I want to take a break from banking and macro stuff and talk a little bit about technology. I wrote an article about Android a few weeks back. That was a more personal account on why I was switching from a Windows Mobile phone to Android, the latest whiz-bang operating system running mobile phones. (Don’t ask me why I stuck with Windows Mobile for so long – even I don’t know any more). This article is looking at the Android phenomenon more from a strategic perspective.

You may have seen the Verizon commercials on TV. They’re everywhere: Droid has arrived. And this happens to be a big problem for Apple Computer.

(In case you haven’t seen the commercials, here is one embedded below)

As you probably know, I am a bit of a technophile.  I’m that guy you remember from high school who was taking AP Computer Science and programming in Pascal, the guy you remember who always had the latest gadget. And I’ve done my stint in technology companies too. But, at heart, I am a finance guy and when I look at technology, I do so from a finance guy’s point of view.  That’s why I see the emergence of Android phones as significant. The recent flurry of announcements about hardware manufacturers adopting the Android platform has me thinking about Apple Computer and the 1990s again – and that’s not good for Apple.

The Macintosh

From the mid-1980s to the mid-1990s, I was a Macintosh user and an avid fan of Apple Computer and its products. I started using PCs only because incompatibility with my colleagues’ work product forced me to do so.  The Macintosh was miles ahead of the PC in user-friendliness and platform robustness. And Apple is a company that cares about customer service too.

But, forced to do so or not, I did switch to the PC, as did millions of others.  The reason: one company cannot compete against 100s. Apple refused to open its system and that limited production to Apple alone. Meanwhile, in PC world, you saw Compaq, Gateway 2000, HP, Dell, IBM, Toshiba, NEC, Packard Bell and a host of other vendors jumping onto the PC platform. Eventually, the PC was ubiquitous – and often incompatible with the Macintosh. How could Apple compete?  It couldn’t. Eventually, the Macintosh lost market share and became a niche product for die-hards, education and design.

Digital Music

But, Apple maintained its core competencies of user-friendliness, platform robustness and customer service. While PC makers were technology companies run by engineers, Apple was a consumer product company run by design and marketing. So, when Apple hit upon the digital music scene with iTunes and the iPod, it instantly became a success.

I am a big music fan. Because I tend to be an early adopter, I went all-in for digital music and CDs, buying my first CD player in 1988 – a top-rated Kyocera DA-610cx. When digital music hit the portable device market, I was there as well with my portable supposedly skip-free CD player plus car adapter. But, eventually I switched to Mini Disc and then on to Digital Audio Players. Remember the Diamond Rio 500?

The iPod

Then came the iPod. This was a ground-breaking product which was to digital music players what the Macintosh was to computers. It revolutionized the industry, bringing Apple Computer back to prominence as a technology company. The iPod became the dominant digital audio player (the hardware) – and with it, iTunes became the dominant digital music player (the software). It was almost like Intel and Microsoft rolled into one. Again, it was the product design and robustness of the iPod and the user-friendliness of Apple which made the difference.

Since then, Apple has successfully branched out into all manner of related spheres: video, podcasts, and most crucially digital music purchases and mobile telephones. They have also been very successful at integrating all of the platforms.

The iPhone – Android wars

But, everyone knows the standalone digital music player is passé. And iTunes, the digital music software application is free, a loss leader. The real money is going to come from digital music purchases and Apple’s mobile telephone, the iPhone. So, strategically speaking, this is why I see the flurry of announcements about Android phones as a problem for Apple.

Android is the Linux-based operating system developed by Google. it is now being implemented on a number of different platforms from internet tablets to low-end personal computers to mobile telephones. 

What I question is how Apple is going to compete in mobile telephones. Don’t let the hype around the Verizon Droid fool you. The phone, manufactured by Motorola, is a very good phone. But, it is only one of many that are now coming to market. There are also phones in the works from Sony Ericsson, Samsung, HTC, Dell, Garmin, LG, and a host of other manufacturers. Even Google is supposed to be coming forth with the much anticipated Google Phone – the phone designed to prevent the splintering of Android which doomed Unix as a consumer-based operating system.

To my eyes, this is looking like a repeat of the Macintosh-PC Wars of the 1990s which Apple lost. On the one side, you have Apple, competing at the high end and very concerned about platform integrity and control, and preventing other manufacturers from building its hardware. On the other side, you have another operating system designed for the lower end and installed on a host of manufacturer systems – which may or may not cause serious platform integrity problems down the line.  Who wins that battle?

In the 1990s it was Intel and Microsoft. And they went on to reap massive rewards as Apple foundered.  Today, Apple risks a repeat of this if it does not come out with a credible solution to deal with its burgeoning Android problem.

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The Motorola Droid is the so-called iPhone killer. Is it the real deal?  Mossberg seems to think so.

See also: Motorola’s Droid Is Smart Success for Verizon Users – Walt Mossberg, WSJ

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I have actually been on Twitter for some time now. But I wanted to update all of you with some social networking features the site now has and ways you can get more out of the content. Today, I will just talk about Twitter.

Twitter

I really like Twitter as a platform. What separates Twitter from some social networking sites is that it is an asynchronous communication channel.  On Facebook or LinkedIn, for example, in order to friend someone, you need to have them confirm you as their friend.  That means you can affect a walled communication garden of your friends, where anything you say is only heard by them.  On Twitter, I can ‘follow’ you without your having to follow me back. That’s what I mean by asynchronous.

The advantage is clear for any news agency or celebrity trying to get their stories out or burnish their public profile. You can see who’s who on Twitter via a number of third party sites. Twittercounter gives you the top Twitter users by number of followers (right now it’s Ashton Kutcher with 3.8 million followers. @aplusk is his handle. The site Twitterholic ranks the top 100 twitterholics as well.

I use Twitter for three things: to talk directly in real time with the people who read my stuff, to alert people of new content on the site also in real time, and to highlight what I am seeing and reading that shapes my views.  I would  love to see more of you signing up for Twitter and following me (my handle is @edwardnh). Whenever I post a new story, I always announce it immediately via Twitter. So Twitter is now the best way to catch content on Credit Writedowns in real time and to see what I am up to – much better than newsletters or even RSS.

By the way, please retweet my posts.  Retweeting is where you copy my tweet and put the handle RT @edwardnh in front of it and tweet it to your followers.  The more retweets you give our content, the more people it reaches.

There are great ways to use twitter apart from the web. My three favorite Twitter clients are TweetDeck, Digsby and Seesmic. All of these platforms allow you to see updates from your Facebook friends and Twitter followers. Digsby also notifies you about e-mail, LinkedIn and Instant Messenger updates. You can also get Twitter on the iPhone and other cellphones.

That’s it. I look forward to hearing from you all.

Edward

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I recently switched from a Windows Mobile telephone to an Android-based mobile phone.  When I was making the switch, I had to decide whether I was going with the iPhone, which my wife uses. or to run with Blackberry or Android, a Google-centric operating system (Symbian, which runs Nokia phones, and the Palm-based OS look like losers and I don’t want to get caught with limited app choice or upgradeability).

I liked the iPhone but the lack of keyboard made Blackberry look inviting. In the end, what sealed the deal for me was the apparently anti-competitive behavior of Apple and AT&T in declining to accept Google Voice as an App for the iPhone.

• Apple Is Growing Rotten To The Core: Official Google Voice App Blocked From App Store
• FCC Takes On Apple And AT&T Over Google Voice Rejection
• Why The FCC Wants To Smash Open The iPhone
• Andy Kessler: WSJ: Why AT&T Killed Google Voice
• Apple Isn’t Even Bothering To Lie Anymore

Why should I reward companies which are engaging in this type of behavior with my business?  Apple is already acting anti-competitively by tying iTunes to the iPhone and iPod. So I went elsewhere.

Android is an open-source software system, which means that the code is available for everyone to see, which gives developers maximum flexibility. It also means that Google can’t win the OS war by making your life more difficult and tying you into their system like Microsoft and Apple do. Instead, they must compete to be the best at what they do.

And they are doing that well.  The video below from Bloomberg features Nicholas Thompson of Wired Magazine telling us why Android is gaining ground on Apple.

Related articles

Google enables Push Gmail for iPhone & Windows Mobile – Download Squad

AT&T Risks Losing Voice To Skype – Wall Street Journal

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Pete Cashmore launched a blog called Mashable from his home in Scotland in 2005.  You may have seen the articles from the site in the links from time to time. Well, this happens to be the number 1 social media-focused blog on the Internet, usurping prior leader TechCrunch’s position. Cashmore’s site gets 10 million page views a month and is highly profitable. His Twitter page has 1.6 million followers and rising.

In the video below, he talks to Bloomberg about his take on social media, blogging and the Internet. He sees the web as a meritocracy where anyone who has something valuable to say can succeed if they work hard at it.  New media like blogs are more interactive and democratic and provide a better sense of community than traditional media outlets. Well said, Pete.

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Related posts:

• Links: 2009-01-14
• Links: 2009-05-10
• Links: 2009-05-26
• Links: 2009-07-16
• Links: 2009-05-02

Unfortunately I was out this weekend and did not post the 5 bank seizures by the FDIC on Friday.  They are below in the links.

• China’s banks are an accident waiting to happen to every one of us – Ambrose Pritchard-Evans, Telegraph

  "Fitch Ratings has been warning for some time that China’s lenders are wading into dangerous water…Future losses on stimulus could turn out to be larger than expected, and it is unclear what share the central and/or local governments ultimately will be willing or able to bear"

• Jackson Tops U.K. Album Chart, Has 43 Entries in Singles List – Bloomberg

  I bought "The Essential Michael Jackson," one of his 5 albums now in the top 20 on the UK charts.

• FDIC: Failed Bank Information – Bank Closing Information for Mirae Bank, Los Angeles

  Failed Bank 45

• FDIC: Failed Bank Information – Bank Closing Information for MetroPacific Bank, Irvine, California

  Failed Bank 44

• FDIC: Failed Bank Information – Bank Closing Information for Horizon Bank, Pine City, Minnesota

  Failed Bank 43

• FDIC: Failed Bank Information – Bank Closing Information for Neighborhood Community Bank, Newnan, Georgia

  Failed Bank 42

• FDIC: Failed Bank Information – Bank Closing Information for Community Bank of West Georgia, Villa Rica, Georgia

  Failed Bank 41

• PNC Isn’t in a Hurry to Repay TARP Investment – WSJ

  "…PNC shareholders are unlikely to face the heavy dilution that other bank investors have faced recently. Many firms re-paying TARP have raised the necessary cash in part by issuing new shares, which dilutes current investors."

• Valero Harnesses Wind Energy to Fuel Its Oil-Refining Process – WSJ

  "Valero Energy Corp., which has the capacity to process more crude than any other U.S. refiner, recently installed 33 windmills to supply a refinery here with green electricity to produce gasoline and diesel."

Distraction of the day: Technologic Overkill – The first music video shot on an iPhone

Being the technophile that I am, I thought this was interesting because it was shot entirely on an iPhone 3GS.  Pretty cool.

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• Weekend Links: 2009-09-12
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• News from around the web: 2009-08-07

This one is due out tomorrow.  His review is pretty favorable.  But, he does say its not a must upgrade if you already have an iPhone.

Related posts:

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• Walter Mossberg: Top 2009 Gadgets

The Wall Street Journal’s Walt Mossberg has a nice video explaining how much he likes the new Palm Pre smartphone and why he thinks it could rival the iPhone going forward.  He thinks its a challenger to the Blackberry as well. It comes out on Saturday.  I thought Palm was basically dead.

If it does well, that’s very bullish for PALM.  But , of course, a new iPhone is coming out too. Take a look – the phone looks pretty nice.

Related article

Palm’s New Pre Takes On iPhone – Mossberg, WSJ

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I have grown pretty frustrated with FeedBurner, the RSS Feed Service now owned by Google.  Often, my posts have not  gone out immediately. There are significant ‘outages’ where the service is just plain broken.  And their Feed count reporting has become pretty screwy.  So, I have switched to FeedBlitz, a new competing service.  If you are getting my feeds via FeedBurner or have been using the now outdated www.creditwritedowns.com/feeds/posts/default (check the URL in your RSS reader), then use this new URL: feeds.creditwritedowns.com/creditwritedowns.  Anyone else, can stay with the feed they now have.

I could end my little blurb there, but I am REALLY frustrated with all of this and want to make this post a little rant about FeedBurner and the mother ship Google.  You see, FeedBurner was a much more reliable and better tool before it was acquired by Google.  I like Google’s services (News, Reader, Mail – they are all excellent. I especially like Google Checkout), but it is becoming increasingly evident that in many areas the company has too much power on the Internet with few reliable alternatives.

As for the RSS situation, I am not the only one complaining. Here are a few other complaints you should read:

• Feedburner Needs To Get It Together – TechCrunch, Jan 2009
• Google’s Detailed Response to FeedBurner Criticism – Mashable, Jan 2009

There are lots more complaints like that on the net.  But, isn’t that to be expected for a large service like FeedBurner?  Yes.

Nevertheless, there is more to it than that in FeedBurner’s case.  Take a look at the video below by Dick Costolo, the founder of FeedBurner.  It’s pretty hilarious, really.  He’s wryly telling us that he and FeedBurner have been sidelined by Google ever since the service was acquired.

Dick Costolo from dick costolo on Vimeo.

And there are plenty of reports out there that Google never really wanted to buy FeedBurner for good reasons to begin with. Plenty of people believe the company bought FeedBurner to eliminate its advertising network which competed with Google’s own Adsense network. Not exactly a competition-friendly move. And Feedburner has not exactly been winning awards for innovative, cutting-edge changes since it was acquired.  Sounds to me like there hasn’t been much investment in the business.

As an aside, Google President of Display Advertising David Rosenblatt, formerly of DoubleClick, the large advertising netowrk which our regulators also allowed Google to buy, has just left the company. You can search for the news story on, what else, Google News if you like. Here’s one link.

So, I am off to FeedBlitz. Here is what FeedBlitz says about their service on their site:

What is the FeedBlitz RSS Service?

The FeedBlitz RSS service is a service that makes your RSS feeds better. It enhances feeds with branding, detailed metrics, browser and mobile friendly serving, integrated third party content, easy viral marketing tools and more. It’s fully supported by FeedBlitz, and integrates with the FeedBlitz RSS and blog to email service for one-stop subscriber management and communication.

Create your new, “Blitzed” version of your feed by going to RSS | New – If you need to upgrade your plan or start a 30-day free trial you will be prompted when necessary.

Is this an alternative to Google’s FeedBurner service?

Yes, for many bloggers and organizations, the new FeedBlitz service is a new choice they can consider as an alternative to FeedBurner. We have focused on building a service that allows RSS publishers much greater control over their feeds (content and branding), works better for SEO (search engine optimization), and for users who aren’t familiar with RSS, and will ultimately provide much richer reporting and metrics.

What are the key differences between FeedBlitz and FeedBurner RSS Services?

• FeedBlitz offers significantly more branding and graphic customization, at both whole feed and individual post level;
• Smart truncation retains links, images and other HTML tags on partial feeds and browser-friendly pages giving a richer user experience and greater SEO benefits;
• FeedBlitz automatically delivers a mobile-friendly version of your RSS feed;
• FeedBlitz has reinvigorated splices to integrate your content from new social media services like Twitter, FriendFeed, Last.fm and Disqus, as well as YouTube and others;
• FeedBlitz enables you to add a custom footer (such as a copyright notice) to each article in your feed no matter what blogging or RSS software you use;
• FeedBlitz offers simple, graphical flares and promotional widgets to better help broaden viral distribution of your articles;
• We believe our metrics give a better view into the circulation and reach of your content;
• FeedBlitz is a paid service, providing sustainability and funding support.
• FeedBlitz offers URL parameters to enable publishers to further tailor their feeds.
• FeedBlitz has live, contactable technical support.

It is that last line that is important. Customer Service. At Google it doesn’t exist. You see, the beauty of Google’s business model is that it is extremely scalable (meaning they can add a huge number of customers/users without needing to add an equivalent cost base or infrastructure. They accomplish this by automating processes, using computers and technology to do the job that otherwise humans would do. This has meant huge profits as Google has grown because their cost base has not grown nearly as much.

But, have you ever used one of Google’s Help Groups (their equivalent of customer service)? It is a nightmare. Try a search (using Google, of course, since that’s what the vast majority use) for “Google Groups” “No response” and you will see what I mean about the nightmare customer service.

So I got fed up and now I am on with FeedBlitz. But, this is not the only area where Google is proving the lie to its moniker, “Don’t be evil.” Take a look at what Former Bank of England MPC member cum blogger Willem Buiter has to say about Google.

Google is to privacy and respect for intellectual property rights what the Taliban are to women’s rights and civil liberties: a daunting threat that must be fought relentlessly by all those who value privacy and the right to exercise, within the limits of the law, control over the uses made by others of their intellectual property. The internet search engine company should be regulated rigorously, defanged and if necessary, broken up or put out of business. It would not be missed.

In a nutshell, Google promotes copyright theft and voyeurism and lays the foundations for corporate or even official Big Brotherism.

Google, with about 50 per cent of the global internet search market, is the latest in a distinguished line of IT abusive monopolists. The first was IBM, which was brought to heel partly by a forty-year long antitrust regulation (which ended in 1996) and partly by the rise of Microsoft.

Microsoft has been convicted of abuse of monopoly power on two continents, in the US as a result of a lawsuit launched by the US Federal Department of Justice and a fair number of States, and in the EU by the European Commission. Unfortunately, by the time the US judicial system got to the point of deciding on remedies, the Bush administration was in office. The Bush administration never saw a monopoly they did not like, so instead of the obvious remedy for the Microsoft problem – unbundling, that is, not permitting the same company to offer both the operating system and application programmes – they settled on a number of weak and rather easily circumvented limitations on Microsoft’s ability to abuse its market power. Fortunately, the European Commission took over after the US Department of Justice was neutered and imposed further, albeit still limited and inadequate, legal constraints on Microsoft’s ability to act as an abusive monopolist.

I believe that the combination of the restraining influence of the US Department of Justice, assorted US States and the European Commission Competition Directorate, under the able leadership of Neelie Kroes, have succeeded in shackling the Microsoft Leviathan to a sufficient degree to allow the survival of Apple, various commercial implementations of Linux and the continued use of a number of varieties of Unix for servers and workstations.

But the Microsoft Leviathan has now been joined or even replaced by Google’s Godzilla as the main threat to the freedom of the internet, and now also a growing threat to key intellectual property rights, especially copyright, and privacy.

Read his full piece at the link at the bottom. It is quite entertaining.  So, that’s my beef here.  Google is a great company, but one that has way too much power and it has started to abuse that power much as IBM and Microsoft before it.  For me, it is axiomatic that this abuse will happen.  It is not because Google is a bad company any more than Microsoft or IBM.  They are simply looking to increase profit by taking advantage of all available opportunities using their people, technological prowess, and size.

But, when a company develops ’size’ i.e. becomes too big, it starts to step on a lot of toes and it becomes a threat to competition.  Unfortunately for those of us who love most of Google’s services, this is what has happened at Google.

By the way, feel free to subscribe to my new feed URL with, what else, Google Reader.

Sources
FeedBlitz RSS Service FAQs – FeedBlitz
Gagging on Google – Willem Buiter

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This individual is live-blogging BofA’s annual shareholder meeting via Twitter.  Hat tip Deal Breaker.

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Apple Safari 4 is out and it’s slick and lightning fast. Most people are still using Internet Explorer, which quite frankly does not meet the grade. Firefox, which I had been using, has huge memory bloat if you leave the browser open for too long. Very disappointing.

For me, right now it is a toss-up between Google Chrome and Apple Safari. Take a look at what Walt Mossberg has to say about the latest incarnation of Safari. The long and short of his analysis is Safari is wicked fast but a bit annoying on other fronts.

By the way, Safari is also the same browser that comes with the iPhone.

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Everyone is using Twitter these days. Econbloggers are getting in the spirit too. I have started to use it. I know Paul Kedrosky uses it. Even Yves Smith is thinking of getting in on it, although her inner luddite holds her back. So what is Twitter all about?

Watch the video with Twitter CEO and co-Founder Evan Williams to find out. He also talks more generally about the Web, blogging, and social networking.

By the way, Williams also co-founded Blogger before selling it to Google. He is one heck of an Internet mogul.

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Bezos talks to Charlie Rose about internet retailing, the new Kindle 2, and more.

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Fred Hickey is bullish. This is big news. He has sold all of his puts for the first time in years and is now playing the markets from the long side. His favorite picks are in precious metals and technology.

Fred Hickey recently participated in the Barron’s Anuual Roundtable Forum. And his comments come as a result of those discussions.  Hickey sees the Federal Reserve and other central banks printing money and knows that this will mean inflation when the economy turns around. Therefore, he is buying gold and gold mining shares. Hickey also notes that Microsoft, Intel and other big cap technology stocks are trading at near single-digit trailing price-earnings ratios. This is because he believes technology has been in a bear market since the Nasdaq started to melt down in 2000. He’s a buyer at these prices.

In the video below, Hickey explains what he is buying and why. Hickey’s move to the bullish side of things is real news because he has been bearish for quite some time. For what it’s worth, I agree with Hickey, but would caution that his sentiments do not necessarily translate into the broader stock market.

Note: In the links yesterday, I also linked to a video of Meryl Witmer (another Barron’s Roundtable participant) and her picks.

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I am a bit of technophile — so much so my friends call me “Gadget Man.” While I have toned down the bad early adopter purchases, I do still love my gadgets. With that in mind, here is Walter Mossberg doing his thing at the Wall Street Journal with the Top 2009 gadgets. He’s at the Consumer Electronics Show (CES), so you know it’s some wild stuff.

Enjoy.

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Here’s a little video that should teach you why you need to erase all data permanently before you sell or get rid of any computer, Blackberry or computing device.

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Politics
As the time for Barack Obama to take office moves ever closer, his policy team is coming into view. Obama has appointed a slew of economic advisors including Tim Geithner, Larry Summers and Paul Volcker. In addition, he looks to have filled out the key positions in his White House staff and to have nominated veterans to other key posts including Hillary Clinton, Bill Richardson, and Tom Daschle. Meanwhile Defense Secretary Robert Gates is likely to stay on. While opinions about the appointments are mixed, reviews about decisiveness and leadership have been favorable.

On the other hand, the reviews about Bush and Paulson’s handling of the economy and credit crisis still suffers with many commentators faulting Paulson for having changed the TARP design multiple times.

Below are the top links to these and other interesting political stories.
Obama to name Volcker to head markets panel | Politics | Reuters

Bloomberg.com: Obama Says Wall Street Executives Should Forgo Holiday Bonuses

Another View: TARP Is an Incipient Disaster — DealBook – New York Times

Karl E. Meyer and Shareen Blair Brysac – Send Bill Clinton to the Senate – washingtonpost.com

John Maynard Keynes: Economic advice for America’s president | Comment is free | guardian.co.uk

The hidden costs of war – Roger Simon – Politico.com

Gates agrees to stay on under Obama – Mike Allen – Politico.com

Is Geithner Up to the Task? – Mergers, Acquisitions, Venture Capital, Hedge Funds — DealBook – New York Times

Real Time Economics : Who Is Christina Romer?

Fed’s consumer ABS liquidity plan spurs confusion | Reuters

FT.com | Willem Buiter’s Maverecon | Tits on a bull

A Reporter at Large: Anatomy of a Meltdown: Reporting & Essays: The New Yorker

Finance and the Credit Crisis
In the world of finance, despite decent stock market returns, most of the news coming out is fairly grim. And this is a global phenomenon. Toyota had it’s ratings cut. Dividends are shrinking across the board, Canada looks likely to move into recession. BHP Billiton and Rio Tinto is a commodities merger that will never happen. Porsche is going to miss targets. Oh, and house price in the U.S> are still falling. The list goes on. In my view, the most important story is China because they are slowing at a rapid rate and the government is stepping up the stimulus, both fiscal and monetary. Below are the biggest stories out there starting with China.

FT.com / Asia-Pacific – China makes biggest rate cuts for decade

Toyota debt rating cut, Suzuki holds out hope for GM | Reuters

Yahoo!’s five biggest mistakes – Financial Post

Rio Tinto says on track on major asset sales | Reuters

LandAmerica files for Chapter 11 bankruptcy protection | Reuters

Canada in recession and heading for deficit: OECD

‘Production cuts likely’ at Porsche, VW – Breaking News – Business – Breaking News

Real Time Economics : FDIC Says Number of Problem Banks Grows

U.S. home prices plunge record 17.4%

Bloomberg.com: Fed Commits $800 Billion More to Unfreeze Lending

Saving Citi May Create More Fear – NYTimes.com

Bloomberg.com: Skanska to Cut 3,400 Nordic Jobs on 15% Volume Drop

Mayor Michael Bloomberg sees no U.S. bailout | Politics | Reuters

Markets
Obviously, we are in a bear market given that stocks have been cut in half and the news flow continues to be negative. However, Jeremy Grantham and James Montier, two so-called perma bears are loving life because they see a lot of good value amongst the corporate carcasses waylaid by the global downturn. Warren Buffett is bullish and looking good these days as some of his bets seem to be paying off. That said, one must recognize that we are still in a bear market and that means that not all stocks can increase. In fact, Grantham sees the S&P potentially falling to 600 next year amid the grim economic news. Grantham has a must-see interview with Consuelo Mack that I have linked below. I share his views both in terms of the number of values available and the likely fall in broader indices. His most intersting statement was when he said it is times like these that matter in an asset allocator’s performance. Anyone can make money in a bull market. Bear markets separate the men from the boys.

Below are the important links in the markets. Note the lead stories about Middle Eastern investors being more concerned with their own problems than investing in Western markets.

Sovereign wealth funds switch from Western investments – Times Online

Heavily in Debt, Dubai Calls in the Bankers – DealBook – New York Times

Jeremy Grantham: TV Interview – CONSUELO MACK | WEALTHTRACK (Video)

Bloomberg.com: Montier Has ‘Never Been More Bullish’ on Stocks

Bloomberg.com: Buffett Stock Picks Beat Financials Index as He Dodged Subprime

Bloomberg.com: Dividends Cut Fastest Since 1950s as Citigroup Conserves Cash

Angry Citi investors to unveil new court complaint | Reuters

FT.com | Willem Buiter’s Maverecon | Tits on a bull

HSBC declares interest in taking over Citigroup assets as Washington takes control – Times Online

As always, feel free to see all the important news links in the news feed, which you can access here.

I hope to get out an update to my credit crisis timeline before this day ends. However, forgive me if I do not. I am off to a turkey fest this afternoon and foresee me stuffing my face by 4PM.

I wish you all well over Thanksgiving.

Edward

Related posts:

• News round-up: 14 Oct 2008
• News Round-Up: 6 Oct 2008
• News round-up: 8 Sep 2008
• News round-up: 25 Sep 2008
• News round-up: 20 Aug 2008 – financial institutions special edition

I need a chance to vent about one company that just released earnings: Yahoo! I worked at Yahoo! for a number of years in a former life. It is a great brand and was a great company. But, the place has clearly been run into the ground.

Yahoo! had an offer in February from Microsoft for $44.6 billion or $31 a share, what was then a 62% premium. Management rejected this offer. The company ended the day today down to $12 a share after disappointing numbers and cutting 10% of staff. Shambolic.

This is a case of management NOT doing what is in its employees and shareholders best interest. What do I care — I sold my options long ago. But, it still irks me that such incompetence is not rewarded with a pink slip.

Yahoo on Tuesday announced a cut of at least 10 per cent in its workforce by the end of the year as it reported a disappointing third quarter caused by weakening display advertising sales.

The Silicon Valley company reported its third consecutive quarter of falling revenues and lowered its forecast for the fourth quarter. The layoffs follow Ebay’s announcement of a 1,500 reduction in its headcount this month and a wave of cuts by smaller web companies.

Yahoo reported revenues of $1.325bn, after subtracting payments to partners – below analyst expectations of $1.369bn averaged by Reuters Estimates. Earnings per share of 9 cents were a cent above expectations.

-Financial Times

Meanwhile Apple cruises along. Clearly, this is a tale of two cities.

Related articles
Yahoo profit drops 64%; announces plans to cut at least 1,500 jobs – Financial Post
Yahoo’s $36.6 Million Bill for Outside Advisers – Deal Book

Related posts:

• eBay to cut 10% of its workforce
• Walt Mossberg says Apple’s new browser Safari is fast
• Google: Why I am switching from FeedBurner to FeedBlitz

This is not a financial sector post but I find it shocking enough that eBay is cutting 10% of its workforce that I had to post this. Now, this could be as unrelated to the current economic malaise as Yahoo’s problems and rumored future job cuts are.

But, if high growth technology companies are cutting workers, this can’t be good for the employment market in the U.S. or the housing market in Silicon Valley.

Online auction house eBay is axing 1,000 jobs or 10% of its global workforce as it looks to save $150m (£85m) a year in the face of slowing sales, in the latest evidence that gloom in the world economy is starting to impact major dotcom companies.

But the company also shocked Wall Street by announcing it is spending $1.3bn on acquisitions, including $820m in cash on internet payments company Bill Me Later, which lets American shoppers make purchases online without having a credit card, to bolster its PayPal payments operation.

It is also buying Danish online classifieds site dba.dk and vehicles website bilbasen.dk for approximately $390m, also in cash.

The auction house’s chief executive, John Donahoe, admitted: “To some it may seem a counter-intuitive to be making these deals but we believe it is an appropriate time to bring these companies into our portfolio.”

He stressed that eBay’s financials are strong and the current turmoil in the market will make “the strong stronger”, but admitted “the economy and the strong dollar are impacting our business”.

The company will announce its third-quarter results next week but eBay said today that it expects to hit the low end of its revenue guidance, although its profits per share will be better than expected. The job losses will result in a $70m to $80m restructuring charge which the company will take in its fourth quarter.

Bill Me Later has deals with over 1,000 retailers who use it on their websites or in their phone sales departments. It has more than 4 million signed up users who can buy from these retailers. They then receive a monthly bill which they can pay by cheque, money order or another bill pay system, but not a credit card.

Retailers, however, can use it to offer interest-free credit and buy now, pay later offerings which are likely to be extremely popular at a time when America’s banking industry is in crisis.

On a call with analysts the eBay and PayPal management team stressed the expertise within Bill Me Later, which was set up just 8 years ago, but analysts have concerns that the deal will leave eBay even more exposed to the worsening U.S. economy.

As one Wall Street analyst asked on the conference call: “Who’s on the hook if the consumer cannot pay for that flat-screen TV?”

The resounding answer that came back was “Bill Me Later.”

Source
Auction house eBay axes 1,000 jobs – Guardian

Related posts:

• Yahoo: run into the ground
• The Economy Is Definitely In Recession
• Spanish unemployment up
• The Economy’s Four Horsemen
• ADP sees nearly 700,000 job losses in December

When we think about outsourcing, we usually think about Call centers in India or manufacturing jobs in China. Well, what about automatic cashiers?

I went to the local CVS (Shoppers Drug Mart or Boots for Canadian and British readers) this morning to buy some milk because my wife needed some milk with her coffee daily dose of caffeine. When I walked up to pay, I noticed two little shiny new machines with a bunch of plastic bags attached. I went over to one and low and behold, it was the cashier.

“Nice to meet you.”

“Would you like to pay with cash or credit?”

“Please sign here.”

“Thank you for shopping at CVS. Have a nice day.”

I left and went home without talking to a single person.

No related posts.

I am on record for expecting a serious downturn after the Tech Bubble crashed in 2001. We muddled through for a few years, but ultimately most of the damage was done and gone by 2004. The Tech Bubble was a bubble of asset prices that had little influence on the underlying global financial system. Its crash did have a significant impact on capital spending and corporate deleveraging but the financial system was left pretty much intact, especially after aggressive policy moves by America’s central bank.

This recession will be much more difficult in large part because the housing bubble is in essence a credit bubble. In fact, housing prices will not be the only assets to crash in this bubble. Leveraged loans, credit card-backed securities, auto loan-backed asset securities and high yield bonds are a few asset prices that have suffered and will suffer more before the deleveraging is over. The difference between this business cycle and last is debt. When banks must write off huge sums of bad debts, it goes to the core of any economy. And the U.S. has been very dependent on rising debt levels to sustain adequate economic growth since the bull market began in 1982.

Therefore, as the recession takes hold, financial institutions will need to de-leverage to remain healthy and will be unable to lend. This is going to have major repercussions on a U.S. and global economy that is hooked on the overly-indebted U.S. consumer.

Related posts:

• The inflation – deflation debate redux
• Why is this blog named Credit Writedowns?
• The US Economy 2008
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As the downturn takes hold in the U.S., the obvious dilemma for investors is knowing which sectors to avoid. Financial stocks are a sector obviously fraught with risk as they have already sustained enormous losses with many more to come as the downturn takes hold. However, on the other hand, Doug Kass, a famous short seller is taking a bet on consumer staples, a sector that is not particularly cyclical. In this week’s Barron’s he first addressed another unusual consumer sector, the dental industry.

“Right now our emphasis is on the consumer sector. We’ve found an undiscovered sector that has limited short interest, namely the dental industry. We wouldn’t look at traditional retailers like Target [ticker: TGT] or Kohl’s [KSS], or short the Retail Holdrs [Merrill Lynch Retail HLDRs [RTH], a retailing ETF. ETFs are the opium of the hedge-fund community because they are an excuse for lazy hedge-fund managers not to go belly to belly with companies and their managements. A dependency on ETFs as a shorting tool is simply an excuse for not doing hard-hitting and creative research”

Barron’s asked whether he was bearish on U.S. consumers and he answered yes identifying a number of consumer staple stocks that he is shorting. Consumer staples are not cyclical and are usually a defensive play. But Kass Had this to say:

“The consumer is spent up, not pent up, and more levered than during any period in history. That’s one of the structural problems facing the economy. At the same time, job growth is declining and real disposable incomes are pressured as inflation literally is eating away at the consumer’s buying power. It is frightening that the consumer has entered this economic downturn with the most levered position in history. On top of that, we’re facing four consecutive months of job losses. We’ve seen the depreciation of the two most important assets, home prices and equities. Consumer confidence is at a 26-year low. The availability of credit continues to be a problem that will plague the economy for a while. Inflation, the cruelest tax of all, is rising as energy and food prices, in particular, are soaring. And the first-quarter GDP report contained a number of ominous signs that the consumer is spent up while the housing depression continues apace.

{Barrons asks] So, which consumer stocks are you shorting?

Colgate-Palmolive [CL], Kellogg [K] and General Mills [GIS], which are trading at 17 to 18 times earnings, but have secular earnings-growth rates of 7% to 10%. These companies historically are seen as recession-resistant, but we doubt it. All three are aggressively lifting their selling prices in response to huge cost increases, but demand is starting to suffer as private-label companies and generics gain market share. Demand elasticity, or sensitivity to changes in prices, in toothpaste, soaps and other consumer products has begun to surface in the current recession, as consumers trade down to private-label products.”

I would have to agree with Kass that the consumer is worn out but I would have thought retail or consumer cyclical or technology, all of which are highly cyclical, were more likely bets. Moreover, Kass admits to being short Berkshire Hathaway, the investing conglomerate controlled by Warren Buffett. Nevertheless, Kass has a good reputation in the industry and knows what he’s talking about. But, one would have to take his advice with caution.

Sources
Confessions of a Short Seller from Barrons, 19 May 2008

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• Stocks pummeled as value plays increase
• UK retail sales drop most in 22 years
• Major selloff coming?
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