7/6/2002
My son Neil

This evening Neil brought an important matter to my attention. I should mention that Neil is brighter than most everyone I know and appreciated every day by yours truly. Neil pointed out that 40% of our country is experiencing drought conditions, and some states like Conneticut, just had the drought restrictions lifted; however, ground water levels are still very much below normal.
Neil went back to the thirties reminding me of the dust bowl conditions, and we both wondered about the possibility of revisiting those economic times. As Neil outlined, it is difficult to imagine a business recovery with that much of the U.S. experiencing a drought. I agree with that scenario. We must remember that 2/3 of our economy is consumer based, and droughts certainly will be a detroadblock to job creation and consumer spending. Drought is just one more problem facing this nation, and uncertain times limit corporate earnings and p/e ratios.

7/5/2002
Cash Flow Positive

If a company is to survive and prosper, then it MUST generate positive cash flow. In the last two over 60 customer relationship management companies have gone out of business; however, the leader in this field, Siebel Systems, has prospered from a cash flow analysis. You probably are thinking I have gone off the deep end. During the last two years SEBL stock has dropped 90+% from its high of almost 120. During 2001 the company generated 500 million dollars in cash and in the first quarter of 2002 another 220 million dollars. This is not an accounting gimmick. It's plain old cash generation. Now Siebel is building web services into its next generation of software. IT spending may not pick up dramatically for some time. The lesson to be learned from Siebel is to focus on positive cash flow during the downturn, keep improving the product, make the customers happy, and increase market share as companies in your industry fold. Siebel is the leader in customer relationship management. Its founder, Tom Siebel, is a relentless competitor. I am not suggesting that my readers go out and purchase SEBL stock. What I am suggesting is that Siebel Systems is going to survive, grow cash, and be around to reap the benefits when the upturn in IT arrives. We need to be looking for more companies like this.

7/4/02
Happy July 4th

Subject: Three styles of capitalism
>
> TRADITIONAL CAPITALISM:
>
>
> You have two cows. You sell one and buy a bull.
> Your
> herd
> multiplies, and
> the economy grows.You sell them and retire on the
> income.
>
>
> ENRON VENTURE CAPITALISM:
> You have two cows. You sell three of them to your
> publicly listed
> company,
> using letters of credit opened by your
> brother-in-law
> at the bank,
> then
> execute a debt/equity swap with an associated
> general
> offer so that
> you
> get
> all four cows back, with a tax exemption for five
> cows. The milk
> rights of
> the six cows are transferred via an intermediary to
> a
> Cayman Island
> company
> secretly owned by the majority shareholder who
> sells
> the rights to
> all
> seven cows back to your listed company. The annual
> report says the
> company
> owns eight cows, with an option on one more. Sell
> one
> cow to buy a
> new
> president of the United States, leaving you with
> nine
> cows. No
> balance
> sheet provided with the release. The public buys
> your
> bull.
>
> AN AMERICAN CORPORATION
>
>
> You have two cows. You sell one, and force the
> other
> to produce the
> milk
> of
> four cows. You are surprised when the cow drops dead
>
>
>
>
>
> Subject: Another joke about three clergymen
>
> >
> An Episcopal Priest, a Catholic Priest, and a Rabbi
> are discussing
> funerals
> and the question came up-"When you are in your
> casket, and friends,
> family,
> and congregates are mourning over you, what would
> you
> like to hear
> them
> say?"
>
>
> The Episcopal Priest says, "I would like to hear
> them
> say that I was
> a
> wonderful husband, a fine spiritual leader, and a
> great family man."
>
> The Catholic Priest says, "I would like to hear
> that
> I was a
> wonderful
> teacher and a servant of God who made a huge
> difference in people's
> lives."
>
>
> The Rabbi replies, "I would like to hear them say,
> '"Look, he's
> moving!'"
>
>
>
> Subject: Engineers
>
>
>
>
>
> Engineers - 1
> Two engineering students were walking across campus
> when one said,
> "Where
> did you get such a great bike?" The second
> engineer
> replied, "Well,
> I was
> walking along yesterday minding my own business
> when
> a beautiful
> woman
> rode
> up on this bike. She threw the bike to the ground,
> took off all her
> clothes
> and said, "Take what you want." "The second engineer
> nodded
> approvingly,
> 'Good choice; the clothes probably wouldn't have
> fit."
>
> Engineers - 2
> To the optimist, the glass is half full. To the
> pessimist, the glass
> is
> half empty. To the engineer, the glass is twice as
> big as it needs to
> be.
>
> Engineers- 3
> What is the difference between Mechanical Engineers
> and Civil
> Engineers?
> Mechanical Engineers build weapons, Civil Engineers
> build targets.
>

7/3/02
The halfway mark
Now that we are in the second half of 2002 it is time to begin to think of tax selling time, and to prepare for it. There are three things to remember when approaching the thought of making money in the stock market: do your homework, buy right, and be patient. We don't make recommendations in this blog. We provide observations and thoughts we hope will prove helpful. So how do you prepare for tax selling? You begin each day by ooking at the new low list on the New York Stock Exchange and the Nasdaq. This morning a couple of names popped out at me: Pfizer and SunMicrosystems. It requires studying the information on their financials. Please don't assume that all companies are run by crooks. It's fair to say most substantial companies are run by honest folks. I used the word substantial because you want a company with a strong balance sheet and management that knows the business. In the case of the good examples I provided they would meet those criteria. Then after studying the companies make a daily record of the highs, lows, and close for each company. You will get more familiar that way. Keep adding to the list and follow the news stories on each company. News is not a research report. That's an opinion. You want only the facts. You'll develop your own opinion based on your own work. We will revisit this topic.

7/2/02
retracing the past 5 years
The conventional belief is the internet bubble has burst. The reasoning is that the Nasdaq is trading below the level of 5 years ago. That's one measure of the air coming out of the balloon. How about the billions raised by the VC firms? You have 100s and 100s of VC firms with little or no reason to be in business. Slowly but surely the vast majority of these companies will disappear. Many pension funds accumulated huge gains in the late 1990s. With those gains corporate pension funds went into the overfunded category. With the downdraft in equity valuations and prices the overfunding is turning to underfunding. This will play havoc with corporate earning statements in the near and not so near future. Then we shall begin to properly evaluate the internet bubble fallout.
7/1/02
making the numbers
Everyone shares in the blame- directors, management, stockholders, Wall St. analysts, and the press coverage. Unrealistic expectations derail reality. Trainwrecks leave catastrophes in their wake. It is are that companies grow consistently at 80% or 40% or 20%. If they did, the average annual gain on the New York Stock Exchange would exceed 9%. Stock movements follow earnings. Greed can be accompanied by disappointment and sometimes fraud or both. Greed rarely has a good ending. The years 2000, 2001, and so far 2002 have proven that once again. We all have done our part to share in this arena. Now we must suffer the consequences.
6/30/02
Judge Henry Friendly
Does anyone remember back to 1969? Harvey Pitt? President Bush? The Congress? Obviously not. Judge Friendly ruled in the Second Court of Appeals in 1969 that, it doesn't mean a damn if a company follows accounting rules and regulations. What matters is the misleading of investors. If you mislead, it's fraud. Very simple. So whether it's Enron, Worldcom, or Moishe Whatever, it's fraud. That has definite penalties attached to it, and it's about time someone followed Judge Friendly's ruling from 1969.
6/29/02
pricing power #2
We have heard of viral marketing. How about viral pricing power? So the toll gets raised to $5 on the Golden Gate Bridge on 9/1, and lo and behold the elected officials are now discussing raising the fees on other public transportation venues- bridges, buses, ferries, and the like. Of course, demand has nothing to do with it. Demand is down. There is growing local unemployment and diminishing tourism. The attitude is simple- let's raise the fees because we can. Has anyone considered reducing expenditures in the public sector on a yearly basis? When was the last time spending actually was in line with revenues WITHOUT raising fees and taxes? We've had the internet bubble. When will we experience the public sector bubble?






6/28/02
Pricing Power

Have you wondered about pricing power as it relates to the public and private sector? In today's business environment companies have little or no power to raise prices. The demand is not there and the competition lurks on every street corner. Now we turn to the public sector. There is no competition for the Golden Gate Bridge. When constructed, the toll was voted in as a short-term measure to pay for the construction. A few years back the toll was raised to $3. Two days ago the vote was taken, and an 11-3 yes provided for an increase in the toll to $5 on 9/1/02. This is an increase of 66 2/3%. Tomorrow the U.S. Postal Service will raise the price of a first class letter from 34 to 37cents, an approximate 9% increase. It should be noted that traffic on the Golden Gate Bridge is going down and demand for first class letters is also going down. As such, pricing in the public sector does not reflect demand but possibly a more apt description is a reflection of inefficiency.
6/27/02
Worldcom and Accounting Irregularities

We're not reinventing the wheel here. Simply put, public companies have audit committees. They meet at least quarterly to go over the company's numbers with the CFO, Treasurer, and accounting dep't. They then meet with the auditing firm. Any irregularities or questions should come out of these reviews because the audit committee makes periodic reports to the company's board of directors. Whether it's Worldcom or Xerox or some other high profile situation, these irregularities should be caught prior to quarterly and annual reporting to stockholders. The SEC does not have this function nor does the NASD or a like gov't agency. It is the self-regulating job of each public company.