hjmann.com Blog

With the, ahem, “retirement” of CEO Stan O’Neal, is now a good time to buy Merrill Lynch stock? The answer is not yet, and is based in a lesson I learned early in my working career.

In college, I had a part time job delivering appliances at a large appliance store. Now, by the sheer volume we handled, we on occasion dinged or damaged an appliance. But since we sold only a handful of models, there were always plenty in stock, so we just put the damaged ones behind the good ones in the warehouse.

I left this job, and I later found out my co-workers took the opportunity to clean out the warehouse of all damaged appliances, and they did so by laying the responsibility for those damaged appliances on me.

And, yes, it goes the same way on Wall Steet. Whomever the new CEO is, you can bet that job #1 will be to use this next quarter’s earnings report to take charges for every suspect piece of business on the books, so that he can begin his tenure with a clean slate.

And it is naive to believe that Merrill or anyone else really knows the full dollar amount of the exposure… remember, Merrill came out three weeks before earnings and said the damage was about $2.5 billion, and on earnings day said the damage was nearly three times that much. The fact is, these guys have their fingers on the pulse and still don’t know the condition of the patient. So you can bet that the new CEO will take the kitchen sink approach to clean up the books.

After that, take a good look at Merrill. With this mess off the books, the other 85% of Merrill’s business appears sound. And at a price just above the two year low, it looks like a buy.

Disclosure: I do not hold any positions in the stocks mentioned here. I am not a professional, but I am trying this at home. It is highly recommended that you consult a licensed financial advisor or broker before making any and all investment decisions.

Tags: Business And Life by HJ
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It’s late and I am tired, so I won’t go into the details of why I think there will not be a rate cut on Wednesday. In summary, I don’t see a compelling reason for one, and I don’t think the Fed can allow the dollar to be depressed any farther.

PS. If they don’t do a cut, the Dow will shed a minimum of 300 points on Wednesday/ Thursday… maybe as many as 500 points. And some of the tech that has run up to the point of being speculative will be sold off something nasty. I wouldn’t be holding VMW, or other heavy run-ups that have drawn speculators.

And if they do the cut, oil will be over $100 within a week.

PS. I hope I am wrong. I wouldn’t mind being wrong. But I had to say what I think. Sometimes life is like that.

Disclosure: I do not hold any positions in the stocks mentioned here. I am not a professional, but I am trying this at home. It is highly recommended that you consult a licensed financial advisor or broker before making any and all investment decisions.

Tags: Business And Life by HJ
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Just when I think I have seen the farthest extent to which the average person can be duped, someone takes it a step farther, with hilarious results. Video here. Full story here. Enjoy.

Tags: Business And Life by HJ
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The market is congratulating Microsoft on a big earnings report, and sending the stock to multi-year highs. But this will be short lived. Follow me on this…

The biggest IPO in 2007 is an outfit called VMWare (VMW). It went public about 90 days ago at about $29, opened the day at over $50, and currently trades at $112.

What does VMWare do? They provide software that allows multiple operating systems to run on a the same processor… a straighforward but unbelievably elegant, powerful and economical solution to the problem of data center costs running amok.

So, this can be small, like a friend of mine who has VMWare on his Macbook so he can run XP at the same time (in a window) in the Mac Operating System. Think about it… instead of using Mac ‘Boot Camp’ to boot one or the other, just run both at the same time. The Mac processor has the power to run both at the same time no problem.

But it’s real application is for servers. Now, instead of having to run multiple boxes or instances for multiple operating systems, you can run multiple operating systems on the same box. For the data center, you maximize processor usage, and at the same time save the costs for electricity and floor space.

Now how does this negatively impact Microsoft? Yeah, all the news today talked about earnings being driven by Vista, but a big chunk of Mister Softie’s business is servers. And over the next two years, as virtualization catches on, businesses of all sizes are going to realize that they can do alot more with the server capacity they currently have. All else being equal, it is far more likely that companies will be taking servers out of service and cobbling together the pieces into existing racks rather than adding new racks.

And this impact will be real, and will show up on the bottom line. Not only for Microsoft, but also IBM, HP, Teradata, Sun, and Dell.

So, how to play this to make money? Stay with me a little longer… A little background first. EMC bought VMWare two years ago for $600 million, and spun off just 10% of it in August. VMWare now sports a market cap of more than $20 billion. This 30-fold increase in value is actually moving EMC stock upwards… and getting EMC off the hook for overpaying for RSA Security. 

I would expect VMWare earnings to take off in the next year, and see easily $150 a share for the stock price. And if energy costs continue to skyrocket, this will give pricing power to VMWare, so in that scenario, $175 a share or more is plausible.

But I don’t think it’s the best way to play this. The primary competitor to VMWare is an outfit called Xensource. Earlier this year, Xensource was bought by Citrix. Now Citrix has to be looking at EMC’s VMWare example, and seeing dollar signs. Bet on Citrix getting this product into the hands of their 5000-strong reseller network, and when this reaches critical mass, look for a spinoff. Not coincidentally, Citrix stock is up about 30% since VMWare came public.

One other possibility: Any of the server companies have the critical mass to buy Citrix outright, and execute this same strategy themselves. There is far more money to be made in ramping up Xensource and spinning it off than in selling additional hardware.  Microsoft has a play in virtualization and it seems to have decent sales numbers, but not the product quality or reach of the others mentioned here. Microsoft also has 20 billion in cash, and a reseller network four or five times as big as Citrix. IBM and HP already have a vitualization software partner, and are shipping the software pre-loaded with their boxes. So, to get ahead, Microsoft will be compelled to do something more aggressive here. Citrix currently has a market cap just shy of $8 billion. Microsoft could ’overpay’ and still make a killing because they can vastly widen and speed up distribution. 

In the end, don’t be surprised if all of the the big iron boys make a move into virtualization. And don’t be surprised if someone grabbing up Citrix is the way its done.

Disclosure: I do not hold any positions in the stocks mentioned here. I am not a professional, but I am trying this at home. It is highly recommended that you consult a licensed financial advisor or broker before making any and all investment decisions.

Tags: Business And Life by HJ
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Recently there was an article in Barron’s (subscription may be required) wherein the company says that there is room for 40,000 more locations, half in the US.

To me, there seems to be a Starbucks everywhere that will support one… and then some. In Watauga Texas, there is a Super Target. Inside the store is a Starbucks. In the parking lot is a Starbucks standalone. And across the street in the Albertson’s, another Starbucks. That’s three locations within 150 yards of each other. 

My single experience overseas was the same. The photo below was taken in London near St. Paul’s Cathedral. You know and love the big green sign in the upper right… what is that little circle across the street…? These two locations are about 100 feet apart.

I am a fan of Starbucks, and I like what they are doing with music to create an experience that will keep people coming back for four-dollar coffee. It will be especially important to have that should oil and gas prices keep running, and force people into choosing what discretionary spending they forego to pay at the pump. But the truth is, there are places in America that demographically cannot support the Starbucks habit… and it seems that every place that can already has two or more locations.

Disclosure: I do not hold any positions in the stocks mentioned here. I am not a professional, but I am trying this at home. It is highly recommended that you consult a licensed financial advisor or broker before making any and all investment decisions.

Tags: Business And Life by HJ
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Willamette Valley Oregon

$30

Strawberry on the nose, reminded me a lot of the J Wilkes Salomon Hills Pinot. Good clean, full bodied without being heavy, even fruit, mineraly, earthy, bright lingering finish. Good wine.

Tags: The Wine List by HJ
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So Hillary says that if elected President, she would cede some presidential powers.  Now that’s funny.

Of course in typical fashion, she was decidedly non-specific about which powers she would cede, or to what degree. The statement was made in an interview with The Guardian, a UK paper… I am assuming because they could not find a reporter in the US who could type in the story without the constant interruption of uncontrollable laughter.

Money quote: “There were a lot of actions that they [Bush and Cheney] took that were clearly beyond any power the Congress would have granted or that in my view that was inherent in the Constitution.”

Inherent in the Constitution? Hillary would know… wasn’t it Hillary in 1993 who as First Lady who took a group of her cronies to Jackson Hole to snowboard, smoke dope, and write a 1300-page plan to put all healthcare in government control? 

And in her typical nurturing fashion: the Health Bill used the words “penalty,” “restrict,” and “violate” more than the The President’s Crime Bill of the same year.

I think about those early days of the Clinton Presidency, and we all knew who the mouthpiece was, and who was calling the shots. I can picture her walking into the oval office and barking at Bill, “get out of my chair!”  

Ah. Time flies. And now comes the new improved Hillary with sprinkles of benevolence promising to give Congress the power. She’s also promising to exit Iraq double-quick, and dump the terrorists in Gitmo back into the world. Real leadership.

The election more than a year away, I am sure this won’t be the last funny thing she says. I will keep you posted.

Tags: Business And Life by HJ
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Today the TSA announced a reversal of a policy that now places turbans in the same category as other bulky clothing, and provides alternate screening for those who do not want to remove their turban during the security screening process. In their quest for fairness, they will also offer additional screening options to those who wish to leave their giant cowboy hat on.

A well-struck victory for the American Cowboy, who didn’t care about taking off his hat in the first place, and in the second place will continue to do so to avoid having to stand in yet another line to wait for additional screening, and in the third place is as unexcited as the rest of us knowing now that turbans will go back to being as poorly screened as before.

The declaration is a reversal of a policy begun in August because of what was termed a “credible specific threat.” I am unclear how the space in the turban starts and then ceases to be a threat. To be sure, any area not thoroughly screened represents a threat.

Let’s just call this what it is: the actual endangerment of the vast majority to avoid the potential perception of offending or picking on a very small minority. Even worse, political correctness says the TSA can’t single out turban-wearers, so they’re throwing cowboy hats into the mix to make sure this is about all bulky head garments with the ability to store contraband, and not about any specific religion. Those crafty PR geniuses at the TSA leave me flatfooted with their prowess. Uh huh.

Why doesn’t someone just do the right thing and tell these guys how it’s going to be: Dear Mr. Turban Wearer, I am sorry removing your turban is inconvenient for you because it is a pain in the ass to re-tie or offensive to your religion or whatever. But no one is forcing you to fly… so whatever the reason, if you don’t want to remove it for screening, fine… the car rental counter is right over there. Otherwise, you have to live by the rules of an orderly society. I don’t like taking my shoes off and sharing a nasty unsanitary floor with 5000 other barefoot people. This in an age where staph infection spreads easily and has become so resistant to treatment, it represents a genuine safety concern. But you know what, I know where the car rental counter is too, and I would rather fly, so off come the shoes.

Another bit of genius from the wunderkinds at the TSA is banning liquids in quantities of three ounces or more.  This way, there is no hope you can get enough shampoo for four-day business trip, but plenty of hope remains that someone could still smuggle a dangerous chemical in an eye drop bottle and the xray won’t detect it. Or anyone with a pair of loose jeans could smuggle a significant quantity of liquid in their underwear or sock and shuffle through the metal detector unnoticed. Or like I did: just leave a bottle of water in their laptop bag when flying from Barcelona to Bristol, England, and have it go unnoticed by the security screener who was fighting a post lunchtime food coma.

The bottom line is this: Airline security at the passenger line, beyond the most basic screening for a gun or bomb, is a joke. It is window dressing to make the less than 20% of the population who travel only occasionally feel safer. The 80%+ of us who travel frequently realize that we’re never really safe, and we’re never going to be. It is doubly true so long as stupid games of political correctness are played to avoid offending this religious group or that one.

But it’s not all gloom and doom. 9/11 taught us all a very painful but valuable lesson: That the purpose of hijacking has changed from grinding an axe to using the plane as a weapon, killing everyone on board in the process.

So now, a hijacker waving a knife and demanding cooperation amounts to a very strange threat… which is why I doubt we will ever see a force-based hijacking again… even if the hijacker appears to be strapped in explosives (remember, the plane will likely be shot down if there is even a whiff it will be used in another 9/11-style attack… so again, strange threat). And if a hijacker starts up with only a box cutter, it would be a far better bet that he be the only one not to make it off the plane alive.

Which leads to the second point: on the plane, the cockpit door is and should always stay locked, and the crew in control of the flight deck. That means back in coach, it’s up to us what happens next.

We’ve seen a handful of examples where extremely unruly passengers have been subdued by fellow travelers. We all own the responsibility of our freedom. Whether it’s a guy freaking out and punching a flight attendant (and for those of you who have stayed in your seat while this has happened: what the hell are you thinking you f-ing coward?), or someone popping off a turban (ok, or a cowboy hat) and wielding contraband, or someone trying to light his shoe, the task of keeping you safe in the skies is mostly yours.  And we as citizens should relish this responsibility, not shy away from it.

Tags: Business And Life by HJ
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I got up early this morning to find both CNBC and Bloomberg TV alight with the news that Al Gore won the Nobel Peace prize.  For those of you who haven’t heard, story here. 

“We believe that the Nobel Committee has shown great courage by so clearly connecting the climate problems with peace,” said Truls Gulowsen, head of environmental group Greenpeace Norway according to the Associated Press article.  

Clearly connected, huh? Not surprising, when you consider that this same body also clearly connected to peace the likes of Yasser Arafat  and Kofi Annan—suffice to say this committee is very comfortable grinding the political axe, and this year is no exception.

The shameful part of this is that it minimizes the contributions of previous winners who do actual work that matters (Doctors Without Borders, Jody Williams and the International Campaign to Ban Landmines, and The Dalai Lama, to name a few).  

Some more inconvenient truth: in a far less publicized story this week, a British Court found Al Gore’s movie to be “politically biased” and outlines nine distinct points the movie asserts as fact as being untrue. Reply from the Nobel savage himself: ‘I believe it is appropriate to have an over-representation of factual presentations on how dangerous it [global warming] is.’ 

No one should be surprised by this from the guy who claimed he invented the internet… truly one of the great over-representations of factual presentation in modern history.   

What now for Al? He feigns no interest in running for President, but we all know for the chance he’d push Tipper down a flight of stairs, screaming “Down ladder!  Make a hole!” like the captain in “The Hunt For Red October.”  Unfortunately for Al, being just right for the folks in Norway is the basic litmus test for being just wrong for most of America.  

And so it goes for Al: Quod nihil illi deerat ad regnandum praeter regnum  

And what do I think of global warming? Is it getting warmer in recent years? Generally speaking, yes, very slightly. Is that caused by primarily or totally by activities of man? More than likely not. The scary part is that people have had this drilled into their heads for so long that they now accept as perfect truth what is hypotheses based upon suspect research.

So instead I will offer a different prediction: 25 years from now, the notion that global warming was primarily caused by human action will be the single greatest mass delusion since the world was convinced that simultaneously ingesting Pop Rocks and Coke was fatal… and it was fatal because it killed Mikey from the Life Cereal commercials.    

Oh, and in case you didn’t know… Mikey is alive. Did you fall for that one too? 

Tags: Business And Life by HJ
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Flash of bright cherries, but not tart. Gives way to hints of cocoa, and oaky fruit. Strong vanilla finish. For $14, this is pretty darn good.

Tags: The Wine List by HJ
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