushed to adopt new 3D movie technology, and for that matter, even plain old digital projection technology.]]> Media that's targeted at you but doesn't include you may not be worth sitting still for. And they're putting their money where their knowledge is. And by the way Jeff, putting in some whiz-bang 3D effects isn't "including" me, or allowing me to share. Clicking on a mouse or a button at any time and getting more information or offering an opinion is the minimum requirement for including me and allowing me to share. Youtube clips include me and allow me to share. Mashups of a clip from your movie with a clip of me commenting and playing music from a third party in a funny way includes me and allows me to share. Oh, that's right. I forgot. Your business model is to sue people who do any of those things. Your business model is that I don't get to participate, I get to watch. And you get to tell me what, where, how and for what price. You and your colleagues are so immersed in that business model that you can't see it is dying. Dying because of the four-year-olds who know that any screen without a mouse attached to it is broken by definition, and who will be your customers of the future. They know that all the screens you have used to shove content at us for so many years are broken by definition. And they know that the broken screens include those Hi-Def, 3D, THX-equipped screens you're whining about movie theaters not wanting to install. They know, or at least are beginning to realize that their business is a declining cash cow that just may not be worth putting too much new money into. At least until such a time as you develop both the mechanism and desire to give every movie viewer their own mouse. This, by the way, is one of the few reasons I'm optimistic about the future. Our four-year-olds know that actvity and involvement, not passivity, is the way to live. This isn't just something they think or believe. It's what they know about life. It's what just about everybody under 16, and an increasing number of older people have come to know. They know it's not enough to be spectators Not enough to just vote every two to four years. Not enough to "vote with your pocketbook" and sell stock -- a company share that you own -- when the hired guns running it fail to run it for your best interest. I suspect they'll be the ones to toss our current generation of "leaders" -- the ones in both political parties and virtually all political organizations around the world who depend on us being mostly passive -- right out the door and into the gutter where they all belong all the others who have turned us into a world of zombified passive lapdogs over the past 70 years. Who benefits? Well, Google obviously, along with many others. In the investment world, the beneficiaries will be the shareholders who will increasingly demand (and ultimately be given) the right to a say in how their company is managed and by whom. In the government world, I think the gain will be for all of us who want to be involved, and the loss will be for everybody who wants to sit around Katzenberg-style and whine about what you're not being given. The key thing to consider when looking for opportunities, I think is also highlighted in Shirkyon's piece:

We're looking for the mouse. We're going to look at every place that a reader or a listener or a viewer or a user has been locked out, has been served up passive or a fixed or a canned experience, and ask ourselves, "If we carve out a little bit of the cognitive surplus and deploy it here, could we make a good thing happen?"

-btc

Catching Up

2008-04-28T21:00:12Z

Well, it's been a really good ski season. While Snowbird is still going strong through May (and likely for at least a couple of weekends in June, leading to a likely July 4th blowout) the time has come to leave the winter relationships and the snow behind and get back to reality, including this blog. I get one final weekend up ahead of me, but thoughts have already moved on.

During Howard Stern's winter hiatus, I switched my Sirius clock radio to CNBC and kind of stopped listening to him for a while, going straight from bed to CNBC or one of the other financial channels on TV. I recently swtiched back and have noticed that my trading has improved markedly. I'm making less trades but also making much better ones. I think losing the financial TV noise has been good for me. I'm now back to Stern through the morning, only occasionally dropping the muting on TV for something that looks particularly interesting.
It's yet another example of the fact that the central theme of Blink really works. Our minds tend to respond better when confronted with the key pieces of information and less extraneous noise that merely clutters our thoughts.
I got a pretty crazy email the other day, apparently taken from a messageboard somewhere. The essence of this email is that a guy with equity in his house and good credit was thinking that it made sense to take out a home equity loan for the full amount of available credit, and put it into a CD that he had available to him at a similar interest rate. His rationale was that if the bottom really fell out, he could then walk away from the house and retain most of the equity that had been "taken out." This struck me as completely nuts. First, he failed to note that in California (where I believe he was), a home equity loan taken out after purchase is considered a "recourse" loan, meaning you can't necessarily walk away and mail in the keys. The lender can come after you. Historically they haven't, but I suspect that as conditions get worse, they will start doing this to people who walk away from their homes out of convenience rather than financial hardship. Second, he fails to note that Fannie and Freddie have noticed this. Fannie has published new guidelines saying -- in effect -- no new mortgages to anybody who has defaulted in the past five years, unless there were extenuating circumstances, in which case the rule is three years. (Thanks to Mish for several of these tidbits). In either case, our "smart" investor is likely to miss out on a buying opportunity a couple of years out if he executes this strategy. Third, the debt forgiveness is taxable unless you are insolvent at the time. Since this guy would have the cash in the bank, he won't be able to take advantage of the break the IRS gives to truly insolvent individuals. He'll owe regular income tax on any amount foregiven if he walks away. Fourth, part of the rationale is that he has an investment vehicle that will provide returns that match his interest cost on the loan. But for how long? Most home equity loans reset pretty frequently. And I know of few investment vehicles that will guarantee sufficient returns to make this work once rates reset. Finally, he's really unlikely to follow through. There are some people who truly treat their homes as mere financial assets. Most don't though. It's nice to plan and to think of everything as being financialized these days, but most people don't actually follow through. Putting together a plan that he's unlikely to follow through on seems silly. If he is really so unattached to his house, and really thinks the market is likely to decline in the coming years, then why doesn't he just sell now instead of going for all the financial engineering? I think this is another example of the kind of thinking that is going to disappear really quickly as real risk re-enters the system.
While I'm on the topic of financial TV, it's nice to see that Cody's doing well at FBN. I can't claim to be a real fan of the show (nothing personal, I don't like most finance TV shows), but he's definitely making his mark, often in interesting ways. Must say, this is still one of my favorites.
And it's too bad that Herb is moving on, though I understand his desire to do something different and he assures me that he will still occasionally be appearing on CNBC. Might actually have to put the volume up for that one, and catch Howard on the repeats. Best of luck in your new adventure Herb!

Wheel of Friends

2008-03-20T01:25:14Z

I've been having fun with Facebook in recent months. A friend out in Utah finally got me started with this one and I must admit it's been a nice way to interact with far-away friends, reconnect with some others and even meet a few new ones. I just added the "Wheel of Friends" application and found something pretty interesting. While I have a lot of friends, I don't have a whole lot of connections between them. This seems quite a bit different from the wheels I've seen on many of my friends' pages. I wonder what this says about me, as well as about the application itself?

For starters, I suspect there would be a lot more connections if more of my friends were on the system. For better or worse, among my age group, use of Facebook is somewhat limited.
I'd probably have even more linked people if I were in a more stable work situation. As an independent consultant I tend to have a lot more one-off business relationships than somebody in a regular workplace with lots of colleagues who know each other.
That said, I've got to think that this is at least somewhat reflective of my reality. I have lots of friends and acquaintances, but I seems to accumulate them in the oddest of places. I don't have lots of "groups" of friends. In fact, I'm one of those people who finds hanging out in groups to be at least a bit uncomfortable. Sometimes, very uncomfortable. (This tendency has definitely cost me a relationship or two recently.)

I think this is part of the unstated power of social networks. They can help you notice and figure out things about yourself that you may not have been inclined to even consider had you not had it displayed for you in such a concise and well-presented manner. -btc

The New Frugality

2008-03-19T22:01:04Z

A few weeks ago I noted that I had encountered the term "Voluntary Simplicity" during an Anderson School-sponsored career options exercise.

The MBA Indicator

I found it interesting at the time that such a concept would even be offered as an option in a gathering of top-10 business school grads. I found it even more interesting that many of them thought it was a topic worth discussing. And I was quite surprised that nobody in the room completely dismissed the concept, thought most of us found the spiritual aspect of the idea to be somewhat unnecessary. That's 12 people, in the most image-conscious city on the planet, all of whom have had significant business success, who in fact went to school to get ahead in business and who are used to 60-70 hour workweeks, all of whom are looking at their lives and thinking that maybe wanting less and having less could be a better way of living. There's been more and more evidence that this idea could be a force in the economy in the coming years]]> inevitable outcome of the end of the credit boom. Those people may be dragged kicking and screaming into the world of living within their means and finding entertainment other than shopping, but they'll influence tastes and fashion for years to come. As I repeatedly note, my grandfather lived in a world where you were frugal, because you worried about what the neighbors thought. We live in a world in which otherwise-sane people feel compelled to spend on ostentatious items they don't need because -- again -- the neighbors and colleagues might think badly of them otherwise. The neighbors of the coming years are likely to pull us back to frugality and worrying about the thoughts of those underwater neighbors, at least in public.

The Casey Serin Indicator

Mish today notes that we appear to be entering a phase of economic development in which paying $4 for a cup of coffee is no longer seen as necessary or desirable. He may well be right. That Starbucks (NasdaqGS:SBUX) is considering loyalty cards -- something that neighborhood places had to adopt as a way to compete with Starbucks -- says a lot about how soft they think their business could become. To me, the fact that mortgage-fraud poster-child Casey Serin made Starbucks part of his public persona speaks volumes about how much some of us have come to associate conspicuous consumption and expensive brands with our realities. And if Casey Serin latched on to the trend, the trend has got to be over, or at least in its last innings. Incidentally, Casey's other fave trendy brand was Jamba Juice (NasdaqGM:JMBA). Beware.

The Target Indicator

I see signs of this new frugality elsewhere. This weekend I made one of my rare Target (NYSE:TGT) shopping trips to pick up some household goods in larger quantities. My side of town doesn't have a Target, so I have to travel a bit to get to a large mall in a somewhat less affluent area. For the money I save on purchases of soap, detergent, bathroom essentials, paper products and other homewares, it's worth the few miles of driving. One of the benefits of shopping there is that I'm not really their target demographic, so the products I like tend not to be sold out, even though they are often stocked in smaller quantities. So I was surprised to find that almost all the High Efficiency clothing detergents were sold out this weekend, including all the unscented variants. This is weird. While frontloading machines have been all the rage on my side of town in recent years and despite lots of rebates from the city, at well over $1000 for a basic washer/dryer set, they've been slower to penetrate the less affluent sections of town. The local Target has slowly added HE detergents in the past couple of years, but it's been a slow process and I've never seen them sold out. They're pretty good at judging inventory and demand. I asked one of the people working there if they had more in stock somewhere, and the answer was pretty simple. Nope, they've been selling out of the stuff quickly in recent weeks. They need to start rebalancing the shelf space to dedicate more room for them, but the change in trend sort of caught them by surprise. I can think of lots of reasons this might be happenning, but the most obvious explanation to me is that more and more people from my side of town are heading over to Target where basic stuff is cheaper. I don't think many of us are buying our fashion items there, but the savings on basic household brands are too good to miss. Especially in an era of growing frugality.

The Snowbird Indicator

While I love place, Snowbird has never, ever timed a real estate development well. So the fact that they're now selling ultra-luxury, ultra-ostentatious shared-ownership condos is telling to me. The fact that they are apparently not selling well at all is not surprising. Four years ago they would have made this work. Today, I'm not hearing much good about this. Too expensive, too ostentatious, too much like places where people go to show off. It's not working. In the meantime, my much more low-key timeshare development is pretty much at 100% occupancy this entire season. Also, I'm told that these ridiculous things are not selling well. Maybe in Aspen and Beaver Creek. Not in anyplace even remotely normal.

A Disclaimer

I've been downshifting a lot in recent years. Maybe I'm seeing what I want to see. Thoughts?

Been Skiing

2008-03-18T05:38:44Z

Yeah, it's that time of year and it's been the best season in years. I've also had a girlfriend up in Utah, who has made getting up there a lot easier than in past years. So I've been offline a lot. Got one more long trip to Snowbird in a couple of weeks, and probably a bunch of shorter ones through April, but also slowly getting back into the swing of things here and should be commenting more often. Hard to beat days like this one at Alta though: -btc