Posted by: Howard Silverblatt on February 12, 2008
It only feels volatile if you’re not an octogenarian:
YTD 7 trading days have been up at least 1% and 10 down at least 1%. That ranks third (7+10 / 28 = 60.7%) behind the full year of 1932 (66.1%; 30.6% up and 35.6% down) and 1933 (63.5%; 34.0% up and 29.5% down).
YTD the S&P 500 is down 8.80%, and if the market closes up a bit today (1339.36 vs yesterdays close of 1339.13), we would finally no longer be the worst YTD in history (currently 1957 at -8.79% – but a great wine year) – you take what you can get.
FYI: With AIG’s charge announcement yesterday, the Financials, that are projected to post a $10.9B deficit in Q4 (vs. a gain of $54.2B in Q4 2007) could get worse. Moving forward there is already some estimates / discussions of Q1 charges. Note that the mark-to-market point for many brokerages is February 29 due to their November fiscal, so for them the evaluation is Nov,’07 vs. Feb,’08.
How MicroHoo can avoid the fate of AOL-Time Warner
February 8th, 2008 | Posted by stockOne thing was certain on almost every story I covered in the late 1990s as the Internet policy reporter for Reuters in Washington D.C. No matter what the controversy, the cable television industry would be on one side, led by Time Warner, and Internet companies would be lined up on the opposite side, invariably led by America Online. The very biggest dust-up was over “open access,” or the notion that the government should require cable companies to let other internet service providers access customers via their emerging broadband cable networks — just like the government required of the telephone companies. The fight was lengthy and bitter. But when Steve Case and Gerald Levin famously unveiled their almost $200 billion megamerger, it looked like the war was over. I even appeared on CNN with Judy Woodruff and said so. Oops.
Only later did we learn the shocking truth — Levin hadn’t shared the merger idea with most of his top managers and had done nothing to sell them on it. The very first move I expected, the death of Time Warner’s woeful RoadRunner ISP and the elevation of AOL as THE premier broadband service provider of the 21st century, never happened. Time Warner could then have pitched the model to other cable companies and spread high-speed AOL everywhere featuring TW content. Instead, inside AOL Time Warner, the two sides continued fighting and refusing to cooperate. All that great Time Warner content that could have helped AOL become a top destination for online video, all those AOL customers ready to make Time Warner content insanely popular online, all squandered. And now, eight years later, they’re dumping AOL’s dial-up service and HBO is just barely on the Internet.
So now comes Microsoft (Symbol: MSFT) CEO Steve Ballmer and his offer to buy Yahoo (YHOO). If Yahoo goes for the deal, the lesson for Ballmer is clear. Be ruthless in forcing managers to work together. Don’t let one faction torpedo another by keeping alive competing brands. Pick the winners and move on. Is Yahoo ahead in getting its services ready for mobile phones, including those running Microsoft’s operating system? Go with it. Take a very hard look at Yahoo’s Panama advertising platform and whatever Microsoft’s got cooking. Probably only room for one platform going forward, as Ballmer already alluded to in an interview with the Wall Street Journal. Maybe there are a few areas where you keep two competitors running, say Hotmail and Yahoo’s email, but not many otherwise you’re wasting resources and failing to take advantage of the scale you’ve created.
Which is not to say that Ballmer should hole up in Redmond issuing decrees. As Wharton Professor Larry Hrebiniak has said, the integration plan has to involve all of the top managers:
People will say, “Do it quickly, get it over with.” I think that you have to talk about what is done quickly and what takes a little longer, and lay out an implementation plan to execute the integration well, decide what should be integrated [and] how, and just get people involved in that discussion so you’re not pulling major surprises and driving people away.
To be sure, those aren’t the only challenges for such a mega-deal and other competitors may steal the day no matter how well the Yahooligans and the ‘Softies get along. But if Ballmer plays it smart, maybe the major surprise will be that the deal works after all…
February 8th, 2008 | Posted by stockPosted by: Howard Silverblatt on February 08, 2008
Lots of money being spent. The stimulus program will be in excess of $160 billion, the proposed 2009 Federal budget is $3.1 trillion, which is $410 billion more than it is taking in, and if unemployment picks up I would expect additional expenditures on extending unemployment benefits, aiding homeowners, as well as incentives to increase corporate spending. And of course it’s an election year, so there is no better time to spend; increasing taxes, oh excuse me for being politically incorrect, revenue enhancers, special purpose surcharges, and phase-out deductions, are for after the election. The stimulus checks could be in the mail by June, which should be about when the Fed rate reductions should start to be felt, which is right after those delayed tax refunds (another years, another AMT fix) arrive. So, as a consumer and a good American, if the government sends me a check (rebate, stimulus, anything), I will spend it, but as a greedy investor how can I benefit?
Outside of believing that the money will help turn the economy and the market around, it looks like a short-term play to me. So, if I was a gutsy guy expecting a few extra dollars, let’s say $2,516 (using some aggregates and the U.S. population), which short-term option might I want to roll the dice on? I think it would have to be all those nice retailers whom last time we received a rebate were nice enough to cash them for us and even give us an extra discount if we left the store with no money.
But since I’m becoming less of a gutsy guy as my kids get closer to college (separate fund), I have to think longer-term, as in retirement. To me the question is not who get’s the money today, but how will it impact the underlying economy. Since I’m touchy about what may not be on Financials books, I looked at the non-financial issues, which are still awash in cash (S&P Old Industrials have $613 billion that equates to 65 weeks of net income), so riding out a mild recession should be feasible. While the Q4 S&P 500 earnings posted a 22% decline, when I stripped out the Financials the rest posted a double-digit gain of 13%, and cash flow is coming in positive. So, while I don’t see light at the end of the tunnel (it could be because I’m too scared to look), companies with strong cash flow numbers based on ongoing operations, that have a sensible business plan and a management that has some experience riding out a storm seem attractive. In short, issues that are depressed more due to the current general economic and market conditions, then their own financial ones. It may sounds like a value play, but quality, experience, and execution, combined with reserves and a solid business plan usually performs better over the long term. But more important to me now is that they also have a tendency to lack some of those knee jerk reactions that shift the risk reward tradeoff against the shareholders. It’s not what you make with the Bull, it’s what you loose with the Bear.
February 6th, 2008 | Posted by innovConsider these two scenarios:
1. You walk into a meeting with a great idea. You’re full of anticipation for the excitement it’s going to cause, only to be met by the comment: “That’s just like ‘X’—it’s been done before.” The idea is dismissed and you leave, perplexed and deflated.
2. Your competitor comes out with a phenomenal product. You not only wish you’d had the timely insight that led to the innovation, you know in your heart of hearts you have the same business and technical skills, and had access to the same data as your competitor.
Despite their apparent differences, these scenarios are actually two sides of the same coin. I know from experience, as I’ve lived both far more often than I care to admit. But rather than view these moments as failure, I view them as expensive tuition for a valuable education. To save you from having to pay the same fees yourself, I thought I would try to summarize the nature of the coin—and explain how it can be flipped to your advantage.
Since everything needs a name, I’ve decided to name a new law “GGR,” or the law of gradual granularity refinement.
I want to express it as a formula. But don’t worry. It is trivial. This is to give the “law” its richly deserved gravitas: JND significance ~ 1 / familiarity.
The term JND (just noticeable difference) might remind you of your first-year psychology class. It asks, “What is the smallest level of differentiation that you can perceive as being significant?” The tilde character (~) means “varies with.”
Hence, the law says that the granularity at which we distinguish meaningful differences gets finer the more our familiarity with a subject grows. Conversely, it also says the less familiar we are with something, the coarser the granularity will be before we can distinguish differences as being significant.
Let me tie all of this back to our two scenarios. Each is the result of differences in JND (the granularity of recognizing differences of significance) at play between the two parties involved.
In the first, you had the insight and saw something significant in it because you were immersed in the problem space. The granularity of your analysis was really refined. But the subtlety required to appreciate the essence of the idea fell below the threshold of your audience’s ability to see any difference between it and what they had seen before.
In the second, the roles were reversed. Yes, you had all of the data. But what you didn’t have was the ability to see the significance buried within. The granularity of your analysis was too coarse compared to that of your competitor. Most likely, despite your hard work, you simply weren’t sufficiently familiar with the problem space to fully appreciate the significance of its subtleties.
The reason that I’ve taken the seemingly pretentious step of declaring the GGR as a law is to help emphasize there are no villains or stupid people in any of this. The behaviors in both scenarios are human nature. But that means they are predictable and avoidable—so there are some lessons that can be drawn from all of this.
In the first scenario, the GGR law says that you need to go into the meeting in full recognition that your appreciation for the significant subtleties surrounding your innovation is at a completely different level of granularity than that of the people you are addressing. You may explain things wonderfully, and they may even understand at an intellectual level. But at a deep, visceral level, they still do not get it. They simply do not have sufficient experience or familiarity to internalize things in a way that even vaguely resembles the way that you have. And it will not be clear why they should put your plan into action.
Does that mean there is no point in trying to explain your idea? Of course not. It just means that you need to apply as much creativity to how you present your approach as you invested in your original idea.
In a short presentation or pitch, you certainly cannot bring your colleagues or management up to your level of experience or understanding. But you certainly can use things like well-chosen stories, examples, or prototypes to give them enough of a taste to at least be willing to come back to the table for more. Ideas are like any other product. Regardless of how good they are, without an effective pitch, they will most likely fail. If we really want them to get traction, we can’t afford to focus our creativity on only the ideas themselves, and ignore their explanation.
Now let’s consider the second scenario. In all likelihood, you knew your competitor. You went to the same type of school, had similar grades, and read the same journals. You probably work just as hard, go to the same conferences, have access to the same data, and know similar people. Yet, the competitor saw something that you didn’t. Why? Let’s rule out luck (there is little you can do about that). It had to be that they were doing something different than you. They were not having the same meetings or using the same techniques.
What the GGR law suggests is that your competitor found a way to accelerate their familiarity with relevant materials in a way that you did not. Working at a far more refined level of granularity, they were first to see the subtleties that made the difference between being the innovator and being the observer.
Viewed this way, the good news is you have proof that there is a way to achieve such acceleration. There is no magic. It is attainable. Your challenge, then, is to invest as much creativity into redefining your process as you have in your sought-after innovations.
It takes time to gain experience and familiarity that lead to the fineness of granularity wherein the sweet spots lie. And, no, we haven’t found a solution to time travel. But the history of technology is full of discoveries of how to move faster, finer, smoother. That is the heart of your quest—to find ways to accelerate the rate and quality of gaining experience that get you to the fine level. What all of this says is that to be successful, we need to innovate around the whole package, not just one part.
In his classic book, Remembrance of Things Past, Marcel Proust observes: “The only true voyage of discovery is not to go to new places, but to have other eyes.” Therein lies the key.
February 4th, 2008 | Posted by stockFeeling depressed about the economy? Let’s latch onto some reasons to be optimistic, courtesy of Marc Chandler of Brown Brothers Harriman:
“There is no doubt that the U.S. economy has slowed down,” but “it is still too early to assume the U.S. economy is contracting.”
Growth in the fourth quarter gross domestic product was recently reported at 0.6% in a preliminary estimate. Sure, that sounds bad, but the advance report is “notoriously unreliable,” Chandler wrote. Chandler points out that 25% of the required data for the final GDP number isn’t available yet at all, and another 30% of the measure is based on partial data.
Last week’s employment report, showing non-farm payrolls fell 17,000 in January, is also subject to revisions.
How long until we know for sure that the economy is, or isn’t, heading for a recession? Chandler suggests we won’t really know “until the end of February or early March when [fourth-quarter] GDP is revised and we get a new reading of the labor market.”
And by then, the economy might be warming up again. As Chandler writes, “the aggressive monetary stimulus and fiscal stimulus in the pipeline should underpin the economy by the greenshoots of spring.”
So here’s to hoping the economy isn’t bad as it looks, and that significant help is on the way.
Think happy thoughts. Think happy thoughts. Think happy thoughts.
UPDATE: It took less than a day for my attempts at optimism to fall flat. We woke up Tuesday to find that the ISM nonmanufacturing business activity index fell below the key mark of 50, dropping all the way from 54.4 in December to 41.9 in January. The “dire reading” … “portrays the emergence of recession-like conditions in the economy,” Bear Stearns chief economist said.
February 4th, 2008 | Posted by innovThey say a change will do you good. And it seems like every Presidential candidate is pounding furiously on the “change” drum. But even though I run an innovation institute at a major research university, I’m here to say that you can keep the change.
As novelist Ellen Glasgow said: “All change is not growth; as all movement is not forward.” What matters is innovation. And innovation is an entirely different matter.
What’s the difference? “Change” is getting on a different horse. “Innovation” is riding a different race.
To be clear, when I refer to innovation I don’t mean support for economic growth through technological progress and entrepreneurship, although that is important as well. I mean innovation in the way our political leaders approach tomorrow’s challenges.
When it comes to political issues, I think of change as meaning we swap back and forth between two established and, at times, extreme positions. No new taxes vs. tax hikes. Deporting illegal immigrants vs. immigration amnesty. Mandatory minimum prison sentences vs. judicial discretion. If we just vote for change, we merely set ourselves up for another four years of teeth-gnashing and cross-aisle bickering.
Innovation, on the other hand, recognizes that these issues aren’t red vs. blue propositions. And that often the solutions are something entirely different.
To be sure, innovation can be difficult to embrace. And the current political framework makes it nearly impossible for politicians to put innovation into action. It requires that we abandon our recent proclivity for slogans and refusing to give the other side an inch.
Innovators in politics can be easy to spot. You just have to know what to look for:
Innovators imagine a better future (and enroll people in their vision). The Founding Fathers became innovators when they invented government by and for the people. Franklin D. Roosevelt innovated us out of the Depression by investing in massive construction projects that created jobs and infrastructure. John F. Kennedy was an innovator in the way he created programs like the Peace Corps and inspired thousands of Americans to consider public service as a career path. Innovative politicians inspire people to adopt a universally beneficial vision. Neither the New Deal nor the Race to the Moon would have succeeded unless Americans believed in and supported those programs.
Innovators trust the other side and invite them on board. Instead of getting behind the candidate that most viciously attacks the other side, what if we elected the candidate that wanted to collaborate with the other side? Even President Ronald Reagan, who reinvented conservatism, dined regularly with Tip O’Neill, the then-Speaker of the House and embodiment of the Democratic Party.
Innovators reframe the debate to find win-win solutions. I had a recent lunch conversation about regional innovation and we lamented how the fear of losing health insurance can hinder risk-taking, entrepreneurship, and economic growth. What if we thought of health insurance as a nationwide economic issue instead of a social issue? Would that open our eyes to possible solutions that would benefit all?
Innovators learn from their mistakes. In a recent Los Angeles Times interview, California Governor Arnold Schwarzenegger admitted that he has made mistakes in governing the nation’s most populous state. He even admitted that his outsider view was a bit naive when he first was elected. Those ever-present TV pundits might decry those admissions as flip-flops. But I see Schwarzenegger’s admissions as the first step towards possible innovations that could lift California out of its current problems.
When the Presidential election rolls around, I won’t be looking for change. I’ll be looking for something bigger. And just think; if we could apply innovation to the election, perhaps the biggest innovation we’d see would be to put the “United” back into the U.S. Because as we all know, the more things change, the more they stay the same.
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