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terms of the deal
(1) Who cares about the vote. We only care if the stock price at .70 is going to make us money or not.
The vote is how you ensure management is aligned with your interests. Without the vote, you are a serf.
(2) 20% of $0.00 in equity doesn't automatically translate into a $0 of stock price. If the company is profitable, nobody gives a shit what the equity is very much. It MIGHT be well above $0.00, but it doesn't have to be. AAPL has $22 in book value per share according to Yahoo yet trades at $150. Therefore obviously share price has little to do book value otherwise 100% of AAPL's $22 per share in equity would put the stock overvalued by a factor of 6.8 lol
A financial gets priced differently than a tech stock. The fact that a tech stock can trade at a single-digit multiple of cash-on-hand while making money hand over fist is an anomany, and suggests things like (a) AAPL should pay a dividend, (b) AAPL needs more sophisticated money management, and/or (c) AAPL is a screaming deal.
http://jadedconsumer.blogspot.com/2008/08/cashing-in-at-apple.html
On the other hand, Apple's tangible assets aren't limited solely to its cash hoard. Apple has immense premises, huge data centers, and numerous storefronts in desirable locations. Further, Apple makes significant sums from its intellectual property. Apple runs the largest music store in the United States, in any music delivery format, and it does it online. The liquidation value of Apple is enormous, vastly in excess of its cash hoard. Tech stocks don't tend to get priced on the basis of their assets, they tend to get priced on the basis of the revenues their intellectual property can produce. That said, pricing Apple's shares has some challenges:
http://jadedconsumer.blogspot.com/2008/08/rationally-pricing-shares-of-apple.html
Financials, by contrast do tend to be priced at a multiple of book value, because their wealth-generating capacity is generally considered to be a function of their capital at risk. Under the preferred stock document you linked me, FRE/FNM are required to ratchet down their debt holdings -- their assets at risk -- and thus are required to limit their capacity to earn outsized returns. The idea that FRE/FNM could fill their balance sheets with high-yield debt and park it there while taking big interest payments doesn't work if the loans default, whoops, and the federal government wants this risk reduced as a condition of the bailout. The price is capping corporate returns.
(3) Break-even equity IS saving the common shareholders. Net value of zero IS useful to the equity owners. It means operations continue and future shareholder value can be increased. Just as if AAPL at $22 -- people aren't paying $150 for AAPL because the equity is $22. They'd be paying over $100 a share, and maybe still even $150 a share, even if the equity was break-even.
A financial that's worth less than zero is junk. This isn't like a startup that's burning cash until it gets into the air, this is no different from a failed bank. Comparing FRE/FNM to Apple at 22 is silly: Apple trading at cash value is insane because its IP creates a fortune every quarter without need of the cash. FRE trading at book is business-as-usual. At the moment, book at FRE/FNM is zero and revenues are negative, so share price >0 is wishful thinking.
Mind you, I'm not pitching Apple: I announced Apple as a place I'd put speculative money if I wanted a volatile ride.
(4) We all know the government is getting 79.9% of the equity. The question is if the $467 million the common shareholder gets in current market cap of that float undervalued or overvalued? Me thinks undervalued. Me thinks there's a decent chance to return to 2000/2001 level of operations prior to the boom or a $40-$45 billion market cap. 20% = $8-$9 billion or a 40-50 bagger. But that just seem ridiculous even if it proves to be true. But a more conservative 4-10 bagger me thinks is very possible.
The fact that wishful individuals have priced the shares so that the "market cap" of the company is a few hundred million dollars does not mean that there are several hundred million dollars at FRE to spread among equity owners. Your question about "the $467 million the common shareholder gets" assumes this is a real asset of the company, and it is not. It just means that a company worth zero or less is trading as if it were valuable to the tune of hundreds of millions.
As for 2001-levels of profit, look back and tell how much capital FRE had at risk in 2001. How much debt was FRE keeping on its books then? With the government requiring the companies to reduce their exposure to $250m face value maximum how will the companies return to revenues that were achieved with obsoleted levels of capital at risk?
(6) No, the equity is not negative
The last published book value is negative, and trailing twelve-month earnings are negative. Exactly what value do equity holders expect to share? Where is it located on the income statement or balance sheet?
Negative numbers are negative numbers. Stock price may not be negative, but the shareholder's equity is.
(7) The existing equity is NOT nil or less. And I'm fully aware that AAPL has outperformed FRE in the last 10 years. This is why I'm not interested in AAPL, but I'm interested in FRE. Buy low, sell high. If I wanted to buy based on past performance I would have bought CSCO in 2000 at $100 a share.
Why is existing shareholder's equity not less than zero when negative book value is the data presented by FRE in its last quarterly statement?
There are people who bought Enron on the way down, too. To succeed as a contrarian it's not enough to act differently than the masses, it's also necessary to realize some fact about the investment they do not. What is your secret?
(8)...$100 target for AAPL.
Check back with me in a year, and we'll compare notes
(9) We are already well aware that warrants dilute the EPS. It's been a part of every single formula I have given you. I always use the fully diluted share count to account for the warrants completely.
In that case you must be excited that the negative EPS will look less bad with more future outstanding shares
(10) You still appear to be confusing percentages or at least phrasing it poorly. The government gets their 10/12% not of profits -- that is completely false -- they get 10/12% on their investment as an interest payment. Period. The way you phrase it is there's $2 billion in net come the way you phrase is that the government would get $200/$240 million. FALSE. The government gets, in this example, $100/$120 million fixed, flat just like an interest expense. To the common shareholder, there is virtually no difference between interest expense and preferred stock dividends on the income statement.
It's simple. Before there is profit, expenses are taken out. The expenses include the quarterly management fee, the scale of which I do not yet know but which might be material, and the payments due all the higher-than-existing-equity owners: the interest due debt holders, and the 10-12% due the government on its senior preferred shares. The worse the companies' portfolios do, and the more they require being shored up with government capital, the bigger these senior preferred payments will be. Until the end of the conservatorship, the government controls corporate governance; the preferred shares aren't "debt that never has to be repaid", they're high-interest debt that can't be bought off without the consent of government, and an obstacle to equity holders' eventual recapitalization to create higher profitability when the great shining day comes that the company's books are in order.
The common shareholder would like to be able to retire high-cost debt. ACAS doesn't have to pay 10-12%. AGNC's returns are all made with crazy leverage, and it's only possible because it borrows cheaply. For FRE to be stuck with 10-12% is a bitter pill; it's credit-card-type interest. Hell, I can borrow more cheaply.
Let's talk in a year.
Take care,
--Tex.
re what's wrong
(1) Temorary, until government exercises warrants to take 79.9% of equity, then permanent.
(2) 20.1% of zero is zero. Value exceeding zero is presently speculative.
(3) Break-even equity isn't saving the common shareholder. It's saving debt owners. net value of zero isn't useful to equity owners.
(4) The government is also getting 79.9% of equity. And control.
(5) (seems you agree)
(6) Equity is negative before the contribution, or the deal wouldn't be occurring. More contributions will increase the future obligations of FRE/FNM. If more equity isn't needed, US bought control cheap. However, the extent of the bad debt is such that neither FRE nor FNM would be able to continue operating without the bailout. I mean, it's whole business is guaranteeing debt. It needs credit and without the government it's credit has been destroyed.
(7) If the existing equity is nil or less, then anything above zero is speculative. Buffett isn't an AAPL buyer because Buffet has never been a tech buyer for reasons Buffet has been happy to discuss in interviews. Type into Yahoo a comparison of performance over the last ten years, and we will see how AAPL and FRE/FNM (or BRKA) have compared for the duration. No, AAPL isn't BRKA -- it won't excel any longer than Jobs does, for reasons associated with corporate culture issues -- but FRE/FNM are presently economic nulls with only theoretical future profits, whereas AAPL is piling up cash by the billion. Sure, looking for a good exit in AAPL is worthwhile given Jobs' mortality, but you can't mistake it for a penny stock. BRKA is an entirely different class of investment.
(8) If you view FRE as less risky than Apple, by all means don't let me stop you adding to FRE and buying AAPL puts. Your confidence that some management team in the future can pull a profit out of FRE/FNM may be bourn out, and there have been periods in the past when they did make profits instead of destroy shareholder value, but both are possible and both have happened. And so, too Apple: folks at Apple's helm under prior management definitely knew how to destroy cash. Current management is building cash, though, and there's little reason to doubt Apple's financial management won't continue for the medium term, and that's plenty of time to capitalize on exploding growth in Apple's top product lines.
(9) Warrant exercise is not irrelevant to valuation. Warrant exercise would dilute any of the future profits you hypothesize, and are material. We're tanking about about 80% of the company, which is financially material and is a control block. Anyone wanting a free FRE/FNM will have to buy out the federal government's interest, or obtain its consent to issue shares that would dilute government into a non-control block (which would be hard, all practicalities of corporate control considering).
(10) I'm not confusing anything. The profit is part of what's left over after government's senior preferred gets its 10-12%, and after government gets its quarterly management fee. Also, when you calculate the per-share profit attributable to common, make sure to add the shares government will get on exercising warrants at the stated nominal price. You will find the per-share amounts attributable to common shares owned by existing shareholders is reduced to 20.1% of what would have been attributable before the dilution.
This is, in part, a math exercise. It's also about corporate governance.
For financials, I'll stick to ACAS.
http://jadedconsumer.blogspot.com/search/label/Ticker%3AACAS
Take care,
--Tex.
re the Pf shares
I notice that the government has no vote ... but under the conservatorship, they appoint the whole management, no?
The fact that there's no convertible feature is easily explained by the presence of warrants, totaling just shy of 80% of the equity and exercisable at "nominal price", makes it clear that current owners would end up with 20.1% of what's left.
And what will be left?
The U.S. government isn't obliged to contribute anything that would raise the company above zero. Current shareholders would expect to own a small share of something whose book value is at best brought to zero.
The U.S. government, by contrast, gets 10% indefinitely, and 12% if cash payments aren't forthcoming, and also atop that a quarterly management fee.
FRE/FNM can't issue dividends or more equity without approval.
Reading the conservatorship, the warrants, and the limitation of government contributions together, it's clear that shareholders can't expect to do better than to be diluted to about 1/5 of former ownership, and they will be owning something that is being repeatedly brought back to zero as more payments cover materializing losses.
This isn't a business in which I'd like to own equity. For the equity to be worth one's time and money in a universe of alternate investments, current valuations all have to be wrong, or subsequent management must be outstanding. I doubt Buffett and the federal government are both wrong on this particular stock. I have other misunderstood stocks I actually like, that are actually making money and have positive cash flow despite being bid to the floor, and they pay rising dividends every quarter like clockwork:
http://jadedconsumer.blogspot.com/2008/06/professional-stock-analyst-opinions.html
(more posts on ACAS and AGNC at the same site)
Then, when I feel risky, there's always Apple, which has done well for me since '99.
I think praying that government doesn't exercise the warrants is silly. Government is simply withholding the nominal exercise price until such time as the equity becomes worth something. Start looking for quarterly reports' description of company performance "on a fully diluted basis" to reflect the huge outstanding overhang of government-owned warrants. Any profit in this deal will end up in the hands of the federal government.
Well, 79.9% of what's left after the government takes its 10-12%, anyway.
Take care,
--Tex.
negative risk reduction ...
... is always nice to see in an investment, but I hate seeing class counsel jerk around class members with terms that pay counsel better than the class. The idea there's a judge that actually signs and approves these (class settlements are subject to judicial approval) is just revolting.
When I was suing evildoers in a class action, our plaintiffs got paid or we didn't. That's plaintiff's lawyering, not this kind of game.
Was somebody sleeping with the judge?
http://www.latimes.com/news/nationworld/nation/la-na-execution10-2008sep10,0,2426174.story
Take care,
--Tex.
Limp Wrist
I see you aren't experienced in these matters. What you are seeing is the slow-motion wind-up of a devastating Kung-Fu smack.
Limp is what happens after you get hit, if you can open your eyes to see a mirror. Good luck with that, and with your long bets too.
Take care,
--Tex.
re paid off
The debt doesn't need to be "paid off" for the common to exist. Thousands of publicly traded companies carry debt.
In a bankruptcy or other reorganization, the vote of debtors controls the terms of the reorganization. Before they would cede any power or value to common shareholders, debt holders would want to be fully assured of their rights. This can be done by payoff, or by making them a deal that otherwise satisfies their concerns -- such as giving them a big chunk of the new equity class. Whatever is done must be done with debt holder approval, and that won't be free.
Thanks for the links, I'll definitely look at them.
Take care,
--Tex.
re ETLT legitimacy
I haven't heard anyone make a case that the published numbers aren't good, I've just heard people say they didn't know firsthand whether the numbers are legit.
What company have you got firsthand knowledge of?
The problem here is that ETLT's assets and operations are in China, and China doesn't have unrestricted currency exchange. Being solvent in China isn't the same as being solvent in the US. As for the litigation ... isn't that under appeal still? If so, why on Earth would ETLT pay it? The litigant would abscond with the money.
My own purchases of ETLT have mostly been before the recent price collapse. Unless my calculator is on the fritz, ETLT's cash, cash equivalents, and short-term investments come to over $0.70/sh.
What, if anything, do we know firsthand about the business or assets of GS or XOM? The problem here is that nobody knows these guys, and they've not marketed themselves so as to create any particular confidence in them. Heron isn't exactly giving these folks a high profile in the US.
Take care.
--Tex.
re details
I can't search old posts, so I can't dig up whatever you might have written on it. I'm happy to follow links, if you have the ability to search.
Sure, the notes are paid for, the bad debt is secured by the US Treasury, and FRE/FNM will survive; albeit in a different form.
The question I have is whether the federal government's debt guarantee comes with the price a rescuing creditor usually has: being first in line to get paid. Assuming the net value is presently negative (ie, there's a ton of bad debt FNM/FRE have secured), is there any reason to think the federal government will inject more assets than needed to take care of the debtors? In other words, will there be anything left for existing common stock holders?
So, what do I see? I see a LOT of restructuring, volatility, and a rough ride. But in the long term the companies and their securities will be salavged.
Sure, the companies may end up as shareholder-run operations some time in the distant future, but will current shareholders be part of that deal? In the course of the restructuring, will the current debt holders not be paid off in a way that leaves them the new owners?
What I understood from the descriptions given by officials is that debt holders' interests would be protected. The fact that those will be salvaged is not the same as saying equity holders will be given a free safety net.
Unless the federal government simply feels like making a big handout, it would seem that a creditor bailout would be lights-out for the current field of equity holders.
Do you have links to the details of the bailout transaction, so one would see the path of current shareholders to ownership of a restructured, post-rescue FNM/FRE?
Take care,
--Tex.
Rawnoc: okay, what?
You replied to this post:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=32050425
... with an invitation to come here to hear what I was missing on the AAPL board's OT thread on Freddie and Fannie.
So, why can't FRE go to zero?
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=32048956
Is there some value Buffett overlooked when he said it was all gone? Does the federal bailout look like it will be designed to protect equity investors who voted in the management that created the present mess?
Take care,
--Tex.
re zero:
I feel your pain. My first buy in my life was silver, on a post-Hunt dead-cat bounce. Whoops!
Take care,
--Tex.
re just yet
They won't go to zero as long as there's adequate uncertainty about the futures of these companies, in which case the possibility they are undervalued will attract speculators (well, and maybe people closing short positions!).
The fact that people thought things weren't as bad as they sounded at Enron and bought as shares plummted didn't mean that there was still value on the books. It just meant there was still uncertainty around which to speculate.
I haven't heard a story about these companies' business that would cause me to want to investigate the possibility Buffett is wrong when he says the value is gone, and the fact that he bailed on them years ago from dissatisfaction with management -- and this is an owner who likes to own forever -- suggests that "zero" is a plausible real value even now.
The only thing left is for groundless optimism to abate.
Am I missing something?
Will the government inject so much money in that there's net value, and leave it in the hands of shareholders who voted in the management who oversaw the mess being created? (I'm not saying insanity is impossible, just that I doubt it while funds are tight and everybody is watching during an election season.)
Take care,
--Tex.
OT re GS
I'm not sure I follow. What's the argument? Or, is there a link or two you can throw me?
TIA
Take care,
--Tex.
can't go to zero?
I beg to differ. If buy interest plummets, trade volume will make position exits costlier than the position values, and you have zero.
I actually owned shares in a bank whose common went to zero like this. It had excellent, solvent, professional clients, and its physical premises were in an absolute diamond of a location to capture business in the world's largest medical center. Some buffoon in a department whose business I wasn't following tanked it in the '80s S&L crisis. It was "rescued" by a buyer who knew the real estate was worth a fortune. Wells Fargo now sits on the spot, and the bank's buyer laughed all the way to her other bank.
It's what you don't know that kills you.
The question whether these two financials go to zero is not based on a theoretical residual value, but hard math. If the company can't pay off its debt owners, the equity owners are screwed: the slice they share is zero if the higher-priority claims get naught. The question is what terms the federal government demands for this bailout. Hopefully, and here I write as a taxpayer, government gets something for the funds it provides.
Incidentally, folks with prior investment experience in Fannie and Freddie have taken a dim view of their current financial condition:
http://www.bloomberg.com/apps/news?pid=20601087&refer=home&sid=aooA6DOXavYw
Take care,
--Tex.
re dead man
In the long, long run, it doesn't matter whether he's ill or not: he is mortal.
Unlike some other companies we might think of which created a culture that produced managers that moved the company in the ongoing interest of the company, in keeping with a few widely-understood principles to which insiders genuinely adhered, Apple does not seem to have anything that passes for a plausible succession strategy. When Jobs goes, Apple will have good money to make running off the tail of its cash cows, but what will keep people focused on making excellent products?
Without someone to say "no" to the bad ideas, Apple could end up doing as so many other companies have done, and squander their goodwill with poor products in an effort to make current sales without regard for the future value of their franchise.
But, that's the long, long term. In the nearer term, I expect blowout Mac sales and rapidly-growing phone revenues. I expect developer interest in the iPod Touch and the iPhone to drive the platform toward being the gaming tool Apple clearly hopes it will become.
Imagine a Mac multiplayer game for which the controllers are handheld computers with accelerometers.
Strange things are afoot.
Oh, and Apple may yet (with the help of Eddie Cue's team) pull dotMac -- ahem, MobileMe -- into a more interesting flight pattern.
Medium term, I'm a big bull. Long, long term ... no. Long, long term, Apple's failure to create a culture that supports routine delivery of excellence proves it's only Jobsian management that keeps the place working properly, and that his absence will be its end as an excellent company.
http://jadedconsumer.blogspot.com/2008/08/service-quality-at-apple-extensions.html
Take care,
--Tex.
Nice to see you again! em.
repricing tech
25, is where i see it going to in 2-3 years from now...is it not possible? who thought these financials were going to be traded for pennies 3 years ago? Those with foresight, right? Well I see that tech will be re-priced that's all.
The way financials gutted themselves was loading up their books with inadequately-secured debt they couldn't unload, just to get origination fees. This reminds me slightly of GM giving price guarantees (for future trade-in value) on gas-guzzler SUVs to move them, right before fuel prices drive demand out of SUVs, causing trade-ins on vehicles GM's dealers will never move.
The difference with Apple is that it's actually selling a product at a profit, without any strings. The money is in the bank.
It's possible to reprice cash -- it's called inflation -- but if we're not talking about commodities but just U.S. dollars, exactly how will massing piles of cash start to be worth so much less?
Maybe you haven't looked at Apple's cash per share. Apple has just under 886 million shares. In the first three fiscal quarters, Apple's cash has increased $5.4 billion. Cash and cash equivalents exceed $20 billion.
http://jadedconsumer.blogspot.com/2008/08/cashing-in-at-apple.html
On my math, cash per share is about $23.50 as of last quarter. Unless you can posit some reason Apple will stop amassing cash, one would expect cash per share to exceed your price target in the time frame you describe.
Well I see that tech will be re-priced that's all.
Whatever happens to dollars per ounce of gold, or dollars per barrel of fuel, a dollar is likely to still cost a dollar, and with over $25 a share in cash in a profitable business, it'd be a very scary environment that would produce a share price of $25.
But feel free to post your math.
Take care,
--Tex.
re internal drives
With SATA2's speed, I think the drive interface competition in aftermarket parts is all about putting out a product with an interface the customers can use, not so much about having the best interface for performance.
My question then becomes: who is the theoretical customer for FW/3200?
Take care,
--Tex.
re from 180 to 25
You and RandyGee should get together and work out the real future of AAPL.
In the meantime, I suppose you project most of Apple's recent sales growth will be demonstrated to have been a measurement error?
That is 25 without any splits, right?
Take care,
--Tex.
re sense and price for Apple
Look, Apple has been volatile for years, and it's frequently moved either on news, or in anticipation of (or disappointment over) planned events. These things aren't performance data, they're opportunities for people to acquire disagreement about the company's future uncertainty. (At best, they're information about Apple's competitive position. Let's not pretend there's no sense to the price moves, it's just sense that has more to do with emotion and excitement sometimes than with economic analysis.)
Apple is making money. The analysts publishing price targets (and no, I don't think they're particularly worth believing) claim to have a mathematical model supporting anything from the low 100s to the low 200s. But: GIGO. (Garbage In, Garbage Out. These guys get a number by plugging in assumptions about the future, and whatever they claim they assume can support whatever number they are willing to sign their name to. In the end their job isn't much different than that of market participants, they just risk less.)
If an event doesn't blow someone's socks off, it can be seen as eliminating upside uncertainty, and taking the wind out of the sails of bull speculators. So far, the thinking on the event is that it'll not lead to improvements in modeled sales.
The real news from this quarter, in my view, is the boring data on sales of computers (the ones with the Intel processors, and the ones with the ARM processors that are marketed as phones or touch-screen music players) running MacOS X. Apple's profits growing the platform's value are, in my view, the place to look for information about Apple's future. Sadly, we only get snapshots of this every so often.
If you don't like the Apple shares gyrating wildly, find something less exciting to own. I have been used to Apple's bucking for so long, I can't feel my @$$ any more.
Take care,
--Tex.
re non-SCSI/non-FW
Sorry there, I had shifted gears mentally but didn't make it clear. I don't see FW drives in use internally, and for internal applications it seems that whatever the modern SATA version is, satisfied demand mostly. I don't have the impression many desktops have SCSI or FibreChannel.
That FW>>USB2 for external drives is definitely something I've observed. My question is whether, going forward in a world of many processor cores, the performance of I/O-carried-on-the-CPU bus types like USB might actually prove better/cheaper than alternatives. At present, I'd take Firewire over USB-anything given a chance.
The problem is that, like I wrote, I haven't got a chance: even iPods are now USB. External drives, cameras, all kinds of things ... bleh. Frankly I'd like to see a Firewire keyboard/hub and all my cameras, drives, printers, etc. all Firewire -- to offload stuff from my relatively weak CPU.
My next machine may have so many cores I care less.
Anyone know?
Take care,
--Tex.
re roadmap of Firewire
This part of the roadmap ...
http://www.crunchgear.com/2008/07/30/firewire-catching-up-to-usb-with-32-gbs-spec/ (specs to hit mfgs in Oct?) ... may or may not have more products following it than did Firewire 1600. Engadget had seen only one piece of FW1600 gear: http://www.engadget.com/2008/04/09/symwave-demoes-firewire-1600-gear/
And how many FW2 products have you seen?
I think USB is winning -- perhaps in part because Intel has seen it as a way to consume clock cycles, and perhaps because it requires less brains on the device and leads to cheapness. Offloading cycles to an I/O subsystem might actually make less sense in this multicore world than it did in the mid-1990s when I thought SCSI was the cat's meow. It could be that today, it's cheaper in parts and in power to deliver USB than firewire.
Does anyone use Firewire for internal drives? I've only seen it for external drives and video cameras and the like. I'd be interested in offloading cycles to an I/O subsystem, but so many peripherals are USB-only that it's hard to avoid.
I would guess that Apple's experience watching how many SCSI and FibreChannel cards it sells probably has dampened its interest in pushing FireWire product R&D. Performance of non-SCSI, non-FireWire hard drives seems peachy, no?
Are we going to see equipment availability for FireWire, or just the spec?
Take care,
--Tex.
OT re Fannie/Freddie
I saw a Buffett interview, conducted in the safety of Canada, in which he said he thought banks should have to reap what they sowed and that the public wasn't his choice for funding bank bailouts. I did not hear him specifically address Fannie/Freddie, which I don't think were on the table yet.
Do we know Fan/Fred need the bailout, and that they don't just need the confidence-building environment of federal backing?
My question is who cares about these entities? If Congress wants someone to stand behind mortgages, Congress can tell the Treasury department to start a mortgage-backing agency. Oh, wait. The federal government already has a mortgage-backing agency, Government National Mortgage Association ("Ginnie Mae"). Who exactly is screwed if Fannie and Freddie die? Investors who hoped to capitalize on management's risks, I'd hope. The homeowners can't be foreclosed if they're current on payments (that's old property law), and isn't everyone else responsible for what they did trying to make money?
Public bailout of investors' speculative efforts to achieve a return isn't something I expect in any of my own investments, and it's frankly offensive to see it -- even if it's limited to preferred shareholders or debt investors -- in these two entities that could have pulled the handle and stopped the assembly line any time they liked if they really cared about the quality of the business they were doing.
This is, I assume, the idea behind Buffett's disinclination to give the nod to a bank bailout, and I see no reason Fannie and Freddie should get different treatment.
Mind you, I own shares in AGNC, so the loss of Fannie and Freddie impacts the security of my investment's investments.
http://jadedconsumer.blogspot.com/2008/09/making-money-old-fashioned-way-with.html
This doesn't mean I don't expect Congress to pretend to be looking out for homeowners while in fact bailing out institutions holding Fannie/Freddie debt instruments. And it may be that Fan/Fred debt is so widely dispersed that failures would cause big, rippling problems. Anyone got specific thoughts on it? I'm not a Fan/Fred investor so I never DD'd it.
Take care,
--Tex.
re Apple on fire
Is there any news on this? The only stuff I saw was more "oh, no! iPhones are cannibalizing iPods!" garbage:
http://jadedconsumer.blogspot.com/2008/09/iphone-cannibalizing-ipod-meme-again.html
Do people really not get how much better for Apple an iPhone sale is?
My question is really about metrics: when Apple sells an iPhone, should it get "credit" in the metrics for a music player? for a MacOS X shipment? for a CPU?
Considering the subsidy thought to attach to iPhones, Apple probably gets for the phone what a lot of companies get for their notebooks. Then, Apple controls the store from which iPhone users buy their applications ....
Take care,
--Tex.
re Genius
It sounds like a wizard interface, or an option while making a playlist. I can't imagine that on startup a dancing paperclip would start commenting on the music collection, or parts of it.
The idea of a tool that allows one to bridge from music you know to music that is highly rated by people who highly rate the tunes you're looking at, or looks at tempos to pick songs that would go well in sequence, is certainly interesting for either making a program for a presentation or party or hunting up new stuff that might be worth buying.
The downside is that without the power to listen to whole songs, there's little chance I could use iTunes to find and buy new music. I could only use it to recognize or spot music I already knew. iTunes is pretty good for that, but it doesn't help me expand what I know.
The original Napster was king of it, and my buying records prove it. When Napster was still running, my wife and I bought more music in less time than ever before, because we could find it and we could both access it and we could agree it was something we both wanted playing in the house. 30-sec clips really can't build conviction.
Take care,
--Tex.
re taking over the browser
I don't think Google cares whose browser you use, or who Google pays for referrals to its search engine, so long as everyone has access to the things needed to make Google's apps valuable.
Chrome is about delivering a runtime environment to the whole world for free that will let people develop apps that don't care about the OS. Google plans being the first beneficiary of this environment -- it wants to deliver lots of applications -- but by devaluing the OS, Google can make whole machines cheaper and thus increase the connected fraction of the population. This increases the market for Google's products and services, so devaluing the OS is good business for Google.
Take care,
--Tex.
re priorities
With MS-Win security, the situation is like a house on fire: there's a recognizable and immediate need, now. On Linux and MacOS X, it's a bit more like a person with a beach house: they realize they need insurance but ....
I think part of the eventual sell on Chrome is that it really is universal. Unlike proprietary one-platform or two-platform offerings, Chrome and its open-source descendants will be in a position to claim real multiplatform presence and platform-independence.
For Google, this isn't about getting ad revenue, it's about opening the programming interface in ways that make the OS irrelevant. If the OS behaves well enough to support Chrome -- and as hardware improves, this is easier and easier -- Google will be able to deliver applications and services regardless of platform, and platform vendors won't be able to break Google's applications by toying with application-specific dependencies, because they are all based on supergeneric demands that must be satisfied to run any browser.
Google is trying to deliver what Sun tried to deliver in Java: freedom from vendor-specific APIs. Well, except of course for Java or Gears or what have you. Heh. With Chrome truly open-source, the need to depend on Chrome won't offer the kind of offense faced by people who had to buy Java development environments or license Java runtimes to make this stuff work. And it'll be hard for MSFT to launch a broken Chrome developer environment whose output runs only on Windows.
There's a new sheriff in town.
Take care,
--Tex.
re Chrome
My only major concern is that I don't see versions for Linux and MacOS X. The security and stability problems Chrome addresses should be of interest to users of any operating system, and if there's one thing I've decided as a definite in hearing the browser wars being argued, taste is a major factor in browser use.
I am greatly appreciative of Google's efforts to harden the browser.
http://jadedconsumer.blogspot.com/2008/09/google-browser-something-old-something.html
For sure, Google (which uses Linux, MacOS, and MS-Win internally on desktops) must launch for other operating systems ... right? The privilege isolation in different threads is an idea old enough that there's no reason it's not being adopted on other platforms, and Linux' lightweight threads were expressly designed to make this kind of thing easy to do. If Google is designing an application from the ground up to behave correctly, there's no reason it should be enslaved to Windows. The V8 engine and WebKit, for example, are certain to be portable.
Whatever the timeline is on other platforms, I expect the browser race to get more interesting, for everyone's benefit.
Take care,
--Tex.
Anyone notice CAAH becoming profitable?
The announcement is out.
Take care,
--Tex.
Good luck!
I wish you all the very best in the quest for sleep. Please post if you should find a Universal Remote setting that works for your new device; I've been very eager to find Rewind and Mute and Pause settings that work. As it happens, my own units arrived with no manual at all. (gasp!)
They're soooo cuuuuute at this age
Congrats, and good luck!
Take care,
--Tex.
UK stores
I see the UK will be covered much better than was China in advance of the next Olympics
Take care,
--Tex.
re MobileMe
I think using past performance as an indicator of MobileMe's future may be a mistake, given that the job's been handed to Eddie Cue.
How long it takes to engineer a solution may be an open question, but what Apple proposes is technically feasible, which means for Eddie Cue's team the only questions are (a) how long till launch and (b) what additional features can be supported.
Apple is too interested in ongoing revenues from subscriptions to let this business get killed by a B-team that drag's Apple's name through the mud. I think the three (count 'em, 3) subscription extensions says Apple understands it's dropped the ball, and I think Eddie Cue's record making things like the back end of iTunes work reliably all year round pretty much clinches it.
The tragedy in my view is that it doesn't seem Apple's enterprise guys have a culture that can be replicated. The group can't grow. Apple won't be able to deliver services to third parties, only solve internal Apple problems. It's too bad: enterprise services would be a natural next move as Apple rolls out a limited offering and pushes tons of devices into enterprises. And ask HP: it's good margins. Alas.
Take care,
--Tex.
re DOS v Apple redux
I think Daring Fireball hit on the real difference, and why iPhone will do well in this match-up: while computers share input and configuration specs (e.g., a keyboard, a pointing device with a certain minimum number of buttons, a screen that does a certain minimum resolution), cell phones don't. (Does it have a keyboard? Does the key layout include unlabeled contextual keys? Which screen pixels are lined up with those physical buttons? Will the screen accept touch input? Does it expect a stylus? What are the screen's dimensions?)
The iPhone is ahead on the race for developer attention because developers have an idea what they're programming for and can target apps to the device with some confidence the device will actually ship in the configuration on which dev effort was invested, and not be replaced by a device with a radically different configuration by the time the app is ready to ship.
Oddly, it comes back to the hardware ... and Apple's been pretty good on hardware lately.
Take care,
--Tex.
OT high side
Anyone have thoughts on what it'll take to make some kind of carrier arrangement in China? With Apple opening stores there, it seems the only barrier is an arrangement with carriers. It's not like Apple's store count will really reach much of China's immense population, but one would expect Apple to be able to sell whatever it would plausibly stock if it offered a supported product at a price anywhere near that of grey-market jailbroken imports (which have grey dealer profit built into them).
Apple can't sell the phone without service, and selling it without subsidy opens the door to sudden-discount-irritation when a carrier deal does materialize ...
http://jadedconsumer.blogspot.com/2008/08/iphone-stalled-n-route-to-china.html
Thoughts?
Take care,
--Tex.
re iPhone numbers
This seems like surprising number (to me), unless China is a lock - or they got another [i[model in the works.
Within a year I would expect both some China deal and another model. With Russia a lock (with two carriers), the big barriers to global iPhone rollout seem to be eroding pretty quickly.
http://jadedconsumer.blogspot.com/2008/08/iphone-to-lay-seige-to-moscow-by-winter.html
As ridiculous as this sounds, I think the iPhone feature improvement that is likely to most impact sales is the elimination of the recessed stereo jack, making the iPhone a suitable iPod substitute (ie, you don't need dongles and adapters you don't carry with you, you can actually use the phone as an iPod as-is). Anything that increases battery or storage will be gobbled up by folks who like carrying their huge music collections with them.
Snow Leopard performance advantages and size reductions hold promise of improving life on mobile devices. With Snow Leopard shipping "in about a year" and hardware sales exploding, I expect a big hit of software revenues to hit about the end of 1H calendar '09. Assuming Apple does cut margins to take share, the software revenue should provide some return of margins: the enhanced installed base into which Apple will be selling the software will mean more units than Apple used to be able to sell. With Leopard offering a hardware upgrade on a DVD, it should sell well to people hoping to stretch the life of existing hardware -- and people interested in taking advantage of whatever service bundling Leopard enables. I'm thinking that with built-in Exchange support, Apple will be offering more push and synch services through APIs exposed to third party developers.
I'm thinking that Apple's habit of making OS upgrades a performance enhancement rather than a reason to force hardware replacement is something that aids Apple's software sales. I should go back and look at historical adoption statistics to see if data bears this out.
At any rate, the idea of selling several tens of millions of phones next year is pretty slick -- it's a great place to be, atop a platform getting this kind of adoption. Sure, WinMobile has a lot of units, but I'm wondering if the software revenues on that platform (given the handset power, the users' tendency to buy software, and so on) are really anything like the draw of the iPhone opportunity.
I see iPhone as a magnet for new Cocoa developmers.
Take care,
--Tex.
re sales
The idea Apple is "losing" institutional sales because would-be recipients already have the phones, bought at retail prices, is pretty funny. The idea Apple is losing sales to AT&T network behavior is odd on the campus of MIT, whom one would presume would be in a position to offer ubiquitous wireless if it thought it was useful. I wonder if the problem was before 3G, or persisted after launch.
Apparently, some institutions have sold all out of AAPL:
http://seekingalpha.com/article/92019-hedge-fund-tracking-lone-pine-capital-steven-mandel
Assuming Apple's back-to-school numbers and iPhone sales fire up interest, this may leave AAPL in the position that there's good money available from the sidelines.
I'm still working out the price(s) at which I'm interested in exiting. I remain extremely bullish in the intermediate term on CPU and phone sales, and consequently I expect extended warranty, software, and other high-margin add-ons to be decent, but knowing that Apple's growth rate is impacted by its size I'm cautious about declaring I plan to hold until it's clear the boom is over. By the time I think the evidence warrants a conclusion that Apple's day as my portfolio leader is over, I expect I'll not be the only one looking to exit. Oops!
The fact that Apple is getting good attention at universities bodes well for eventual deployment in enterprises. It's student efforts to solve problems in universities with NT that made possible MSFT's enterprise assault, and movement of Apple's OS into universities offers an opportunity to begin moving OSX expertise into mainstream IT. NT didn't overthrow Unix overnight, either.
Whatever MSFT has planned for its next version of its OS, do we really think it'll be on time or deliver as promised, without risking compatibility with the legacy apps that give MSFT its real leverage in the OS competition? Will freeware Linux desktops not start encroaching on the OEM market by then?
Fascinating stuff. It'll be an interesting competition to see played out. I have no doubt we're looking at the next generation of the platform war.
Interesting times.
Take care,
--Tex.
re free iPod touch also makes the App Store more valuable.
Heh, heh.
I wonder what Apple's connect rate is these days on AppleCare, iWork, and so on. I imagine that in the retail stores, Apple also gets quite a few sales of titles like Mac Office. The irony is that most people who have access to absolutely rock-bottom prices on MSOffice have no idea about it. I've seen faculty at the University of Texas buy $500 licenses when the UT bookstore will sell them the same product for $20 under the state's site license, complete with permission to install on a personal machine at home.
Oh, well. At least Apple gets a reseller's cut of the overpriced product!
Take care,
--Tex.
re downturn
I'm happy to accept the idea the macro situation will get worse before it gets better. I think ACAS' apparent liquidity from exit flow will enable management to avoid blowing its 1:1 debt:equity ratio if portfolio valuations worsen, provided they don't attempt to predict a turnaround by levering up in anticipation too early.
I guess my question is: what facts do you consider when predicting further downturn?
Take care,
--Tex.
Silly ACAS Action on MSEL news
MSEL down ... ACAS down?
http://jadedconsumer.blogspot.com/2008/08/irrelevant-news-yields-acas-buy-op.html
Crazy. I think people just don't read very carefully.
Anyone have insight into the carried interest ACAS has on funds under management, other than AGNC (in which there is no carried interest)? I'm trying to work out the kinds of upside likely to appear in an improving market.
Take care,
--Tex.
Extrapolating from browser use share to sales share could be troublesome, though: the 3G phone's principal new feature -- 3G -- would further lower barriers to browsing outside WiFi hotspots.
While I'll applaud and cheer if the projection turns out to be accurate, I do think that there's reason to suspect a 3G iPhone might get more browser use than a non-3G iPhone, and that use density might simply be higher on the new phones, making a linear extrapolation from pre-3G data an inaccurate way to model sales.
And then we have questions about the size of the browser market and whether it's changed while the 3G phone has been coming out ....
Take care,
--Tex.
re MobileMe
Between the ongoing extensions (now totaling 120 days) and the analysis provided by Chuqui, I have revisited my thesis on services at Apple.
http://jadedconsumer.blogspot.com/2008/08/service-quality-at-apple-extensions.html
Basically, I had expected that Apple's move to offer the services as described in the MobileMe literature was a prelude to enterprise overtures, and that Apple's tremendous success doing high-volume business in iTMS had built within Apple the expertise would put it in a position to resell the expertise developed in the process. That's dead now. Chuqui's insight into how Apple achieved its internal accomplishments is persuasive that Apple cannot possibly offer a service product to solve miscellaneous third-party needs. The idea of Apple developing a consulting business like HPQ has is therefore utterly absurd in the near term.
If Apple wanted to do it at all, it'd have to start from zero because its current foundation is basically opposed to developing the culture that would be required to solve commercial problems for hire, for operation by outsiders using a manual.
Take care,
--Tex.