Tuesday, July 21, 2009

Fiction Alert: Charlaine Harris

In an earlier post, I drew attention to Charlaine Harris' high-quality Sookie Stackhouse novels.

I contrasted quality urban fantasy series (in the case of Harris' Southern Vampire series, maybe suburban or even rural fantasy given Harris' back-woods and off-the-beaten-path small-town settings) with the long-derailed Anita Blake series, whose author hasn't been off the beaten path in her later works but completely lost in the woods. I have a hypothesis how Laurell Hamilton's work went awry. It was initially well-written work -- characters whose fear and anger made sense; crises readers understood needed to be solved and were solved (or one could see progress toward the solution ... but for each book at least the major crisis was solved); tension made complex and plausible by the different demands of the crises, character weaknesses, and motives of the involved characters. My lofty expectations were entirely justified. Yet, it was allowed to degenerate into an ill-designed and seemingly unending series of encounters designed not to resolve a crisis or advance the plot but to amuse the writer: excuses to put Blake into someone's bed, to show some poor sod being misused or having his affections ignored, or to involve the character Blake in some new sexual combination Hamilton hadn't previously described. Not that I mind erotica; but if I'm to read five hundred pages, I expect a plot and not simply a rewrite of Penthouse Letters with vampires. (Never mind the creeping addition of typos and logical inconsistency that suggest she's not bothering with careful craft, I'd be satisfied with the appearance of a plot.) My theory comes from this admission of Hamilton's about where she is taking the series: as described earlier, she has no idea.

Remember what Alice learned from the Cat? Alice asks: "Would you tell me, please, which way I ought to go from here?" The answer is the wisdom of the ages. "That depends a good deal on where you want to get to," said the Cat. Once we know Hamilton has no idea where Blake is to go, it's easy to understand how she suffers several books of tantalizingly almost-a-story vignettes glued together with group sex, taboo sex, and snubs against men looking for sex.

So, why the alert?

I just read this:
Q&A: What's next for Sookie and the series?
Harris: I have no idea.
via Borders, "Q&A -- A Conversation with Charlane Harris"
Mind you, the rest of the interview was not only non-scary, but quite articulate. People who use the verb "to obtain" as she does (to be established or customary) aren't an uneducated bunch, and to use it off the cuff like Harris does suggests she has all the literacy and intelligence her early works suggest (their understated humor, and their quiet allusion to so many other works in different genres). I don't expect "their" and "they're" and "there" to get confused in a Harris book like I've encountered in Hamilton. There is hope yet.

However, the book that follows the masterful All Together Dead was not as brilliant as her prior work. Rather than following one significant story arc (while peppering into the meal a variety side-plots that might develop over the series or minor problems creating distracting crises to be solved in the course pursuing larger problems), Harris seemed in From Dead to Worse to glue different segments back-to-back with the expectation we would accept the whole as one "story". This wasn't the artful work I'd come to expect, and I hope future works either claim to be multiple stories (which stand as stories) or are structured to be more satisfying. The lack of cohesion in the story parts really prevented the sort of "ahh!" feeling you get when the author wraps up the major crisis, and leaves you looking at the unfinished problems for clues where the next crisis will erupt.

Noting Harris' quick back-to-back release dates in 2009, I simultaneously fear that she's sacrificed care for quantity and look forward to repeated tales in case she has returned to turning out solid books.

I'll definitely remark back on it here.

Lunacy and Lunar Missions: Lessons in the Shortcomings of Media Claims

Less than a century ago, the institution promising "all the news that's fit to print" offered a written excoriation of Professor Goddard and his dreams of reaching the moon, the cornerstone of which was "knowledge ladled out daily in high schools" about thermodynamics. The New York Times' author wrote that "[t]o claim that it would be [feasible to steer rockets in space] would be do deny a fundamental law of dynamics, and only Dr. Einstein and his chosen dozen, so few and fit, are licensed to do that."

The 1920 editorial, not only made after the realization of the law of conservation but actually citing it as support, seemed both to require special certifications before one could observe phenomenon in nature, and to overlook that a craft expelling accelerated exhaust would necessarily realize a change in its vector, lest the departing and just-accelerated high-speed exhaust particles create a net change in momentum of the system that includes the craft and its fuel.

The fact that respected news organizations can be so utterly wrong on what seems a point of basic science, to the point of issuing a public recantation one generation later when the folly has become laughable, should be noted by those of us who rely on the authority of a speaker's credentials rather than on the authority of the evidence in deciding how public resources might best be spent. After all, The New York Times' recantation of its 1920 editorial contained only this explanation for its retraction:
Further investigation and experimentation have confirmed the findings of Issac Newton in the 17th Century and it is not definitely established that a rocket can function in a vacuum as well as in an atmosphere. The Times regrets the error.
That a 1920 author purported to cite Einstein as an authority (whose speeches against space flight, if any, are unknown to me) is appalling enough without his ignoring or misunderstanding Newton to reach his erroneous conclusion.

So when media outlets confidently issue pronouncements on more complex interactions than those involved in space flight -- say, in the debate on man-made planet warming, an idea with great currency in Washington, D.C. but which has been dismissed in Tokyo as "ancient astrology" -- one does well to look at the evidence rather than the claims.

There could be another retraction coming in a generation or so.

Something New Under The Sun: A Venetian Gondoliera

News of the first-time-in-its-900-year-history induction of Giorgia Boscolo by the venetian gondolier's guild as an apprentice gondolier -- the guild's first trainee gondoliera and the first ever in Venice -- reminds the Jaded Consumer of this specious but entertaining account of Venice's harsh gondolier exams and its controlling supervising body.

Giorgia's father, proud of his daughter but not a particular fan of female gondoliers, hasn't sons to which to pass his craft. Her husband, a metal worker and father of her two children, knows better than to stand in her way.

Sometimes the news is worth reading :-)

Monday, July 20, 2009

Sales Share v. Profit Share

In the past when discussing Apple I've mentioned its sales share as less important than the amount of profit it derives from the sales it achieves. I sense this is greeted with a sort of "sour grapes" view by some readers.

This news piece brings the facts into sharp relief: Apple and RIMM have a combined worldwide cell phone market share of maybe 3%, but command something like 35% of all the cell phone profits to be had on the planet. Imagine you are competing for the other 97% of the market, and could not reach the delicious cream of the market held by the likes of Apple and RIMM. Whose business would you rather own?

With Apple's margins expected to be about double Dell's in the next earnings release, one hardly need ponder.

Saturday, July 18, 2009

Iranian Election Protest Lives

Apparently the opposition isn't spent, after all.

Anyone got links to serious analysis of where the protest might be going (other than into Iranian jails)?

Thursday, July 16, 2009

People Media Not A Bad Deal for ACAS

The People Media exit demonstrated ACAS can make profitable exits in these rough times. Although ACAS claims its equity investment represented a compounded annual rate of return of 76% over the life of the investment, ACAS invests at multiple altitudes on the balance sheet; zeroing in on the equity may be sexy, but it's not the whole picture. The whole picture -- senior and subordinated debt, plus the convertible preferred stock apparently identified with the 76% statistic -- shows a compounded annual rate of return of 35%.

Thirty-five percent compounded annual returns aren't shabby. The $57 million in cash ACAS received will definitely help, even if ACAS doesn't benefit from realizing a $15 million gain in the quarter (lifetime investment gain of $26m).

Opportunities like this suggest why ACAS might be interested in liquidating AGNC shares that are producing returns exceeding 20%.

With Deutche Bank apparently voting in favor of the funds management expertise of ACAS, the future of its funds management business may be looking up.

Kidney Worth Maybe $1600 In Pakistan

If selling your spouse or children is a bit much for you, there's another option: your kidney.

Although outlawed in 2007, the sale of human kidneys to would-be recipients is apparently not hard to arrange, and doesn't net sellers much for their risks: $1100-$1600.

It'd be interesting to see long-term data on the population's health, to ascertain whether the ban had an impact, and if so, good or ill.

Schmidt on Chrome

According to Electronista, Google's CEO Eric Schmidt resisted Chrome over concerns raised by his recollection of browser competition in the 1990s. After lobbying (and demos) by Google's founders Sergey Brin and Larry Page, Schmidt agreed to produce Chrome -- while saying Google didn't intend preventing competition, and that MSFT was free to port its own browser to the OS platform.

The Jaded Consumer's assessment of Google's business view of Chrome (that it will enable more folks to access revenue opportunities for Google) looks to be spot-on:
Although Chrome will be free, Mr. Schmidt said it will still boost Google’s business. “We benefit when people spend more of their life online,” he said. “So for us it’s a very straightforward strategic initiative that ultimately results in more revenue.”
via WSJ
In particular, Schmidt commented that although Android and Chrome are separate projects, they both share some commonality and may more toward each other in the future.

Wednesday, July 15, 2009

ACAS Raises More Cash

A recent comment asked for the Jaded Consumer's take on ACAS selling AGNC shares to Deutche Bank. Previously, not selling AGNC shares was defended here on the ground that if ACAS didn't need a one-time liquidity boost, and AGNC was producing a nice return for ACAS. Following the sale of 2.5 million shares to Deutche Bank, ACAS will retain 2.5 million of the 5.0 million it bought when AGNC was first capitalized. ACAS won't have entirely liquidated, but it will have sold some.

The first thing to ask is: what does ACAS get from the sale? No price was mentioned, but AGNC's basis in the shares was $20, the sale occurred at a time AGNC traded over $22, and the sale caused a price dip (the prior day's peak was over $23, but on the day the sale was announced it dipped below $22) that left the price above $21, so it's likely ACAS got at least its capital back out of the sale ($20). Given that two and a half million times $20 is $50m, it seems ACAS likely raised about $50m -- maybe a bit more if the private placement price was something close to market value instead of being discounted. Given ACAS' credit situation, it's quite possible selling AGNC to a major bank at a discount might be part of some larger transaction.

What does the sale mean?
  • Institutional interest exists, at least near the size of $50m chunks, for ACAS' funds management
  • ACAS can raise something like $50m again if it needs to (assuming AGNC's price keeps up) because ACAS has another 2.5m shares of AGNC -- and still keep receiving monthly managment fees in cash based on the whole of AGNC
  • Institutional appetite for millions of shares of AGNC can also support subsequent offerings of new AGNC shares, increasing ACAS' funds under management and elevating its monthly management fee cash receipts
Additional new shares' issuance would be good for AGNC's liquidity and maybe its trading volume, which could help ACAS either to acquire meaningful positions when AGNC trades below NAV or to liquidate positions when significantly above NAV. Maybe the next time a big buyer appears, ACAS can have AGNC print the shares. On the other hand, if ACAS really needs cash ....

In the meantime, what can ACAS do with the money? ACAS is looking at an upcoming debt retirement, and another $50m won't hurt. ACAS also has distressed opportunities to pursue, and to the extent ACAS has the cash, there's no reason ACAS shouldn't make good deals. Deals entered at current (depressed) multiples will be great to exit down the road when multiples are higher.

The fact that ACAS had a strong reason not to sell AGNC last year doesn't mean that selling to meet a liquidity need -- a debt maturity -- isn't a good idea now. ACAS makes more on dividends from AGNC than it makes on management fees (a reason others should be happy to own it), but the benefit of retiring debt in an economic environment like this -- while ACAS is in default of debt covenants and needs both to fix its debt-to-equity ratio and to eliminate debt overhead.

The AGNC sale is positive in that it demonstrates ACAS has valuable assets, and that there is genuine appetite by real buyers to pay cash for those assets. Because AGNC is an ACAS-managed fund, it is also a vote of confidence in ACAS' forward management. Both things are good to see from a large bank with strong incentives to do due diligence on $50m investments.

Monday, July 13, 2009

On the Google-Microsoft Conflict

A recent New York Times editorial suggests the Google/Microsoft conflict is a sort of farce, with each company really uninterested in destroying the other because it would be bad for their own business. This is hogwash. Take a look at the author's reasoning:
The vast majority of Google searches are, of course, done on PCs running Microsoft Windows and Internet Explorer. It is not in Google’s real interest to displace these products, which have facilitated so much of its success.
Robert X. Cringely, July 13, 2009
This is classic Cringely: the wrong conclusion from wrong facts. Microsoft products haven't facilitated Google's success. Were the Internet a Microsoft product, everyone would be forced to participate in it using current versions of Microsoft servers and Microsoft clients. Instead, the genius of the Internet, and the reason Google thrives on it, derives from the free nature of Berkley-licensed TCP-IP network code, open standards, and the fact that Google can maintain all its internally-developed software and modifications free from snooping competitors -- because it all resides on Google's servers.

Google has noticed that a decent web-enabled handheld can have a much greater density of search use (and therefore exposure to Google's advertisements) than some of the junk that preceded it. Google naturally wants more highly-capable web devices in broad use -- and needs them to be as cheap as possible so as to maximize the user count -- because it is the breadth of the public that can use Google's revenue-generating services that drives Google's money-making. If Microsoft never sold another OS license, it would not be a day too soon for Google, whose business depends in no way on technology or licenses emanating from Redmond. Microsoft browsers -- ignoring standards, pressuring the world to use Microsoft development tools and devlopment APIs and deployment servers -- hold little particular benefit for Google, which would as soon see the world adopt Mozilla -- or Chrome.

Microsoft would like take Google's ad revenues, and has tried to take them by purchasing advertising competitors. The fact that Microsoft has failed isn't for lack of trying, it's just apparently not Microsoft's bag, as it were.

Let's face it: the Google/Microsoft battle isn't being fought with kid gloves as Cringely suggests. It's being fought as seriously as its participants know how, to choke the air out of opponents before they can return a killing blow. So Google works to offer a free OS for the masses, to eviscerate Microsoft. Microsoft, for its own part, keeps trying to build advertising infrastructure, drive the public to its own content, and otherwise deprive Google of any ad revenue Microsoft can glean from the Net. Google, though it has not had great success pushing server-based applications, might yet offer a combined Google Office and OS for a segment of the public uninterested in spending hundreds of dollars on Microsoft licenses and eager to buy low-end hardware to surf the web, write papers for school, and so on.

Whether either company will strike on a scheme to smother the other has yet to be seen. However, it's quite clear to those paying attention that the contest is no game.

Where Cringely misses the mark most, though, is in misunderstanding Google's core competency. Cringely believes Google is about searches and per-click revenue from advertisements. Searches and per-click revenue from advertisements Google places on various web pages around the world are both evidence of Google's real mission: to organize data for useful access. Have a look at Google's mission statement. Think about what Google offers. Maps? Directions? Links to phone numbers directly from mobile search pages so you can reach restaurants you hunt for? Google wants to be your interface for all the data you need in your life. Web search is just a facet of this in motion. Web browsers are just an interface feature of Google's information access service. Free operating systems and document creation tools will be more of the same, whether they supplant Microsoft in large market segments or only in tiny niches.

Understanding Google's mission helps one to understand its battle in a different light. Did you ever send someone a document made with a Microsoft product, only to find it couldn't be opened because someone had the wrong product version, or a Microsoft-unsupported operating system? Ever try to get onto a network to get information, only to be stymied by some tech flunkie explaining a Microsoft-only network policy?

Now ask yourself: what purpose has Microsoft got in this world other than to act as a toll collecter standing between you and the data you want to handle and transmit? If the answer is for you as I see it for others, Google can't help but to thwart Microsoft at every turn, even if by accident. (Microsoft's answer to music was DRM requiring fees to be paid to Microsoft regardless who made or sold or played the music; Microsoft's answer to servers was to create development platforms that required Microsoft-licensed development tools to make work; Microsoft's answer to document creation was an undocumented file format that hardly anything can read properly except an expensive Microsoft product; Microsoft's answer to legally mandating that government offices publish materials in a well-documented license-free file format to ensure permanent free access to government publications was to lobby for a patent-encumbered file format Microsoft can tax while working against free standards. Think of a time Microsoft helped anyone access their data.)

The battle is well joined. To the victor will, presumably, go the spoils.

Saturday, July 11, 2009

Schmidt: No Good for Apple?

In an article arguing Schmidt should be removed from Apple's board due to ongoing, increasing direct competition with Apple (e.g., in browsers and mobile operating systems, and soon also desktop operating systems):
"Google is a company that does software, but it's not defined by it. So why does Google seem to be aping Apple's every move?"

I think this guy is smoking crack. Not defined by software? Since Google doesn't sell any hardware, the only things customers see from Google -- and have EVER seen from Google -- have been interfaces to Google software. Apple may be a company whose chief distinguishing characteristics involve software differentiation, but Google is a company that does nothing but offer software.

Incidentally, offering Chrome (the Google browser) as evidence of competition with Apple is disingenuous. Chrome's rendering engine is WebKit, which Apple deliberately open-sourced (if Apple wanted a closed-source alternative, it could have done one). There is a very strong reason Apple benefits from others using the WebKit rendering engine: the more people use it and other genuinely standards-compliant rendering engines, the more incentive web developers have to adhere to standards instead of coding to meet the expectations of nonstandard, closed-source, oddball renderers (like MSFT's) that tend to prevent free access to all comers on the web. Google's launch of a browser with both new innovations (separate processes for each tab for memory recapture and application stability) and battle-tested tech like WebKit help dislodge bad nonstandard competition as a plausible de facto standard. Apple benefits from Chrome.

To the extent Android poisons the well for MSFT in the mobile space, Apple also wins from Android. After all, Apple will not license MacOS to third party handset developers, so this battle for non-Apple handsets must be left to someone else. There will be non-Apple handsets, and Apple benefits if MSFT doesn't control them; MSFT control of an ecosystem has been proven to work against the entire free world, and is the enemy of profit outside MSFT. Apple benefits from Android.

Whether Schmidt should go depends what Apple intends to get from Schmidt's involvement with Apple. If Schmidt is (as the article indicates) recusing himself from discussions that involve conflicts, then Schmidt may still offer very valuable communication and insight (and cooperation). (There is an antitrust doctrine that a company cannot conspire with itself, and hearing from its Board cannot therefore be an antitrust violation by a company. However, interlocking Board membership can lead to antitrust concerns involving the two different companies. Some kinds of aid and information from an outsider might be considered evidence of a conspiracy to restrain trade, that is, a scheme to prevent MSFT from competing with Google and Apple, companies on whose Boards Eric Schmidt and Arthur Levinson both sit.)

Whether Schmidt's usefulness to Apple has come to a close is a strategic question that depends on the strategic purpose of his involvement on the Board, and not on whether both companies offer standards-compliant browsers, desktop APIs that don't involve Win32, or a mobile operating system that doesn't involve licensing fees to MSFT.

Friday, July 10, 2009

Bad Apps: Newsworthy?

Maybe ... if they are iPhone apps. Some are really dumb. Still ... for Apple to get press over stuff like this suggests that Apple has obtained a level of interest that most manufacurers with worthless potential add-ons just don't get.

Snow Leopard Casualties

In the move toward releasing a leaner cat, Apple has apparently cut ZFS and WebObjects from Snow Leopard.

Both likely require quite a bit of work to keep in proper, reliable, working order as other parts of the MacOS X code base changes. WO in particular would need updating as the Cocoa frameworks are tweaked in the new operating system. As the underlying layers of the system moved, Apple may have decided these technologies weren't worth the cost to move them to keep up.

Personally, I thought ZFS was a cool technology that would solve some common real-world problems facing users: redundancy, security, backup, reliability of data ... I'm interested to know whether Apple is throwing in the towel, or taking another approach. Given the extraordinary work done to make ZFS a quality product, it'd be hard to imagine Apple outdoing it with a home-grown solution -- but crazier things have been attempted ....

On The Supposed Doom of ChromeOS

Google announced it will enter the general-purpose desktop operating system market with the launch of an operating system it will call Chrome, and already it is being declared that "The Google OS Is Doomed".

A few comments on the points raised by the article:

"Linux is hard to love."
Let's face it, Unix is no picnic either, but look at MacOS X. Any argument that can be claimed in connection with barriers to Linux adoption were an order of magnitude worse a decade ago when Apple announced its next operating system was Unix it bought from NeXT. Apple doesn't even hide that its operating system is Unix: it's a selling point.

If Google's OS offers access to Linux and its common shells as readily as MacOS X offers access to BSD and its shells, Google will have both Linux converts and people who like having a huge existing application base of non-Google software that runs as-is. Like, say, OpenOffice. However, the genius of Chrome will not be that it is Linux any more than the genius of MacOS X was that it was Unix. The improvements of both operating systems will be enabling developers and users to do things easily and without the trouble often encuontered with some competing systems.

"We aren't ready to run everything on the Web."
And we're not expecting to with ChromeOS.

The existing Chrome browser allows offline work with intermittent updating. Having an OS that talks easily with Google's cloud but isn't dependent on it for its essential function will enable development of applications that satisfy users' need for stability and predictability while making things like backup and synchronization a snap. All you'll need, in all likelihood, is your GMail account. You can get your data anyplace you can reach Google, and in all likelihood your desktop and your applications as well. Turning any notebook you hold into an access point to all your data, rather than relying on one single notebook that can fail and create a choke point, might be valuable indeed.

Never experience lock-in again? Hallelujah!

"Microsoft is a formidable opponent."
Indeed. You can see how formidable Microsoft is in this space by noticing how swiftly (hee hee) the company can turn out improved new versions of its flagship operating system products and productivity suites, and noticing how Apple's share has eroded before Microsoft's unassailable monopoly, and how Microsoft has come to dominate music (heh) and has had such consistently profitable gaming business (snicker) that competitors have been frozen out of launching meaningful competitors, much less making any profit.

Let's face it, this argument was plausible a decade and a half ago, but the emperor's nakedness is at this late date not just yesterday's news, it's old news. Everybody knows Microsoft is a chump now, milking an installed base and the inertia of applications dependent on Microsoft's APIs. Microsoft will dutifully prolong its advantageous relationship with OEMs (who suffer serflike dependence, down to changing the back-ends of their web sites to mollify Redmond) and thereby prevent users from enjoying any choice in operating systems, which thereby draws ongoing third-party developer support. Microsoft will continue milking the cash cow for years. Microsoft isn't going to die, it's just going to stagnate, and it hasn't shown the kind of aptitude for success in new ventures that would make me think it poses a risk to a competitor whose air it cannot choke off at will.

"Google fails often."
This one is actually interesting. Google does have lots of projects that didn't really seem to change the world. (Microsoft Bob, anyone? MSN Music?) Google does have some projects that have changed the world, and unlike some companies I might mention, changed it for the better. Where is AltaVista, once the best and fastest search tool anyplace, and my first stop on the web? And think about Google Maps -- and the API that allows people to plot worldwide wherever underwater hockey is known (click for the map view if your connection speed causes the server to give you the text by default). Think about AdSense, and how a whole range of content vendors are now potentially free from ever having to market to advertisers ever again.

There's always the possibility that Google could release the equivalent of a Zune -- a niche product that functions, but doesn't really engage anyone in numbers meaningful to anyone's bottom line -- but the possibility also exists that Google will release something that is useful and attains by legitimate competition a market segment that will add value to Google's existing assets.

I'll not predict wild success off the bat -- the OS will first have to prove itself functional, for example, then gain acceptance in various market segments, each of which will require different strengths -- but to conclude Google's entry is doomed on the basis of the argument presented is the kind of trite dismissal that was once accepted any time someone confronted Microsoft in any market, but has become dated.

Microsoft can be defeated. Apple demonstrated this, entirely by accident I believe, when it launched its purchase-supporting version of iTunes. Remember when everybody knew that all music in the future was going to be released as WMA files and that Microsoft was going to collect a licensing fee for every track, and maybe even for play count? And yet, long after Microsoft had lined up supporting vendors and content providers, it was crushed by a Johnny-come-lately whom everybody knew didn't have a prayer entering an already-filled market. People are buying DRM-free again, and before that they were buying it with someone else's DRM (Apple's world's largest music store sold only Apple's DRM until the iTunes store went mostly DRM-free, and its top-selling music players -- over 70% of the market -- didn't do WMA at all). Let's face it: Microsoft has lost what it takes. The desktop APIs are less important than they were a decade ago, non-Win32 developers are much more plentiful (and credible as a business proposition) than they were then, Google Gears has been tested in practice for years for offline application support, and the OS market is open to whomever can build an adequately attractive mouse trap.

Long live the competition.

Wednesday, July 8, 2009

ACAS Makes Another Cash Sale

IAC/Interactive's Match.com has agreed to buy ACAS portfolio company People Media in an $80 million all-cash deal. According to ACAS' May-filed 10-Q, its interests in People Media had a FAS-157-compliant "fair value" of $51.5 million, and ACAS' holdings in People Media had a cost basis of $42.1 million. Unfortunately, we can't simply subtract to find an overnight increase in ACAS' value by $28.5m, a profit of about $37.9m, or a liquidity improvement of $80m. This is because (a) ACAS' interest in People Media took the form of senior debt, subordinated debt, and convertible preferred shares, (b) this interest didn't include any of People Media's common stock, and therefore (c) the purchase of People Media for $80m probably included payments to equity holders (that don't include ACAS), and the share of the $80m that ACAS received may be limited to the funds needed to eliminate ACAS' preferred shares convertible to common. Assuming that ACAS' convertible preferred represent an opportunity to become a controlling shareholder in the event of default, ACAS' payment under the buyout may have been substantial.

UPDATE: ACAS received $57 million of the $80m purchase price, for total realized gains of $26 million including $15 million this quarter; the ACAS' sale this quarter represents an 11% premium ($6 million) to the prior-quarter "fair value" of the holdings.

This isn't the first recent sale at above the "fair value" ACAS must report to the SEC under FAS 157. ACAS' sale of Piper Aircraft was 33% above its supposed "fair value". How "fair" is "fair value" if it doesn't give notice of likely realization upon sale? Valuation difficulties facing ACAS investors may be skewed in favor of longs.

American Capital's bottom line may also get a boost from the recent registrations of American Capital Agency to issue shares -- which at current market prices would be above AGNC's NAV, and which would increase the size of the funds managed by ACAS and therefore ACAS' monthly cash receipt of its management fee.

Google to Make General-Purpose OS

After introducing the Chrome browser and the Android mobile phone operating system, Google has announced it is next offering an operating system for general-purpose computing. Known as Chrome, the OS presumably leverages the APIs developed for browsers to run applications that leave users unconcerned what processing is done locally and what processing is done in the cloud.

My take: Google, by offering a whole productivity suite out of the box, can take share from the budget computer market as soon as it shows the thing works. The part of the computer shopping spectrum that includes Linux pre-installation will likely be a starting point for ChromeOS, but if the thing is reviewed as effective for general-purpose use by non-Unix geeks, the probability is that Google's cost-free OS will become a widely-available pre-install (for the benefit of commodity box makers' margins). This doesn't mean Google will steal MSFT's OS cash cow -- far from it. Google is as unlikely to sell OS licenses as it is unlikely to sell browser licenses.

Rather, it means that MSFT's cash cow stands in the crosshairs of a fee-for-service company that hasn't needed to sell a line of compiled code in its history -- and that's interesting in its own right.

UPDATE: CNN offers a look at the issue, and seems to agree the cloud and Google's general-purpose OS are an entry into Microsoft's turf, and not just a gimmick for folks who tinkered with desktop Linux.

Monday, July 6, 2009

GM is Dead; Long Live GM

You read it predicted here when GM's officers denied it. General Motors, whose entry into bankruptcy became too hard even for spokespeople to deny, now has a plan to exit bankruptcy.

Over the objections of some creditors, General Motors -- now renamed Motors Liquidation Co. -- will sell all its assets to an entity called "General Motors Co." This new General Motors Co. will be controlled by the U.S. government, which hopes to have an IPO in 2010.

I ask you: who in their right mind will buy shares of a U.S.-based automotive company whose predecessor hasn't made money in years and which is largely owned by the same union whose personnel practices prevented it from adopting quality control systems that long ago made its overseas competitors more capable and more efficient?

The fact that the U.S.-controlled buyer is doubtless capitalized with taxpayer money makes me wonder why we didn't do the bankruptcy last year, before "loaning" GM all those billions it promptly burned. The U.S. could have created a buyer and just not bothered to invite other owners, leaving creditors to fight over sales proceeds. At least the taxpayers could have gotten a fair price for their new muddy pig.

In its new incarnation, GM might be fairly light on debt, but unless it fundamentally changes the way it accomplishes objectives to bring it in line with post-Second-World-War management theory, there's little reason to believe GM will perform any better than it has in recent years.

GM is dead. Long live GM! (So long as our politicians can keep writing checks off our account.)