Archive for October, 2007
His name is Mukesh Ambani, and he’s worth $63.2 billion, making him the world’s wealthiest man. Not familiar with him? It’s time to get familiar. He’s got a home being constructed at an estimated cost of $1 billion. Yes, that’s right $1,000,000,000. Nine zeroes. Ambani plans on using the skyscraper-as-home to give whole floors to his family members and house the estimated 600 house staffers the place will need. By the way, his current home is also a tall tower-Ambani is simply trading up.
Ambani is chairman of Reliance Industries, a business conglomerate that makes up for some 3% of India’s GDP. It has businesses that operate in petrochemicals, oil refining, textiles, retail and biotechnology. Like Warren Buffett, Ambani started out with just the textiles operation, and used the cash it threw off to buy other businesses. Berkshire Hathaway, now more associated with insurance, was once a laggard textile manufacturer before Warren took control.
Two of the top five richest humans are now from India:
- Mukesh Ambani – $63.2 billion
- Carlos Slim Helu – $62.3 billion
- William (Bill) Gates – $62.3 billion
- Warren Buffett – $55.9 billion
- Lakshmi Mittal – $50.9 billion
Motorola’s fortunes have, over the last 4 years, been inextricably linked to buoyant demand for its RAZR flip-phone. When Motorola failed to update the device or follow its success with other compelling designs (as LG did with the Chocolate, for instance), Moto stock lagged rival handsetmakers Nokia (NYSE: NOK) and Research In Motion (NASDAQ: RIMM). Moto execs really thought that the premium cachet of a smartphone carried by business users would translate to consumers, who drive sales of phones on a larger scale. Sadly, Motorola didn’t play this angle as well as Research In Motion did, with its halo enterprise handsets (8800, 8820, 8830) setting the bar in the enterprise market, and the Pearl phone moving huge unit volume (and margins) in the consumer market. In fact, any idiot who was paying attention in September 2006 when Research In Motion entered the consumer market with the launch of the Pearl and bought RIM stock has since been rewarded with a 447% gain in 13 months; a real gee-whiz stock play there. It’s a perfect example of good strategy and execution on the part of RIM management, and Motorola tripped by not playing their strong hand.
In fact, since its high roughly a year ago (10/13/06) of $26.20/share, Motorola is down 28% to $18.85/share as of this writing. After the fall, is Motorola a compelling buy at this price? That’s for you to decide, but let’s look at the evidence in favor:
One space where Motorola hasn’t completely fallen off the wagon is smartphones. It’s Q smartphone has sold well, and has just been updated with the very competitive Q9M on Verizon and Q Global on AT&T, respectively. Motorola was expecting RAZR-like sales (55 million+ to date) out of the Q, which hasn’t happened, and won’t. However, the new Q’s are a hit with consumers and reviewers alike, sporting a comfortable keyboard, wireless broadband data, a new version of Microsoft Windows Mobile, and real innovative design.
On the consumer front, Motorola has finally launched a true successor to the RAZR in the RAZR 2 flip-phone. It’s not as revolutionary a design as its predecessor, but it packs innovative features like an external touchscreen. I played with a Sprint version a few days ago, and it has Sprint TV piped over their EVDO data network. When watching CNN on the internal screen and flipping the clamshell closed, there is an imperceivable changeover: the video switches instantly to the exterior touchscreen. Genius. That’s the kind of impressive technology that consumers want. In addition, the RAZR 2 has a better camera at 2 megapixels, snappier software, a glossy finish, and the all-important svelte figure that RAZRs are known for.
Motorola has already moved more than a million RAZR 2′s in only a few months on the market.
Well positioned in growth markets.
Motorola is the sole supplier of WiMax infrastructure and modems to Wireless ISP ClearWire, which is ramping up its sales presence in the United States, Ireland, Belgium, and Mexico. This first-mover advantage establishes Motorola as a leader in a growing market for WiMax equipment that will provide internet service all over the world.
Becoming leaner and meaner.
Motorola’s sale of its embedded communications computing business to Emerson Electric for $350 million has just been approved. By selling off non-core assets, Motorola can better compete in the wireless phone market, its core focus.
Operating expenses have fallen three consecutive quarters-nearly 15% compared to Q4 ’06.
Also, just looking at net income (which had fallen to a loss in Q1 and Q2 2007), it looks like Motorola might be rebounding. They bounced back into the black, posting net income of $60 million for the most recent quarter, and their guidance is much rosier for both sales and net income.
Icahn – Lady In Waiting.
The press has been reporting that the corporate raider Carl Icahn, after failling in a bid to get a board seat, may attempt to take control of Motorola again. This would be a positive development for Motorola stock, as many speculators like to bet with the activist sharks.
All these developments considered, it looks like Moto is really executing on its turnaround strategy. Glad to have you back, Moto.
The debt market shocks of August 2007 have surely been a wake up call to investors and central bankers all over the world.
The causes were numerous. Among the most at fault were the banks, who packaged risky loans in with staid staples to form structured debt portfolios that sported higher theoretical yields but with added risk and lower credit-quality mixed in. As many of you are undoubtedly aware, these products lost a lot of value after the riskier portions of the debt began to turn into non-performing loans at a rate much higher than the investors expected. This decline in value led many investors to run for the exits, selling their debt at a substantial loss, and then another crisis showed its ugly head: liquidity deficiency. It turns out that, because these loan portfolios were so customized and difficult to value, they werent tradeable commodities who had willing buyers. The buyer’s market for this debt dried up, scared to buy a depreciating asset, and trades grinded to a halt. The people who weren’t able to sell didn’t even know how much their assets were worth because there was little recent comparable trade data. Those who held on to their portfolios found themselves writing down the value of their securities. Goldman Sachs wrote down their debt by some $2 billion, Merrill Lynch and Bear Stearns followed with poorer performances still.
Another whipping boy in the polemic is the debt ratings agencies of Fitch, Moody’s, and S&P, who did not react quickly enough to the change in debt values, and were still rating these bonds highly while credit quality was severely declining. The reason they didn’t act: banks pay the ratings agencies to rate their debt offerings. If the ratings agencies don’t rate the banks’ debt placement with a high-enough grade, the bank will simply take its business elsewhere, to a ratings agency with less scruples and more hunger for doing business. This system needs change, and if we’re to avoid this disconnect between rating grades and actual risk, we need to implement an independent, unbiased ratings system as soon as would be prudent.
To ease investors’ fears, the Federal Reserve lowered its rate one-half of one percent, which gave the debt market a shot in a the arm, a placebo injection of confidence soup. So much for battling inflation.
So what now? What should happen-at least in my imaginary world where central bankers are responsible and the free market determines the correct solution to everything-is as follows:
All debt gets repriced. All rates should slowly rise to reflect the true risks inherent to owning debt in the current environment. This means that debt of low-credit quality might be priced at a higher premium to government bonds, or the two would rise in yield concurrently and significantly. Government bonds should rise in yield (dropping in value) because Treasury bills do not offer significant rewards compared to stocks and haven’t for years. The money taken out of Treasuries should go to funding the equity markets, which not only provide more opportunity for growth than government bonds, but have proved their strong resiliency over the last 3 years. This situation could help the dollar out because, after a long fall, foreign investors would pour money into the dollar-denominated debt if the yields were appealing enough here.
The Fed stops dropping money out of helicopters.
Rate cuts are imprudent when inflation has risen due to higher energy costs. If anything, inflation needs to be kept in check, so that we might avoid stagflation.
The domestic fiscal situation gets righted.
The federal government cuts spending by 10% and finally generates a surplus and slowly begins to pay down the national debt. This will increase the attractiveness of the dollar to foreigners, and all those who’ve made money short-selling the USD (Warren Buffet included) would get out of their positions by buying dollars and restore even more confidence in the dollar as an international currency.
Households start spending responsibly.
Instead of spending more than one’s income (as has been made possible of late by rising home prices/home-equity), households start spending less than their income and put money in savings, money-markets, or investments. Corporations currently have ridiculous amounts of cash on hand from strong earnings and won’t miss the extra cash from irresponsible, unsustainable consumer spending.
The markets set everything straight.
When systems venture out of equilibrium, they sometimes need a shock to get closer to where they need to be, closer to equilibrium. Often they’ll overshoot, but shocks are beneficial if they brings systems closer to their rightful equilibrium. The market naturally provides shocks-they’re unavoidable-and hopefully, one year from now, the market will have worked out a more sustainable set of values that will contain major boom/busts, more accurately price securities of all kinds, and set the stage for sustainable future growth without all the pitfalls of a boom and bust cycle that we currently enjoy.
Though New York Magazine’s article is hypothetical, it’s a good overview of all the things that can and may go wrong to send the U.S. economy into recession. The systemic risk of these developing events occurring together and worsening one-another (George Soros calls this systemic risk reflexivity, others might call it a positive-feedback loop to hell) could make for a really devastating recession.
Harry S. Dent’s demographic spending models are forecasting good times to continue until 2011 or 2012 (at which point the demographics of peak-household spending change for the worse), but his model is overly simplistic, relying only on demographic trends and don’t take into account the myriad risks outlined in NYMag’s excellent dystopian article.
Read at New York Magazine.
Myself along with Nick Yanagimachi (formerly of UBS and Wedbush Morgan Securities) and Goldman Sachs’ Daniel Gallagher are proud to announce that we’re hosting a first-rate fundraising event this following Friday, November 2nd. “First In A Series – A Social Evening of Whiskey and Cigars” will be held in the Centennial Tower’s Fireside Lounge at 7:00pm sharp. The event brings together like-minded individuals to chat about the world that surrounds us, including recent developments in business, policy, nations and people. We’ll host serious discussion in a fitting, cordial environment paired with whiskeys and wines.
The event benefits UNICEF, with all proceeds going to benefit children all over the world.
You’re invited to bring any guests who would contribute meaningfully to the topics at hand, or anyone who would enjoy themselves in the company of bright young minds. $5 donations are suggested and help cover the event’s whiskey supply, and larger donations are encouraged.
RSVP to me via email, or more simply via Facebook:
Dolphins linebacker Channing Crowder confessed today he didn’t know until Tuesday that people spoke English in London. Crowder, a former Florida Gator and Atlanta native, apparently isn’t sure where the plane is headed when it takes off this afternoon for Sunday’s game against the New York Giants at London’s Wembley Stadium. “I couldn’t find London on a map if they didn’t have the names of the countries,” Crowder said. “I swear to God. I don’t know what nothing is. I know Italy looks like a boot. I learned that.”
“I know (Washington Redskins linebacker) London Fletcher. We did a football camp together. So I know him. That’s the closest thing I know to London. He’s black, so I’m sure he’s not from London. I’m sure that’s a coincidental name.”
Via The Palm Beach Post.
At one-sixth the economic size (and growing) of the United States, China is sure to be the world’s largest economy by 2050. This quote from The Atlantic Monthly’s James Fallows casts light on the current reality:
“I think if more Americans came to China right now and saw how hard so many of its people are struggling just to survive, they too might ask: What are we thinking, in considering China an overall threat? Yes, its factories are formidable, and its weight in the world is huge. But this is still a big, poor, developing nation trying to solve the emergency of the moment. Susan Shirk [...] recently published a very insightful book that calls China a “fragile superpower.” “When I discuss it in America,” she told me, “people always ask, ‘What do you mean, fragile?’” When she discusses it here in China, “they always ask, ‘What do you mean, superpower?‘”
Via The Atlantic.
I penned this article for FashionInvestor.com this afternoon:
“Longtime American fashion stalwart Coach (NYSE: COH) is down some 12% right now, about an hour before the end of trading, as the company reported slower store traffic in its US retail stores. Could this be a sign that Coach goods aren’t keeping up with the marketplace? Is Coach, as a brand, losing its cachet? What do you think?”
In the end it all came down to one point. One single point that divided three men in their quest for the 2007 Formula 1 Driver’s Championship.
At the previous race in Shanghai, the Driver’s title looked to be rookie Lewis Hamilton’s to lose, and lose it he did, in typical rookie fashion. After running hot into a corner, Hamilton slid helplessly into a gravel trap and spun his tires, unable to get back on the track and losing any chance at points in the Chinese Grand Prix.
Today’s race in São Paulo was no less disappointing for Hamilton. Starting on the grid in second position, Hamilton was passed by teammate Fernando Alonso coming into the first corner and his inexperience got the best of him. Hamilton desperately tried to reclaim second position and in doing so he slid off at the fourth corner on the first lap, dropping back to eighth position. Had he stayed calm and collected, he might’ve cemented himself into 3rd position and guaranteed himself a Driver’s championship. In fact, depending on the finishing order, Hamilton needed only to place 5th to win the Driver’s title. After slipping back to 8th position, Hamilton had an odd mechanical problem which put him in the back of the pack, 18th position. Miraculously, he rallied to come back to finish 7th, garnering him 2 points to finish the season at 109, just one shy of Ferrari driver Kimi Raikkonen. Fernando Alonso, also in contention for the Driver’s title, ended the race in 3rd, his 6 points putting him also at 109 points, tying him with Hamilton (the tie-breaker here being in number of 5th place finished, in which Hamilton had more).
The race was so exciting because Hamilton just needed to finish in the top five, a simple task for a driver as talented as he is, and his inexperience forced him into mistakes. Hamilton literally raced himself off the podium, giving the title to Raikkonen, a man who has had more bad luck (and 2nd place finishes) than just about anyone, and surely deserved to win a championship. One of the F1 commentators described Raikkonen’s bad luck best when he wondered aloud in the last laps of the GP today when the “black helicopter” was going to “fall out of the sky right in front of Kimi Raikkonen’s Ferrari” and put him out of the race.
All in all, this was an exciting Formula 1 season. Three fantastic drivers competing for the same crown going into the last race makes for some exciting drama. Next year’s season is shaping up to be a fantastically exciting one as well, put March 16th on your calendar, we’ll see you in Melbourne.
Today, I was reminded by a friend that a stock that my fund owns, Lululemon Athletica, gained 13% today, and is up over 34% since I bought it. I’m glad to see the market confirm my selection of Lululemon as a firm poised for big growth.
I primarily invest in firms that show outstanding traction with consumers. I do all the necessary due diligence, research, and valuation on each investment candidate. The firms whose shares I ultimately buy all share one trait: consumers are fanatical about them.
I was tipped off about Lululemon months ago by some friends. They told me that Lululemon has built superstrong brand momentum and brand loyalty with its core market (adult women), that their yoga clothes fit better than anything else (and more importantly, make the wearers look sexier), and that Lululemon clothing demands premium prices that customers are more than willing to pay—$80 for a pair of stretch pants—that’s their core product.
Formation of my Philosophy
My investment in Lululemon is a reflection of how I’ve been brought up to recognize prudent investments. Early in life, I learned a powerful lesson from my wise grandmother. We were walking out of QFC (a Pacific Northwest-based grocer now owned by Kroger) when she told me that she owned stock in the grocery chain, and that she’d bought shares because she likes to shop there herself.
I was amazed. Right there in front of me stood a part-owner of the business! That made a strong impression on me, and from then on I would always remember her maxim: if you like spending your money somewhere, buy stock in the company. Building upon her teaching, I adapted a second rule that’s just as applicable: if people you know spend their money somewhere, buy stock in the company. It was this rule that was the basis of my decision to purchase shares of LULU last month.
I’m so confident in the business. It’s differentiated from its competition (does it even have competition?). It’s in a growing market. It’s got premium product and commands premium prices. People are really excited when a new Lululemon store opens up, and that buzz increases the visibility of the brand even more. The company hasn’t oversaturated the marketplace like McDonalds and Starbucks have in their respective markets, leaving plenty of room to grow. That’s what makes it such a desirable investment. The fact that it generates buzz and gets consumers talking (and gets them spending!) makes LULU worthy of an investment.
The moral of the story: listen to your grandmother.
A professor of management at England’s University of East Anglia has concluded in a study that regular swearing at work can help boost team spirit among staff, allowing them to express better their feelings as well as foster camaraderie. The researchers say that swearing in front of senior staff or customers should be seriously discouraged or banned, but in other circumstances it helps employees to express frustration, stress or other feelings, and that management should consider making their work environments more accepting of spoken expletives, but with clear rules on when to rule them out.
This is abundantly clear to me working in finance: on trading floors, foul-mouthed traders on their squak boxes seem to have developed their own language composed almost entirely of off-color jokes, berating fellow workmates, and beating their chest (metaphorically, of course).
So much for propriety.
Francois-Henri Pinault, CEO of French luxury goods powerhouse PPR (owner of Gucci and Yves Saint Laurent) has just been outed by the New York Post as being the father of supermodel Linda Evangelista’s baby, born just last year. This news comes as a shock to many, because Monsieur Pinault and his fianceé, Salma Hayek, have just welcomed their first daughter a month ago. I guess old dogs can learn new tricks.
Today, T-Mobile USA (a subsidiary of Deutsche Telekom) launched their first high-speed-data capable phone, and it’s cause for celebration. The Samsung T639, a quad-band GSM/EDGE (236 kbps) and 3G 1700MHz clamshell phone, is on sale at select T-Mobile stores in New York City. New York City is the first market to be completely blanketed by the T-Mob’s 3G network, so it’s a natural launchpad for the new service. T-Mobile has been quietly rolling out UMTS (384kbps) / HSDPA (1.8 / 3.6 mbps) service on the 1700 and 2100MHz bands at a cost of $2.1 billion. T-Mobile has always been the runt of wireless carriers, only managing to stay alive with the support of its loyal customers who enjoy their plans on the cheap. Until now, T-Mobile has neglected the true first adopters, who, over the last two years, have quickly jumped ship to AT&T, Sprint, and Verizon for faster data speeds and a wider selection of devices. Now, T-Mobile’s superior customer service combined with a newly-minted broadband wireless data network makes it more of a force to be reckoned with. Watch your backs, Verizon/AT&T.
I’ve been blessed with the means to possess some of the finest technology available, and recently I’ve put my devices to the test to reveal their performance quantitatively.
My Comcast cable internet at home is blazingly fast: 21 Mbps. At work, I get about the same. At school, the University of Washington has been blessed by the tech gods with Microsoft billionaire largesse and is also quite speedy:
And my mobile phone (Motorola Q on Verizon) is also nothing to scoff at speedwise: in some tests I’ll get 400 kbps, others up to 700 kbps. The latency is more of the issue with the Q though, its EVDO network isnt as snappy, initially.
My cable internet at home sports speeds that are highly above-average, Comcast Seattle’s average test score is less than half my speed at 10426 kbps. Here is the ranking of continents for your viewing pleasure:
|North America||4231 kb/s|
|South America||836 kb/s|
Japan finds itself on top, but Europe also puts in a good showing for the countries with the fastest internet:
2. South Korea
11. United States
Go ahead and check your speed over at speedtest.net, and post yours in the comments.
(edit: In 2008, I moved to Bellevue, and now get 7Mbps down and 1Mbps up, less than the Comcast Seattle average.)
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