David Lentz

Microsoft: In Need of Focus

Buying failing stocks for the dividend yield would lead one to buying banking stocks or investing in REITs. Not my cuppa tea.

Microsoft: In Need of Focus

Actually, no, the potential washing away of their base and the lack of any products that actually appeal to me (remember, I'm a Mac fanboy) offset the likely-to-be steady stream of big dividends. The dividend yield is the ONLY reason I can see for anyone to buy Microsoft.

If I'm looking for growth, AAPL strikes me as a much better buy than MSFT.

I think that Microsoft's growth years, back when they could bulldoze their competitors by any number of tactics, even good execution, are in their distant past, and are extremely unlikely to ever return. Certainly not under the guidance of Steve Ballmer, and probably not even if Bill gates were to return. Some new rising star at Microsoft would have to take the helm, and much of the talent there is jumping ship these days.

Once upon a time, I actually owned a pretty good position in Microsoft (sold it upon the roll-out of Windows 95, as I though the market was saturated and their growth prospects limited -- so I can clearly be grossly wrong, or at least guilty of miserable timing), but during this millennium, their flame has noticeably flickered.

I don't believe that "focus" (as in cutting the non-performing business units) will help them much, but it would ratchet up the stream of net cash pouring into the Redmond money bins. What they need a LOT more than "focus" is "vision" or "imagination"... whatever it takes to create/enter new markets successfully. The last time they successfully entered/created a new market was when they created an apps suit (a.k.a. Office) -- all of the many attempts to recreate that success since then have failed.

If we look at their most recent major campaign, the attempt to take over the games industry, it was based on their acquisition of Bungie to get Halo, and then build a business unit around it, with a proprietary console, the Xbox. They added other titles, some more successful than others, but never managed to push the competition into the sea, despite running the business at a loss for many years, supported by the profits from Office and Windows. Indeed, it might be the case that their competitive threat only spurred Nintendo to greater heights, and produce the Wii. The Wii is an example of a company that looked at their bread-and-butter business, and created something different, walked away from ever-increasing clock speeds, pixel densities, etc, and instead took an entirely different direction, making a product that was solidly profitable (yet much cheaper in cost) than the competition, and basing its appeal on large-scale body movement interfaces. That vision is being reqarded by a significant expension of their marketplace (now many retirement homes or non-gaming adults are buying PS3s or Xboxes?). THAT's vision and creativity!

Consider what might have been if Microsoft merely pushed games software, and not wasted fortunes on their hardware endeavors. The games business unit would have been a profit generator on par with their Windows and Office segments, certainly eclipsing their server-oriented software business unit. Can you imagine the revenue from a Wii version of Halo (even with degraded graphics)? They could have dominated the games software industry.

Some would have us believe that this can still be accomplished, but they have wasted too much time. Bungie has bought their freedom, the Wii is upon the industry, gobbling market share at a ferociouos rate, and Microsoft is slowly being pushed back into the sea themselves on the games front, and even in the home and educational PC markets. There was a time when such a strategy might have worked, but that time is long past. Milking the dividend stream is all that remains for the investing community.

Microsoft: In Need of Focus

"Ballmer is a marketing guy, put in charge of a high tech company with a monopoly. That is a deadly combination."

This struck me as incredibly insightful, until I remembered that this would also fit Apple just as well (settle down, I'm a Mac fanboy, I can say these things).

Steve Jobs is basically a marketing guy (par excellence), and Apple has a definite tinge of monopoly about it, what with the proprietary nature of its products.

So let me make one small adjustment to the statement:

Ballmer is an incompetent marketing guy, put in charge of a high tech company with a monopoly. That is a deadly combination.

There. I think that fits a bit better.

It will take quite a while for the Company that Bill Built to run through all that cash, especially while their corporate monopoly keeps rolling in the dough, year after year.

But if we look a bit closer, we see a failed internet strategy, a failed video game strategy (look at the cash flow of their games business and call it anything else, if you dare), and a distinct inability for the company in innovate. Yes, they managed to steamroller the competition when the industry was taking its first feeble steps, but once the personal compter business matured, they were unable to squash competitors the way they could when the PC world was new. So there is a weakness that can be exploited.

Looking ahead, I can envision (perhaps more wishing than seeing with clarity) a future in which competitors hollow out Microsoft's non-corporate markets, and make inroads into the corporate markets in small but significant ways.

The stage is then set for some event to cause corporations to defect en masse to alternative platforms (which might not even be PCs, but perhaps cellphones talking to mainframes or cloud resources), gutting the nice annual returns that Microsoft harvests from its captive corporate customer base and tearing a gaping hole in the Redmond Titanic cash machine. THAT will be when the cash gushes out of Microsoft like a ruptured oil tanker.

Until then it's probably a good dividend play, as Ballmer will be forced to pay significant cash dividends to pacify growling shareholders.

'Pickens Plan' Comes in the Nick of Time

"just in time" ...

or a few years too late?

Check back in 20 years to find out.

Is There Clear Sign We've Entered a Recession?

When the author says "real business sales, real personal income) are trending flat or slightly lower, but real GDP rose at a 1.0% annual rate in the first quarter", is he using the bogus official CPI numbers to produce the "real" adjustments, or something closer to reality?

With the difference between official CPI numbers and unofficial CPI numbers running in the 6%-8% range [www.shadowstats.com/al...], it's obvious that a pretty small change in the rigged CPI deflator wipes out the 1% growth in the GDP that the author bases his case on.

When the smoke clears, history will look back on this recession as having been one of the worst in recent times, having begun around January 2008, and continuing on into sometime in 2009. Assessments based on revisionist
stats (e.g., CPI) simply won't stand up to all the supporting data indicating that we are in a recession, and have been through all of 2008.

Does Al Gore Finally Get It?

Here are the things we CAN do -- as I see them (and I could well be wrong or overly limited or simply not imaginative enough) --

1) get off the petroleum economy, ASAP. Jack up taxes to discourage consumption, offer incentives to use other energy sources.

2) start conserving energy via more efficient designs for appliance, homes, cars, etc.

3) begin rebuilding the deconstructed passenger rail system, as in short order we will not be able to fly except via nationalized airlines, paid for from our tax dollars

4) get serious about nuclear power -- overhaul the bureaucratic nightmare makes it take years to get anything approved. Create workable "standard" designs and USE them, instead of having each one be a custom design with its own learning curve.

5) follow T Boone's lead on windpower and natural gas -- not that it's the only solution, it just seems likely to produce results in short order

6) crank up tax incentives for people to install PV solar and convert our national centralized power generation network into a decentralized one, with the utilities acting as brokers instead of sources. Perhaps we need to separate those roles, with separately-owned power grids.

7) invest in long-shot R&D efforts, like the Bussard Polywell fusion reactor (google it). If we can spend billions year in and year out on Tokamak research, we can kick in the $200M to see if his prototype scales up.

8) throw out the Commodity Futures Modernization Act of 2000 (with the Enron loophole), so that our national energy markets are not "gamed" by investment bankers and hedge funds.

(9 I was going to say to investigate Bush & Cheney for treason and war profiteering, but I'm starting to foam at the mouth, so I'd better stop here.

Does Al Gore Finally Get It?

fireball -- let me pick up the gauntlet about your 3% increase in solar radiation. If the planet were being warmed by the sun via an increase in radiation, would you not expect that the upper layers of the atmosphere would be warmer than the lower ones? The data does not show that.

Perhaps one could make the case that the additional sunlight is being converted to infrared when it hits the ground, and held in by clouds. There is data that shows a statistically significant correlation between cloud cover and temperature for the week that air travel was grounded following 9-11, the cloud cover being a direct result of contrails and water vapor from combustion directly contributing to cloud formation. But that argument leads back to our use of petroleum-based fuels, so I doubt that you want to go that route.

In any event, it is clear that the thing being modeled (the planet) is a WHOLE lot more complex than a ball with incident radiation impinging upon it. Possibly more complex than we are capable of understanding.

That means the "cause" of global warming could be any or all of a huge range of things, and not attributable to any one thing, but possibly interruptible by altering a few key things. News flash -- we cannot alter the output of the sun.

While a runaway greenhouse effect may or may not eventually occur, the consequences of it happening are significant enough to deal with it as if it were going to.

And in any event, LONG before we get to that stage, we will have seen widespread climate change, possibly the desertification of most of the places where we grow food, amid an exponential increase in the number of mouths demanding to be fed.

Does Al Gore Finally Get It?

Except for the obviously foreseeable economic consequences of continuing to send hundreds of billions of dollars out of the country for energy, and the obvious reality of global warming (whatever the cause), this "debate" would be comical.

People are simply too locked into their own POVs, unwilling to question them, and unwilling to work out and resolve conflicting data -- other than to ignore what doesn't fit into their own preconceived notions and trumpet the "truth" of their own "opinions" and the "lies" that others believe.

There are solid economic reasons to get off petroleum ASAP, by any and all means. No one method is likely to prove viable by itself. But instead people quibble about the finer details of a question that probably cannot be definitively answered for a thousand years, when it will be too late to do anything about it if they are wrong.

Beam me up Scotty, there's no intelligent life on THIS world (or at least in short order the little that exists will expire).

Beacon: Powering Up

Casually rolling an eyeball across their financial data, it appears that revenues are going nowhere, and the company has and is sustaining itself by selling stock. This is a poor premise for an investor to buy into, especially in the challenging times we find ourselves in.

It could be that better times lie just over the horizon for BCON, and that a flood of windmill/solar-related sales will occur, or even that rising brownouts will spur sales in their products for use as UPS backup units in businesses.

But it could also be that the cost of their flywheel-based products is not now, and never will be competitive with diesel generators or batteries as backup devices, and that flywheels will simply not scale up in an economic manner to provide large scale storage of power from wind farms and overnight storage of solar energy.

If they had a refrigerator-sized unit that could be tucked into a typical garage or basement and could be used to store power from rooftop PV solar panels overnight (or better yet, for a week), and could be manufactured and sold at a price that made sense to be incorporated into individual home installations, then one might see a bright future for these sort of devices. But so far as I am able to determine, such devices cost about a hundredfold more than would be practical, especially when competing with battery technology.

BCON has a long way to go, and they may never get their heads above water.

I'll await the expectation of revenue to be fulfilled before diving in.

Apple Feels 'Max Pain'

Great chart and explanation, Zach. Ever consider creating a daily 3-D chart with time and strike price as the x & y dimensions, and making a little movie of the daily changes to that chart? Following the ripples in such a space would be most interesting. It might even illuminate some profitable strategies.

Thanks again for this post.

Implementing Pickens' Plan for Public Energy Policy

re: alternative power for long-haul trucking.

All trains use electric motors. They are the best powerplant for high-torque applications. In the fullness of time, I expect to see fuel cells replace diesel power, but over the short term, we will probably see a lot of truck traffic shift to rail (that's why Warren Buffett has been buying rail stocks). There is the possibility (one would have to do some detailed design calculations to be sure this is feasible) of a GM Volt-style powertrain for trucks, with a diesel generator producing electricity for the electric motor drive train, augmented by batteries & regenerative braking for stop-start driving. my guess is that we could see mileage improvements of around 10%-20% for trucks using technology like this.

Why I'm Shorting Apple Ahead of Earnings

The AAPL longs should be glad for the AAPL shorts -- otherwise who would they buy from?

(confession: I am a long-term AAPL long, and I fully expect a post-earnings buying opportunity)

Lithium-Ion Batteries and Centerfolds

The safety concerns surrounding lithium batteries can be addressed by tightened manufacturing practices, and the recent development of lithium manganese dioxide batteries by Hitachi improves on that, as well as providing much faster recharge times without the hazards of exploding batteries.

No existing battery (or ultracapacitor) technology comes close to the energy density achieved with lithium batteries, so they will continue to be used anywhere that portability is an issue, from cellphones to cars. Ultracapacitors have a role alongside batteries of all types, by managing the charge/discharge cycles, acting as a buffer. As the cost of ultracapacitors comes down, they will begin to displace batteries in applications where weight is not a factor, but until they significantly improve their energy density, lithium batteries will remain the portable energy reservoir of choice.

The issues with the difficulty in recycling lithium, can be addressed (at least from an investing perspective) by investing in SQM, the largest producer of lithium.

Bill Ackman's Plan to Save Fannie and Freddie

Seems like a perfectly ordinary restructuring, essentially what would be accomplished in a Chapter 11 proceeding. Happens to lots of companies when they lose control of things and their debts cannot be accommodated by their revenue stream. Nothing new here, and I see nothing wrong with his proposal.

The business is able to carry on after the restructuring, with the brunt of the pain being felt by the shareholders, as is always the case in a bankruptcy. It would be nice to see the existing lousy management being replaced as well, but that will be an issue when they want to obtain credit or sell new shares into the market.

Only idiots would allow the same clowns to repeat their prior mistakes. Give some new clowns a chance.

Given the importance of Fannie and Freddie in the larger scheme of things, I would think that a shotgun bankruptcy proceeding as rapidly as possible would be in the best interests of everyone -- except the current stockholders, whose goose is cooked in any event.

What to Do with Freddie and Fannie?

In a nicer world -- i.e., a world in which the reins of power were not being held by the villains -- the head of the CFTC would decide that there was too much speculation in the oil futures markets, and crank up the margin reserve requirements overnight, closing the doors on the gaming of oil futures and crashing those markets.

Or a public-minded Congress would get off their duffs and close the Enron Loophole and begin investigations of the machinations of Dr Phil and the rest of the Enron crowd that escaped prosecution by virtue of their role in government or their connections.

But we live in a different world, one that the Good Guys do not invariably win the battles, and one where the Congress has their attention more on the welfare of the people stuffing money into the Congress' collective underwear than in the welfare of the people they supposedly represent.