Thursday, April 30, 2009

Chrysler's Secured Creditors Want -- Wait For It -- Secured Creditor Status!

The Obama administration gave Chrysler a deadline for getting all its creditors on board with a restructuring plan before getting more federal hand-outs, but some of the creditors aren't buying it. It seems that certain small secured creditors don't want to take less than they're owed or give up the security for which they negotiated when they became Chrysler creditors.

President Obama had a curious take on this, apparently hoping to shame creditors into volunteering to suffer avoidable economic loss, with no apparent objective other than to help ensure lower-priority claimants against Chrysler's assets could get paid from the funds taken from the priority claimants. Claimants who are not priority claimants -- like union health care funds and employees hoping to be paid future (rather than already-earned) wages -- have made deals to accept less attractive terms than agreed, in order to stave off annhililation of their agreements. President Obama rhetorically asked attendees at a Missouri town-hoall-style meeting whether Chrysler's "bondholders -- the lenders, the money people -- [were] willing to make sacrifices as well[.]"

This Jaded Consumer question may seem simplistic or harsh, but let's face it: why on Earth should people who were promised security and accepted a lower return on their investment as a result of the security be expected to roll over and take a hit in the back pocket simply so that strangers who did not negotiate such terms, or whose contractual demands helped create the existing emergency in the first place, could be paid? One fiduciary described the thinking that led to purchase of Chrysler debt last year, and the expectations that went with the purchase: "We did not contemplate having our first liens invalidated by a sitting president."

Accepting a pay cut in the hope of keeping a job is certainly the kind of sacrifice a person can understand. Accepting $0.33 instead of $1.00 so strangers who didn't prevent the existing mess can profit in the future is just not sensible any way you cut it. Maybe a publicly-traded corporation that plays with strangers' money can agree to a stunt like this in order to maintain good relations with federal lender/regulators, but small creditors who are not insulated from the consequences of their actions simply can't take obviously crummy deals.

The deadline being blown, Chrysler is headed (according to an Obama administration official, a curious source for information on impending corporate bankruptcy filings) into a Chapter 11 bankruptcy filing.

The Jaded Consumer's next question is what the UAW's recently-negotiated majority stake in Chrysler will be worth following a Chapter 11 proceeding in which creditors enjoy priority. Or will government regulators try to erase existing priority rules, too?

ACAS Looking To Sell ECAS

Now that the excitement has left Pontiac, it seems to have found American Capital -- whose shares have topped $3 for the first time in months on news that the asset manager hopes to raise "up to $2 Billion" by selling its newly-wholly-owned ECAS subsidiary.

If Redstone is right, this might be a good time to liquidate EU assets to gain cash for US-based investments. On the other hand, if US policy in responding to the economic crisis is as inflationary as some expect, non-dollar holdings and earnings would escalate in value should the dollar collapse. In either case, significant cash would enable ACAS to avoid its current situation with its creditors.

ACAS isn't the only company looking to sell an asset manager just now. AIG hopes to sell an asset manager and an aircraft lessor for over $5B, and will liquidate other subsidiaries in public offerings in 2010.

I gather there is significant money on the sidelines at present. Assuming some buyers are interested in non-dollar-denominated assets (whether out of a philosophical inclination toward diversity or out of a specific interest not to hold dollars while the printing presses are pumping dollars into the world economy at the highest rate recently seen), the ECAS purchase would allow immediate diversification into a portfolio of middle-market companies with a track record of producing steady dividends, a group of management teams already in place willing to continue operating businesses they know and understand, and the right to collect debt repayments and interest and dividends from controlled companies in British pounds and in Euros at a time the dollar is already collapsing. Whether the buyer wants to buy the expertise of the managers, or just the assets, will surely depend on the buyer. However, I suspect that the ECAS offer reflects ACAS' willingness to consider all kinds of possibilities in connection with its post-credit-crunch turnaround.

The fact the dollar has fallen lately against the pound (as I learned last week while wiring money to the UK for a client) suggests that the value of ECAS may be climbing even before considering the appreciation that its portfolio companies would enjoy as the world gets back on its feet.

Monday, April 27, 2009

Pontiac Not Building Excitement, or Cars

GM, which Jaded Consumer has viewed as circling the drain, has identified a whole division to shutter by the end of next year. Unclear is whether the Pontiac division -- which uses the slogan "We Build Excitement!" -- will try to go out with a last-ever model bang or will simply sink.

Hummer, Saturn, and Saab are not identified as brands GM is dedicated to keeping, and presumably will be offered for sale -- all have substantial brand value even if their current operations aren't in the black. Mothballing the brands makes no sense. GM plans focusing on its GMC, Cadillac, Buick, and Chevrolet divisions.

We'll see ....

iPhone Claims 1.5% of Global Cell Phone Market

After achieving its seemingly modest goal of achieving 1% of the global cell phone market -- a market that includes numerous inexpensive only-a-phone models in use worldwide -- Apple's iPhone approaches the home stretch toward its 's second birthday with 1.5% of the global market share for all cell phones. This is supported in part by the fact that smartphones are increasing their share of the global device market, and Apple's share of the smartphone market has been strong from the outset and remains in the double-digits. The possibility that Apple will achieve significant share in major markets in which it lacks significant presence creates a certain optimism that Apple is on a path with a significant future growth.

The fact that Apple also profits from all the applications sold on this increasingly relevant mobile platform means that Apple's future revenues from the devices may -- down the road, when embedded computational power and energy consumption and parts costs have changed significantly -- ultimately reflect characteristics presently difficult to imagine or model. Instead of simply selling OS upgrades and original OS licenses with new devices, and making a few bucks on applications Apple may be able to persuade users to buy from Apple -- the model that worked so well for Microsoft for so long -- Apple is also able to make money every time anyone makes money selling software to iPhone users. The value of the iPhone as a platform may be significantly greater to Apple than anyone else's platform is to its vendor. (Compare XBox, which has spent most of its life as a loss-leader, and first appeared profitable only because its vendor accelerated into a prior quarter the warranty expenses that plagued the devices. Or compare Android, which presumably yields no revenue beyond what Google might obtain as users access Google's online content.)

Apple's increasing cash and its advantageous competitive position suggest that Apple remains attractive to accumulate. Indeed, I've already begun writing naked puts again -- to collect the premiums, or to collect shares below current prices.

UPDATE: With increasing unit sales, the economics on vertical integration of key components improves. Apple's movement toward in-house iPhone CPU/GPU design advanced another step with the hiring of an ATi designer from AMD, whose personal history includes work with Pixar.

Tuesday, April 21, 2009

Bad Apple

Some new Macs have hard lockup problems independent of which operating system is running. That is, Microsoft's operating system and Apple's both exhibit the symptom.

The possibility of low-level incompatibilities between firmware of different components might explain how the problem is OS-independent. I once had a problem with an Advanced Logic Research (ALR was later bought by Compaq) machine whose multiprocessor Phoenix BIOS and the firmware of an Adaptec Ultra-SCSI card were both trying to use some of the same memory segments. Boom. The killer? Everybody involved in building the machine blamed someone else. ALR blamed IBM, IBM blamed Adaptec, Adaptec blamed Microsoft -- and the machine was running OS/2! It took months to track down. Agonizing. Eventually an Adaptec firmware update was created to solve the misuse of a memory segment used by the multiprocessor version of the ALR's Phoenix BIOS, but it sure wasted a lot of time.

This kind of Charlie Foxtrot is exactly what Apple sells buyers as not a problem with Macs because Apple is the last vertically-integrated computer manufacturer and builds the whole widget itself. Because Apple delivers products already baked to perfection, runs the argument, there's less worry some other cook will be in a position to ruin your dessert. Buy Dell, and worry about Microsoft or third-party vendors and the integration of hardware with software; but buy Apple, and It Just Works™. The current lock-up runs counter to the thesis Apple advances, and should be taken seriously.

Incidentally, because it's OS-independent, the problem probably can't be troubleshot with the new-in-Leopard debugging tools. The troubleshooting is likely to require careful observation of what the hardware components' firmware attempts to do, some of which may not involve the kernel at all.

People unhappy with the high-end video cards on these freezing Macs might be interested in this behemoth, due in May.

Monday, April 20, 2009

Fiction Review: Turn Coat

If you like detective stories, or you like supernatural thrillers, you should check out The Dresden Files. Jim Butcher's character Harry Dresden has been sitting in my "favorite characters" sidebar for a while now, and for reason. From Storm Front on, the series has been carefully crafted not only to expose an interesting fictional universe but also to show the development of characters (and their problems, and their relationships, and their problematic relationships). When you saw a sword on a mantel, you knew you were being set up for some future impact of the sword being on the mantle.

So when you find Dresden dreaming about conversations with his "dark side" you are put on notice that other characters may later have conversations with Dresden's dark side. When you learn that certain arcane artifacts can be destroyed with certain kinds of potentially accidental misuse, you are put on notice that people knowledgeable of those artifacts can be manipulated by opportunities to see the artifacts destroyed in that kind of accident. These setups cross the spans of multiple books; they show planning, and indicate an author paying close attention to his details.






This care in details will be taken up later in this review, when comparing Jim Butcher's work to some that's been assembled with less diligence.

=== THE REVIEW ===

I've moved the discussion of Turn Coat back up toward the top where people would expect to find it in an article with a name like this.

Butcher made it clear that his new character ideas are engineered to complicate Dresden's life. Confessing which characters in Turn Coat turn out to best illustrate this, of course, threatens unnecessarily unveiling traitors and other fun surprises. But let's have a look at a parallel issue.  From the first chapter of Storm Front, we've seen Dresden depending on others for everything ranging from steady work (to pay his rent) to backup in lethal confrontations.  Turn Coat's environment of universal suspicion strips Dresden of potential allies. This advances a long-recurring theme of loss in the books, while ratcheting up the alone-ness and danger to Harry Dresden in Turn Coat. 

So, some background. Harry's girlfriend is driven (in Grave Peril) to another continent by an incomplete conversion to vampirism. (She returned briefly in Death Masks, and we're sure to see her again.) His police ally is demoted in Proven Guilty and stripped of her authority in the department for a temporary absence caused by aiding Dresden. Dresden's stalwart ally and holy warrior Michael Carpenter is permanently crippled in Small Favor, and gives up wielding the holy sword that has protected Dresden's back since Grave Peril. Even his evil fairy godmother, who was at least as often a threat as an asset, has been imprisoned by the Winter Queen at the heart of her fortress in the land of faerie. Dresden is getting lonelier and lonelier. Granted, Dresden's own powers improve – as does his collection of magical gadgets – but his opponents continue to outclass him, outnumber him, and have better information about the problems at hand.

Turn Coat provides more of the same. Over the period of the last ten books, Dresden has been accepted as not-evil by the White Council's Warden and executioner Morgan, and given the cloak of a Warden to indicate his full (?) acceptance by the once-skeptical (and likely still not entirely convinced) Council. Harry Dresden is going legit, right? He's going to have backup, right?

Ha!  Not so fast.  On Page One of Turn Coat, Butcher drags Dresden back into direct conflict with the Council. In the first chapter of Turn Coat, the White Council's arguably most powerful Warden, Morgan, appears on Dresden's doorstep seeking sanctuary from the Council and the Wardens who hunt him on its behalf. We soon learn that Morgan stands accused of the murder of a senior Council member; helping Morgan to clear his name places Dresden once more at risk of execution by the Council, and Morgan's jeopardy costs both Dresden and the Council a powerful ally. New evils are introduced, and the slowly-gathering forces Dresden has been perceiving behind the crises depicted in each of the books make more solid their hold on the Council's leadership.

Turn Coat is dark. Dresden's powers are advanced, but he gains new enemies, and learns more reason to fear the distant and dark powers that have been advancing the cause of chaos and mayhem since Storm Front. Dresden wades into the battle against them up to his neck, and it's clear the risk to Dresden and his (remaining) allies is becoming increasingly significant.

It also shows us that Dresden is much more strongly motivated by his personal feelings against injustice than he is motivated toward seeing any particular numbskull get his comeuppance.  This early choice to do the right thing has echoes of his own (premature) epitaph, carved on the headstone gifted to him by Bianca so many books ago: he died doing the right thing.  In Turn Coat, Dresden gets himself on the wrong side of some of some longstanding bad guys.  And meets some of their bad-guy buddies.  In a bad way.

It's full of the things we love in The Dresden Files: worsening options, worsening choices, and a big smackdown that thwarts evil for a day, but leaves awful things looming for the next volume.  And not in a bad way: every Dresden Files book offers a real, full book – no half-told stories that make you grind your teeth in anger you began to care about the plot problem here. Always a closed story arc.

But that doesn't mean there aren't more opened on the way.

=== SPOILER WARNING ===
Dresden's lack of family in the first book -- his faerie godmother hardly counts, as she's as often seeking his enslavement as she is offering aid – rears its head again. In Turn Coat, Dresden makes it clear that his brother – a longtime ally and reliable "nice" vampire – is extremely important to him, and that he is willing to do anything to protect him. There is good reason for this: in White Night, for example, Thomas the sex-vampire actually protects low-power witches from the hunt of other vampires involved in a coup to control the vampires' White Court. Thomas opens a beauty salon where he can taste but not injure humans on which he must feed to survive, and carries on as a homosexual French hairdresser in order to avoid risking inflicting the more serious feeding injuries commonly caused by his family. Thomas is a committed good guy when the curtain opens on Turn Coat. Captured during a chaotic manhunt and tortured to the point he cracks beneath the weight of his hunger, Thomas is revealed as potentially out of control, having discarded his commitment to be a "good" guy in favor of a more traditionally White Court position, valuing effective herd management over human rights. Harry is thus rendered unable to trust an ally, and as easily rendered subject to manipulation by those who would threaten or expose Thomas.

With the loss of his new girlfriend -- whose interest in him is revealed as an effect of hostile mental manipulation -- Dresden is left alone again. What's more, the White Court has learned that he is no longer protected from their predation. The character with whom Dresden appears most likely to find true love -- his cop lady-friend -- has issues with commitment, and is as un-eager as Dresden to discuss feelings. True love being protection against predation by the White Court, and the White Court being a repeat player in the Dresden Files, this quandary is sure to become significant in future volumes. Of course, we'll hear more about Dresden's lover Susan next year. And there is always the possibility Elaine might become a more significant character.

Dresden's apparent alone-ness, interestingly, is amplified by his relationships. He is part of the White Council, but suspects its leadership and is in turn suspected by many of its membership. His relationship with his one-time mentor and current member of the senior Council, having been complicated by the realization his mentor has been violating the Laws of Magic at will with the consent of the Council, has warmed ... but one wonders as the two conspire to do good despite the activity of the Council whether Dresden will simply be pulled into some scheme that advances an opponent's schemes. Whom Dresden can trust has become terribly complicated: he loves his brother, but he's a mind-bending murderer; he respects his mentor, but he knows there are high-level traitors in his mentor's organization; he can't trust the faerie queens to look after his interests and he dare not ask them for favors, despite that he is beholden to the Queen of Winter and bound to do her further service. (Dresden's faerie godmother, interestingly, has been stripped as a potential ally by her confinement by Mab in the well of Winter at the top of her fortress. She seems to be fighting mental compulsions to manipulate Dresden rather than advance some purpose possibly in line with his own interests, leaving one to wonder how Dresden will tell whether he can trust her or will fear her as an enemy when he sees her again. Her defeat left his debt to his godmother to be collected by her liege -- Mab, Winter Queen of Faerie, an apparently much more dangerous customer and frightening adversary.)

Dresden's only apparently unimpeachable and uncomplicated allies seem to be a faerie he calls Toot, and whom he's granted a pompous title as leader of Dresden's personal guard. Toot is becoming more powerful, too: he is larger, has followers of his own, and has improved his equipment. Other allies seem worth mentioning: his first love, Elaine, who has been hiding out in California and staying under the radar of the White Council, thereby courting summary execution as a warlock; the warden Ramirez, in whose territory Elaine lives; and Dresden's apprentice Molly, a convicted warlock living under a suspended death sentence. All these last allies have some weaknesses: Ramirez is sometimes unavailable for whole books, and is possibly mentally impaired as a result of mind-magic exposed in Turn Coat; Elaine refuses to be drawn into the big conflicts erupting between the major forces at work trying to take over the world; and Molly is partially untrained, bad at combat magic, living under a death sentence, and has slipped while on parole by trying to probe others' minds and otherwise jeopardizing her life and Dresden's. Interestingly, Toot seems to be shaping up as a major player for future books.

Interesting stuff for the future. Since Butcher actually knows where he's going, it's a future worth waiting to hear about.
Hamilton as Counter-Example
To illustrate how extraordinary Butcher's carefully-crafted Dresden Files works are as a body, I offer a counter-example: Hamilton's series about the Missouri-state-licensed vampire executioner Anita Blake. That series is rife with unhappy errors, ranging from obvious typos no editor bothered to fix, to the author's unbelievable but apparent amnesia about major characters' life-changing interpersonal interactions.

First, the trivia: a youth's parents introduce him to Blake with the expectation she use supernatural vampire sex powers on him in the hope of maturing the boy's inherited but latent supernatural talent (as a male siren). When Blake appears taken aback boy the boy's age, his mother points out that the family has done some research in advance, and discovered that the legal age of consent in Mississippi is low enough that sex with the boy is not a felony. Like most of the activity in the series, this transaction occurs where Blake has lived the entire series, at her home in St. Louis, Missouri. Why should we (or Blake, or the boy's family) care about the age of consent in Mississippi?

Had Blake's manuscripts been edited by a human instead of an electronic grammar-checker, this stuff wouldn't persist. A couple books into the series, I started seeing its/it's, there/their, and other machine-ignored errors any human educated in English should have caught. The apparent conclusion is that once the books were known to sellers because of the prior sales of the author, live editors simply became an unnecessary production expense. This is irritating, because each such gaffe has me looking at the sentence again, wondering if the problem is the sentence, or my missing something in the sentence's structure – was there a play on words, a joke, a different intended meaning, something I missed? This stuff gets between the reader and the book and reduces the quality of the read.

Hamilton makes some more serious gaffes, too. Many books into the bestselling series, Blake's principal vampire lover whines that she's never ever let him drink blood from her. This travesty is supposedly amplified by the fact she's allowed the vampire's old lover to feed from her one night when her mind was addled by supernatural vampire powers. Blake's main vampire apparently is supposed to be "justified" in whining to her about her failure to behave as a drinking fountain, or her willingness to allow another but not him to drink from her (yes, this is really the personal conflict Hamilton eventually descends to offering her readers). Hamilton's protagonist Blake makes no effort to correct the whining vampire Jean-Claude, despite being firmly established both as an independent, liberated woman and as a very mouthy sass -- apparently a common trait in supernatural thrillers' protagonists. Because Blake would clearly berate him if he accused her falsely (being proud and mouthy sass, completely unafraid of Jean-Claude, and attracted to conflict like iron filings to a magnet), the obvious implication is that Hamilton intended to show that Blake recognized the accusation was true.

Utterly ignored by all the characters – and presumably, in truth, by the author – is the fact Blake intentionally allowed this exact same vampire to feed from her until unconscious, near death, and requiring hospitalization. The fact this was overlooked by Hamilton is particularly concerning because it is the crucial "hard choice" for Blake and drive Hamilton's solution to the major crisis in her sixth book. The vampire and Blake's werewolf boyfriend came under attack by villains (an out-of-town sorcerer/werewolf/vampire trio) who sought to use arcane powers (and their own mystical interpersonal link) to sacrifice Blake's vampire and her werewolf boyfriend to attempt to cure the interloper vampire's dread liquifying disease. Blake saved both the vampire and the werewolf by letting the vampire drink his fill – not by the sip, but the gulp. Blake wakes at the end of the sixth book in a hospital attended by her non-magical ally Edward, who is thoroughly disgusted with her decision to let a vampire suck her blood, and uncomprehending of her instruction at the height of the book's crisis to allow the vampire's feeding to go on, even as she lost consciousness. The episode permanently changed the Blake-verse paranormal relationship relationship between the major characters – solidifying the Blake/Jean-Claude/Richard triangle for future conflict, and turbocharging their supernatural powers for the next book. This incident could not plausibly be overlooked by the
characters because it was part of a major supernatural event, it changed the relationships between the characters, and it was crucial to saving everyone's lives. However, it was plainly beneath Hamilton to keep up with her characters' personal lives or the mechanisms by which she actually advances the plot, and radically reprograms the characters' supernatural powers. Sigh.

In earlier volumes, one used to see useful inter-volume foreshadowing when Hamilton still cared about her work product (she shows Hamilton drive a vampire from its daytime rest, setting up her later demonstration of unexpected supernatural power over the unconscious undead), but that ship has sailed. Given the inability of the last several books in the series to lay out and solve a plot problem, it looks like the series may have left its navigational charts in port when it last set sail.

Tools that Hamilton once used to paint a plausible background for the story – like the Supreme Court case entertainingly establishing vampire rights by surprise in a property case, opening the floodgates on all manner of potential vampire rights and bringing the undead out into the daylight, as it were – eventually ended up being wielded with crude implausibility. For example, Hamilton has the Supreme Court passing an "Act" impacting the authority of law enforcement officers in connection with supernatural beings. Since when can the Supreme Court "pass" an "Act"? ( The Supreme Court decides cases, and has no power to enact legislation.) Absolutely ridiculous. You have to read it several times to make sure you saw the words right. It definitely forces your head out of the story to read stuff this inconsistent. Similarly, she announces in passing in one book that locally-licensed state-level non-law-enforcement officials charged with carrying out execution warrants were "grandfathered" into status as federal marshals. This makes no sense. Hamilton went far out of her way in early books to establish that Blake was not part of any law enforcement organization, had no law enforcement authority, and had no expectation law enforcement would take her side in conflicts (much less count her among their own), and so forth. The sudden appearance of federal police powers and the authority to seize cases from local officials comes as a deus ex machina, with no explanation at all. Hamilton just wanted to give Blake a more powerful office without taking the trouble to explain plausibly how that might happen. (Well, plausibly for a vampire book). It's vile to see this kind of laziness in a series in which one is suckered into investing time.

[UPDATE: I noticed that Jim Butcher cites Hamilton – obviously, in her earlier work when she still cared to make a quality product – as an inspiration. He also lists Laura Hamilton's first Anita Blake novel, Guilty Pleasures, among his very favorite books. My own love for urban fantasy began with Emma Bull's debut novel, War for the Oaks, of which both Hamilton and Butcher remind me. I wished for years Bull would write more along the lines of War for the Oaks. She is a principal of the group doing Shadow Unit, which is urban fantasy, and I gather that Emma Bull may be teaming up with Steven Brust to write a fantasy, so things are looking up. The best thing about Hamilton is surely having inspired Butcher, though the first several Anita Blake books are a damn good read ... I just so loathed the betrayal I felt when she stopped caring about her craft that it hurts to think about becoming interested in the character or her series, so I can't recommend it now that I know the series heads straight into the toilet after book 8 or so.]

Butcher Quality
But Butcher ... ahh. There's a piece of work. It's not hard to tell why his work avoids directionlessness: he has a plan. Contrast this with Hamilton's frank admission she has no idea where the Blake series is going:
All About Romance: Do you already have an end in mind for either or both series or do you think they can continue indefinitely? Can you envision the killing off a very major character in the future, and if so, how do you do this without upsetting your readership?
Hamilton: Anita is an open ended series. There is no ending, just like most mystery series. Merry on the other hand is planned with an end in sight. My original plan for Merry was eight books. It may go longer. But I definitely want her to have a happy ending. Once you have a happy ending that's it, everyone goes home. There is nothing else of interest going on.
from All About Romance

So, where is Butcher going? A tall blonde chick appears as a "security consultant" for Chicago's principal crime boss, and turns out to have a knack for telling who is about to die. Can you say valkyrie? After a few books, Butcher allows the reader to confirm that "Ms. Gard" does have a connection to Asgard. Her employer's name – when Dresden asks her about working for gangsters and she repeatedly points out she works not for the gangster client but for Monoc Securities [this is also weird: securities are financial instruments, whereas the firm seems to be offering security services; but more on Butcher's occasionally careless vocabulary later] – suggests she's working for the one-eyed ("Monoc") Norse god Odin, a fact she seems to confirm in Butcher's short story Herot (found in the My Big Fat Supernatural Honeymoon collection), when she tells Dresden the virgin-daughters-of-Odin thing isn't to be believed. ("Though, to be honest: sometimes he does like us to call him Daddy." Great stuff!) Butcher has explained that the series is to be capped by a final apocalyptic trilogy (can you say regnorak?), which gives us an interesting view where we could be going in the series. The Norse gods may want to save the world from the Outsiders, they may want to reclaim it from whomever ousted the Norse gods in the first place ... it could be a lot of fun figuring out even who the good guys are supposed to be.

Oh, and the valkyrie apparently absconded with an evil artifact housing a powerful supernatural intelligence capable of making its bearer very hard to kill and turning its bearer into a hell-on-wheels sorcerer. Not sure as yet whether she intends using it, or was on orders to interdict it to take it out of circulation. Or whether Odin has something he wants to do with it. Stay tuned to future Butcher books.

Jim Butcher's readers can rest assured that Butcher has already figured out where these overhanging details will mature into exploding ordinance, and how you will be excited and thrilled to watch the ensuing chaos. Butcher hasn't turned in a dud yet, and shows no sign of letting up on his rip-roaring urban fantasy tour de force.

Picking Nits
There are a few nits to pick in Butcher's Dresden novels, but they're not a big deal.

But I'm picky. And I noticed a few things.

Butcher repeatedly refers to a recurring character who works as an assistant medical examiner (i.e., he autopsies suspicious deaths in his county, but is not the head of the office) as a "mortician" and not a physician. The fact that medical examiners are required by law to have a current medical license everywhere I'm aware works against the description. Morticians try to make corpses look good for burial, and medical examiners are a subset of pathologists who try to figure out why the bodies before them are not still alive and complaining about the Y-shaped incisions used to remove their organs for inspection. Does this impact the characters or keep you from enjoying the books? No. It does push my head out of the story occasionally while I try to puzzle out what I might have missed, but it doesn't matter. One day Butcher will notice and stop, and it will be fixed, then even this nit will be gone.

The biggest consistency problem I spotted in Butcher's work so far is when he draws his .44 in a fight in his newest book Turn Coat.

To understand this as a problem – at least in comparison to Butcher's previously scrupulous use of foreshadowing and suggestion – one needs to know a little about the stories. Dresden's advertisement says, among other things, "lost items found". Dresden specializes in finding things, hence (presumably) his attraction to P.I. work. Dresden's finding tactic usually depends on the use of objects closely associated with his targets. Dresden has made scrupulously clear across many books that objects closely associated with a person can be used in spells to target the person, and he's had close scrapes with people who captured hairs from his head who nearly completed attack spells. Now consider that Dresden has been carrying around the same unlicensed .44 for years and using it in nearly every book. While standing behind his home, which is presumably chock-full of items closely associated with the protagonist, Dresden himself selects the .44 as an object closely associated with himself as part of a scheme to summon and trap the Erlking in Dead Beat. From these facts, you would expect to apply the close-association logic to find that Dresden is at real risk over the possibility someone might capture his .44 and later use it to locate, attack, or control him. So here's the problem: Dresden's .44 was captured in a magical duel at an aquarium in Small Favor, and he only avoided being killed with it by shattering the tank windows so the shooter (and himself) would be swept away by crashing water so as to spoil the possibility of an accurate shot. In the characters' ensuing confrontation on an eerie uncharted island in Lake Michigan, Dresden does not achieve any special success in recovering the .44. The reader has only one logical conclusion: the demonic nasties that he escaped in Small Favor have his .44 and are in a position to cause him trouble with it.

Yet Butcher has Dresden, without comment, drawing his .44 and shooting up nasties on the same island in Turn Coat. Where did it come from? Why hasn't it been a problem? Did someone spot where he collected it from the Denarian sorceress who'd lifted it off him, but which I missed?

This kind of thing would not hit me the same way if Butcher had not established a clear practice of careful attention to this kind of detail. The fact I could plausibly read so much into the disappearance of Dresden's .44 revolver says quite a bit about the confidence his details usually support. In a lesser author, I wouldn't conclude much from otherwise potentially interesting details; some details are just the result of sloppy authorship.

Jim Butcher is just not a sloppy author.

[Update: In Turn Coat's sequel Changes, Dresden makes a brief reference as early as the fourth free sample chapter to "my spare revolver", suggesting that there may be numerous .44 revolvers, and that the lost one may be no big deal and offer its finder no special hold over Dresden. I appreciate that Dresden went through a couple different smaller-caliber revolvers in the earlier books, and by Grave Peril was discussing his newest not-yet-the-.44 revolver as possibly suggesting some kind of adequacy issue on his mind. However, there was a long stretch in which Dresden wielded a long-barreled .44, which by Dead Beat became sufficiently closely associated with him to use in a ritual requiring closely-associated items. He never thereafter discussed replacing it or having duplicates, and when it's missing he lacks an apparent backup. I think the disappearing-reappearing .44 was an accident, but I appreciate that he's overtly swept it under the carpet. Now, we don't need to worry when the Denarians will turn Dresden up in a summoning circle and torture him into submission while he's dreaming. Butcher has clearly signaled that the .44 isn't an overhanging risk.]

If you like fast-paced investigative action/adventure tales, pick up Storm Front and get going on the Dresden Files. If you have begun The Dresden Files, take note that Turn Coat is now available, and offers numerous new complications to its protagonist's troubled life.

Trouble is good: it keeps the characters' lives interesting, and worth reading about.

(Compare Anita Blake: although she begins the series answering to an employer who tries to stick her with undesirable schedules, she becomes co-owner of the business that employs her; she stops having to worry about money and soon affords having kept men at the house she owns; she goes from having no relationship since her failed engagement to having hot and cold running prospective lovers in every chapter, all of whom live with the knowledge she's screwing around and can add to her harem of men at any time and that they have no right to object; she goes from being unwilling to look vampires in the eye and having low-level new vampires noticing she's scared of them to having vampires terrified of her for miles; she goes from trailing cops as a consultant and outsider to exercising all the "this is my case now" power of stereotypical movie federal law enforcement agents; and she's gone from being largely alone in fights to having recruited some of the most badassed warriors known to the history of vampires to work with her to secure the territory she controls with her vampire consort. Other than while traveling for business or dealing with outlandish nasties primarily defeated through deus ex machina, what is there to complicate her life or make the reader concerned for her safety? It's not like she's in emotional or physical jeopardy now that she is a de facto leader of several packs of weres and a city full of vampires and has become supernaturally fast and abnormally strong and quickly heals from ordinarily-fatal bullet wounds. Hamilton has simply allowed Blake's life to become – at least for the later books – too easy to be interesting. To "complicate" Blake's life, Hamilton adds sex partners. A complicated lovemaking schedule may be great fantasy, but since (for the reasons just given) it doesn't place her in any convincing physical or emotional jeopardy, it doesn't do much for those of us who pick up series looking for the kinds of conflict and solution found in Hamilton's earlier books, or in any of Butcher's. And the crazy superpowers she picked up in Obsidian Butterfly are so extreme and general-purposed that enemies' only real hope against her is to pray she forgets to use them when the chips are down.)

Conclusion

Butcher's carefully-constructed tales satisfy, time and again. Ordinarily I wouldn't write much about lesser works I didn't want to re-read, but I thought it was important both (a) to explain how vastly different (and superior) Butcher's work ethic is than the one reflected in some of his colleagues' current work and (b) to show how Butcher's work resists even penetrating efforts to uncover problems that affect enjoyability.  There is a structural advantage to Butcher's methodology from the reader's point of view: since he knows where he's going, he can avoid getting lost.

And that's important when you plan to be along for the ride.  Turn Coat is a ride not to miss.

Sun (Ticker:JAVA) Over As Independent Firm

I've been wondering for a while now how far Sun would plummet before being acquired, and the answer is in. The wait is over wondering who might buy Sun. The answer is Oracle.

Oracle lacks expertise in selling hardware ... making its acquisition of Sun something of a joinder of like minds. Oracle has expertise running enterprise software on Sun's platform, however -- and allowing it to be potentially lost might work against Oracle's effort to project a stable future path for its customers who don't want to face the disruption of change. (Including, say, change to a Microsoft operating system offering a questionable security record.)

How Oracle positions its new operating system and hardware assets against those of vendors on whom Oracle has relied to resell Oracle products -- through the vendors' consulting businesses -- remains to be seen. If Oracle manages to alienate those with whom it is important to play nice, Oracle could find that its database software -- like Sun's operating system software -- is increasingly replaced with license-free alternatives that leave users more resources available for overseeing and improving implementation efforts.

My guess? Oracle's pre-existing expertise solving enterprise problems will keep it alive and well for a considerable time regardless what database might sit at the back end of its solutions, or how those databases might be priced.

I just don't see Oracle's purchase of Sun as clearly improving its competitive position -- though it might be said that preventing Sun from falling into the hands of a competitor might be a worthwhile objective in its own right.

Mac Zombies At Last!

The first Mac zombie botnet finally appears on the 'net.

My question: why does it take so long for hit apps to make it to the Mac?

But seriously. The vector of infection was cracked bootleg applications purposely downloaded using bit-torrent, and installed with an administrative password. You apparently need to be living on the dark side to worry about this stuff on the Mac as yet.

Social engineering vectors aren't of the same category of risk as architectural problems, such as the ones that gave us IIS worms whose traffic consumed tens of percent of the world's bandwidth while they were active (this, according to MSNBC, which can't be plausibly accused of anti-Microsoft bias). Architectural flaws allow infection and propagation without the need of human intermediaries, and thus speed infection and allow infection of unobserved machines. Social engineering may be hard to prevent, but it is also limited in the number of machines susceptible (i.e., machines with a human present with the capability to execute commands, which excludes ATMs, servers, POS terminals, etc.) and limited in the rate of infection (i.e., no faster than the attractiveness of the pitch can cause people to click, or in the case of this Mac trojan, download a large infected binary and then install it using a proper administrative password).

But at least you can't say they aren't developing for the platform!

Friday, April 17, 2009

CNBC: Folks Love Macs

After reporting on Microsoft's price-based ad campaign and responding to a total-cost-of-ownership inquiry, I thought it only fair to complete the triangle with a link to CNBC's report on the relative quality of the Mac-owning experience.

Mind you, if the machine doesn't do what you want it doesn't matter whether the keyboard glows or how cheap it is. I stand by my claim: you need to decide what you want it to do before you can decide whether a particular machine is a "good deal" for you. (Apple apparently made a similar claim, that a PC isn't a bargain if it doesn't do what you want; but this does in fact work both ways.)

Wednesday, April 15, 2009

Apple Apparently All Right

Gene Munster buttresses his armchair quarterbacking of tech stocks with something we might benefit from more of in analyst writing: data collection. Munster organized a surveillance program involving 25 man-hours of observation in which Apple seems to be increasing Mac sales (following a recent desktop product refresh). Sales of iPhones was below rates observed following the iPhone 3G release last summer, or ahead of the Christmas season, but considering the foreign sales Munster imagines Apple's sales target (4.4million units) is plausible for the quarter. Munster monitored iPods for the first time, and saw twice the rate of sales as on iPhones.

The iPods cost less than phones, but the new Shuffle is arguably Apple's highest-margin hardware. Apple's demand for the flash storage used in its handheld devices (which masquerade as phones and music players though the iPhone/iTouch products are Unix computers with quite sophisticated user interfaces) is so great that product preparation orders from Apple appear to create supply shortages for lower-priority buyers.

Apple's demand for flash may have a salutory effect on consumer access to cheap memory. Just as Apple's unilateral replacement of serial ports with USB created an environment encouraging hardware vendors to support USB (because there was a known user base, and USB wasn't a niche option any longer), leading to near-universal availability of highly-compatible USB devices capable of being connected to machines in large numbers using hubs, Apple's unquenchable thirst for small storage will reassure vendors that researching solutions to this problem will be rewarded with purchases. Apple, after all, was initially criticized for the high ($399) price of its original (5GB) iPod -- which retailed for the same price as the 1.8" hard drive inside it. The premium on the iPod was unquestionably attributable to Apple's willingness to spend more on components that would deliver adequate performance in a smaller, more convenient package. People laughed at the iPod for its price, but its convenience was such that it sold. (The fact Apple is known to prize small storage packages is emphasized by rumors like this.)

Competitors continued for a while to compete on either price (using larger hard drives) or size (using then-miniscule flash storage), but the future was clear: people wanted to carry substantial music libraries in insubstantial devices, and they would pay for the privilege. Apple's later movement into smaller players -- as flash sizes became larger, and Apple realized people wanted to buy even music players from Apple -- helped prevent competitors from obtaining a safe haven at some device size, and offered price points ranging from $50 to the sky.

Apple surely suffers as disposable income wanes in the current depression, but it offers products people want at prices they will tolerate and apparently is suffering along passably well despite everything. Let's hope the next round of Apple devices keeps the excitement up, and will lead the share price in the same direction.

If Intel's Paul Otellini is right, the PC turnaround is at hand and the future will be brighter for Apple and its competitors alike.

Tuesday, April 14, 2009

ACAS Still Making Money

Buying low and selling high still seems to be working at ACAS, which just announced both a $22 million cash receipt on the sale of a portfolio company, and a $6m net gain. Corrpro's buyer isn't another investment fund, but a pipeline services company making a strategic acquisition. Like HP's purchase of Extream Software, the sale of Corrpro to Insituform Technologies is not a product of speculators' excitement about a flipping game, but a business decision by organizations that produce valuable goods and services that ACAS' portfolio companies make good business sense to buy and run.

ACAS scores the investment as follows:
Including investments in Corrpro by American Capital's affiliated funds under management, total inception to date realized gains and dividends received were $9 million. American Capital's compounded annual rate of return, including interest, dividends and fees earned over the life of its investment was 21%. The proceeds received by American Capital were greater than the fourth quarter 2008 valuation of the investment by $0.5 million, or 2%.
MarketWatch
The larger scorecard of exited investments is here, and the existing catalog of portfolio companies can be viewed here. Since the information there doesn't provide averages weighted by ACAS' amount invested, it's worth looking at ACAS' report on its overall returns:

Since American Capital's August 1997 IPO through the fourth quarter of 2008, the company has earned a 17% compounded annual return, including interest, dividends, fees and net gains, on 249 realizations of senior debt, subordinated debt and equity investments, totaling $11 billion of committed capital. These realizations represent 47% of all amounts invested by American Capital since its August 1997 IPO. Proceeds from these realizations exceeded the total associated prior quarter valuation of the investments by less than 1%. American Capital earned a 30% compounded annual return on the exit of its equity investments, including dividends, fees and net gains.
The question on everyone's mind is, of course, whether what's left unsold is some kind of awful witch's brew of unsalable failures. Management has dealt with this issue in conference calls, and reports interest in exiting losers in order to recover capital it could more effectively deploy; thus, it isn't exiting only winners in order to build a large stable of losers. The exited portfolio company listing reinforces this: it's got investments that apparently went to zero, and it admits the fact.

I don't have any special reason to conclude that ACAS lies about its holdings or their quality. I think the fact that ACAS has reported paper losses suggests that it takes its accounting responsibilities seriously despite viewing the applicable accounting principles as virtualy useless for producing information about its portfolio's past or prospective performance.

The data in which I am most interested is ACAS' future NOI. ACAS' ability to continue realizing interest income on debt investments is of more interest to me than the theoretical market value of those debt investments. ACAS' receipts of income from portfolio companies are of more import to me than the companies' modeled valuation. What I want to know is pretty simple: outside valuation models notwithstanding, how are ACAS' investments actually performing?

This is what I'm looking for going forward. If NOI is good, ACAS is probably a steal. If NOI collapses, the whole thing is probably a bust. Based on management's comments about its interest coverage, I'm inclined optimistically for ACAS.

Monday, April 13, 2009

MSFT's Next Big Hit

MSFT's major profit-producing products are unquestionably its operating system and application products. MSFT's effort to re-invogorate those profits with a post-Vista operating system upgrade may face a bit of friction, however: most businesses apparently don't plan to buy it next year (or even the year after). Forcing consumers to buy it by eliminating OEM licensing of new copies of old editions is a tried and proven strategy to get millions of users on a new MSFT operating system, of course. But even this kind of force hasn't kept MSFT from seeing losses in its operating system division, as users trying to avoid being dragged into operating system upgrades fought to avoid Vista.

Given the reception apparently gathering for Microsoft's Windows 7, one might not seem out-of-touch to expect improvement in adoption of Linux and Android as alternatives in the larger commodity PC market. With Microsoft's dominant business desktop operating system, XP, turning a decade old in just a couple of years, developers interested in leveraging new frameworks for pulling the most performance out of modern multiprocessor computing hardware may just not be drawn to Microsoft's products: the old one isn't there, and the new one isn't deployed broadly enough to expect sales. Microsoft's Win-95-style mass adoption may be a thing of the past.

When's Windows 7 going to be released, anyway? I seem to recall Longhorn going through a series of revised release dates. Has Redmond worked out how to release a product in the target year?

Release dates aren't MSFT's biggest issue, though. However, MSFT's recent history of blown deadlines may have contributed to its real problem:
The contrast between Windows 7's glowing beta reports and tepid sales forecasts -- as implied by surveys such as the KACE/Dimensional Research study--shows that, when it comes to Windows 7, Microsoft's biggest challenge may have less to do with technical matters and more to do with restoring lost credibility in the enterprise PC market.
Information Week
Given the skepticism likely endemic in the buying population after MSFT's last decade of marketing hype, I suspect the only thing that can repair MSFT's reputation for operating system software is a workmanlike release.

Friday, April 10, 2009

On the Cost of Macs

Elliott asked about my cost of ownership on my Mac.

I have to decline details for several reasons: I don't have the data from my 8yo Mac or the various software I bought; my software pricing will be different from others' due to large-volume site-licenses to which I had access; the purposes to which others will direct their machines will necessitate quite different software (and options) than I might (or did) use; and I have but an N of 1 for Macs that have gone entirely through their life cycle to death, and thus make a lousy source of meaningful conclusions (and providing a single data point for a later project of summing the numerous experiences of available bloggers will surely yield results skewed from whatever norm would represent one's own likely use).

Instead, I point out that Google can help one find "total cost of ownership" analyses depicting Macs (or Linux, or even OS/2 (which had its own zealots, and those who preached they weren't really zealots just sound thinkers)) against competition from Microsoft. (Heck, these guys offer a TCO study on how to run MS-Win applications most cheaply without actually buying MS-Windows machines.) One offers a TCO spreadsheet for calculating comparisons. The Unofficial Apple Weblog (TUAW) offers predictable fanboy praise of Apples as relatively cost-effective. Supporters of Microsoft's products' pricing tend to focus on up-front hardware cost. (Some question the comparisons on even the up-front costs, of course. Interesting comments in last link, incidentally. UPDATE: McCracken posted a comparison article that offers a number of feature comparisons before finally lining up spec-comparable prices.) Yet, up-front costs can be dwarfed by things like support costs and other overhead. This last link is interesting because it tries to address the arguable expensiveness of "free" software, discussing factors of interest to any cost-of-ownership thinking; it also contains this worthwhile reminder:
Both types of products have their pros and cons. It's best to pick the right product based on the project needs rather than viewing the product as a hammer, and all projects as nails.
Still, if one hunts I'm one can find specific enterprises have studied expected long-term costs of implementing different hardware or software solutions and have produced. Does one of these enterprises sound like it does what you do? Guessing the impact of software choices on your cost to operate isn't something that flows easily from buzz-words or ad campaigns, and products touted as creating savings can be as easily suspected of consuming resources (or at might result in a 'savings' that "excludes some migration costs and the price of software licenses" -- oops). Just figuring out your total cost of ownership turns out to be a white-paper subject. (Entertainingly, the site of the prior link offers on this page a few paid-for white-papers, including this gem: "This presentation, entitled Standardizing on Windows XP Instead of MAC OS X, provides a pre-packaged option for defending Windows XP against MAC OS X." In the old days -- well, after Windows 95 and NT hit the market at any rate -- you'd never see anyone dedicating the time to explain why to buy MSFT over Apple; it was self-evident that you would be buying MSFT, and nobody would dream of selling you an explanation for it. How the world has turned ....)

The real answer on raw price turns on what you require the machine to do. Many applications require software whose licensing costs (MSFT's server products?) or support overhead (anyone's relational database products for use in a custom database application?) dramatically overshadow the cost of hardware or operating system software. If this is your situation, the Mac/PC up-front cost debate isn't for you: it's immaterial. The real cost all happens post-purchase, and hardware pricing variance will be a mere rounding error. Some people have needs that are easily enough met on either platform that their purchase decision is made on quality-of-life issues involving their susceptibility to support by relatives, their need for tech support at all, the availability of previously-bought software, the capabilities of pre-installed software, or aesthetic aspects of the hardware or software. In some cases, the need for a waterproof computer or a machine that withstands dust storms restricts choices to one of relatively few hostile-environment vendors. In one comparison, the built-in ability of MacOS X to create PDFs from any application that supports printing turned out to make Apple's product cheaper than alternatives. What you need to do will dictate what you will need (at minimum) to buy.

What you want the machine to do will not only dictate its price coming into your hands, it will dictate the torture the machine must survive in use -- which in turn impacts lifespan, and thus impacts annual cost to solve your computer needs. My Powerbook that died last year had suffered drinks spilled directly into it on more than one occasion, which is why I had dubbed it the Aquanaut. Might this have lowered its lifespan? Who knows. Another reason my personal experience may not be extensible to readers :-)

Good luck, and don't get "taken" by shallow ads!

[NOTE: PC/Mac is a debate so old, and so fraught with religious tension, that the only possible defense against pure evangelism is perspective. Some worthwhile looks at the recent flare-up in the price comparison excitement include that at Fortune (including comments in both directions).]

UPDATE: Business Week offers a response to Microsoft's price-based ad campaign in an article titled "Mac vs. PC: What You Don't Get for $699"; the page with the meat of the author's argument is here.

Thursday, April 9, 2009

MSFT Publishes On 'Apple Tax'

Microsoft's ad campaign targeting Apple (video linked here) now includes an "Apple Tax Return" depicting the additional cost for a family buying either PCs or Macs for the household.

The price comparison has some interesting features. The hypothetical Apple buyers are assumed to buy Microsoft Office at retail price as well as Intuit's Quicken and an upgrade of iWork, plus both Mobile Me and a one-to-one personal support agreement. Think about this for a moment. Do you actually buy this stuff when you buy a new machine?

Moreover, the hypothetical PC buyers are assumed to buy none of this. No online data synchronization tool or other service (storage, web hosting, etc.). No prepackaged accounting software. Instead of two office suites, zero. The "Other Software" budgeted for Mac users at $70? Nada. Maybe they aren't allowed, or can't afford software. Who knows?

Outside the computers themselves, Apple buyers and PC buyers are expected to buy entirely different wireless router/firewall appliances, at completely different prices. This, despite that I've used both the mentioned devices on Mac networks, and both work just fine with PCs. Some of the extras are priced similarly: an external hard drive and and 2GB RAM are shown at similar prices, for example, though I rather doubt all the vendors offer RAM at the same markup. (Maybe Microsoft expects RAM sticks as after-market add-ons?) However, when both buyers are assumed to buy a Blu-Ray player for the PC (on this point, I'm kinda mystified; why does my PC need a Blu-Ray player if I'm not recording data to it? maybe I'm outside the demographic MSFT is targeting), Microsoft charges the Mac buyers more for an external unit.

One interesting feature in the comparisons is the difference in price of the ATi Radeon HD 4870, which costs more from Apple than is reported from HP. Sometimes, these cards are clocked differently from different OEM vendors, but I don't have any information that Apple's part in this case delivers a different customer benefit. If you have info on this, leave comments :-) The fact that Apple's 3-year extended warranty costs $59 more than Dell's might be explained by the company's relative customer service rating, so I don't attribute much to it. I've talked to people who called Dell's support, and I wouldn't pay any price for that kind of "service".

The most belly-laugh garnering item on the list is the "Other Software" the Mac buyer is expected to pay for. The PC buyer is apparently not buying "Other Software". Not depicted for PC buyers are the likely relative costs of anti-virus, the relative time (or money) spent reinstalling (or having someone reinstall) an operating system atop infected installations for several years, or the like. The possibility that a Mac user might be happy with OpenOffice, or might not upgrade the still-working-just-fine but free-with-purchase iWork installation seems to escape Microsoft utterly. Why Dell or HP buyers won't spend money on software a Mac user would buy is sort of perplexing.

The hardware purchase price difference is listed at $1751, and that might be legit -- assuming you believe the computers listed are otherwise substitutes for one another. You are free to check out the supposed comparables and determine whether you believe one or the other is actually a better machine than its supposed equivalent. Personally, my experience with the longevity of Macs is that they work for eight years. That is, they remain useful years longer than most assume a computer will even run. I am not into modding hardware or buying upgrades, so this reflects what I get out of a single hardware purchase. Obviously, your mileage may vary; but I strongly suspect that the cost per year of the machines over their actual use -- and under actual software budgets as they occur in a real household -- will be rather substantially different than depicted by Microsoft in its anti-Apple ad.

The interesting thing is that Microsoft has felt it necessary to advertise against Apple as a competitor. I mean ... if Apple is no threat, why bother?

Friday, April 3, 2009

On ACAS' Debt

The comments on the last ACAS post have gotten long enough they deserve their own separate discussion. Imperator posted that (a) mark-to-market accounting changes should improve ACAS' NAV, but (b) creditors' power to accelerate payment under unsecured lines of credit could threaten ACSA, so (c) the ACAS bonds (which he noticed increasing in value) look attractive.

First, ACAS' bonds. If there seemed a liquid market for the things, I'd have bought. I have been informed the volume is so bad that when I ask, there are no offers. I easily believe other brokers make it easier to get quotes on "junk bonds" but mine apparently does not. But I'm not exactly overwhelmed with angst over missing them. Why? The bond holders aren't the ones with the right to accelerate, and though they are unsecured creditors like the banks offering ACAS lines of credit (in default not from nonpayment but by the technical terms of the line of credit, which require ACAS to maintain a minimum tangible net worth), bond holders would not be entitled to quicker repayment than provided in the terms of the indenture, which places their due date after the date of an acceleration demand. In short, it looks like these bond holders would be paid last among the unsecured creditors.

That doesn't exactly scare me, though; after all, I more-than-doubled my own ACAS holdings with a purchase at $1.80 after appreciating the current state of ACAS' recently-renegotiated unsecured line of credit. Why is that? First, the Trump principle: when you owe $1,000 and you can't pay it back, you have a problem ... but if you owe $1,000,000,000 and you can't pay it back, your bank has a problem. With the new mark-to-market rules in particular, a bank's power to make its balance sheet look good while ACAS is making regular, timely, quarterly payments in full of the amount due that quarter is much better than if the bank announces an impossible-to-meet acceleration and has to admit in its next quarterly filing that a previously performing asset was in fact now not being paid at all. Second: ACAS' management hasn't received any guarantees or waivers, but apparently has an understanding that the best thing for it and its creditors is to pay "default-rate" interest but remain free of acceleration demands. The banks get to declare timely payment and get a higher rate from a borrower with apparently solid interest coverage, which is much perfarable to the alternative.

Supposing an acceleration demand, though ... think about it. This isn't a margin call gone bad, in which ACAS' broker liquidates its account the next day. The only people who can sell ACAS' illiquid assets (which ACAS holds, not a broker) are ACAS' people. Liquidation won't happen any faster than ACAS can cause orderly sale, unless a bankruptcy trustee attempts a fire sale, which is definitely not in the interest of creditors, who want to be paid. Remember, ACAS' debt-to-equity doesn't leave the unsecured creditors with a lot of room if sales prices don't meet valuation levels. So the people in charge of the liquidation (if any) would almost surely be ACAS personnel, by agreement of the creditors and debtor in bankruptcy.

Once you see the eventual seller is ACAS itself and not a bankruptcy trustee, one must ask why the bank would bother to drag ACAS into bankruptcy in the first place. And there's your answer: as long as ACAS continues to offer attractive interest coverage, its lender banks probably prefer receiving default interest to the prospect of having to find another solvent borrower.

Thus, I agree with ACAS' management: acceleration demand isn't on the immediate horizon. Moreover, the right to demand acceleration isn't the power to make ACAS' illiquid assets suddenly liquid, so the effect of an aceleration demand isn't likely to aid the banks much, making it relatuvely unattractive. (If ACAS' assets were liquid and easily sold for full value by a bankruptcy trustee, this might be different, but they're not.)

Thus, I don't see a special reason the ACAS bonds are a better deal than the ACAS equity, unless one needs current income. The appreciation on the bonds on maturity will be nice -- but so will the appreciation of ACAS shares as share prices approaches NAV on the normalization of the markets in the same couple-of-years time frame in which the bonds would mature.

Yes, I wanted to buy the ACAS bonds for a triple on maturity plus interim interest, but I couldn't without work -- and I have enough work already, than you. Maybe in the future when I have time to rearrange my finances, I'll work out another solution for making my trades, and use a platform that will quote me all the weird CUSIPs on which I inquire. TD Ameritrade isn't it.

I think the bonds are a good deal. I think the equity will prove better, though of course the equity will lose in the event of insolvency. In the event of the catastrophic destruction of ACAS -- which I'm betting against, based on its ability to service debt; and I continue to be attracted by the likelihood of entering very nice deals in this distressed market -- people buying bonds at these levels probably will get their money back even if the company dissolves in bankruptcy, as ACAS' debt ratio has been managed to remain low. The debt is a conservative bet, if you can get a quote -- and I'd have done it if it weren't so much work.

So Imperator is right on the bonds, but I don't think I'm necessarily agreeing with him on the ACAS bonds for the reasons he suggests it ;-) On the other hand, I disagree for the time being on acceleration as a cause for near-term panic, and suggest that it doesn't help bond-holders though, in bankruptcy they would likely get paid (though it might be worth looking at the relative priority of the banks and the bond holders; I haven't checked that out).

Wednesday, April 1, 2009

GM Bankruptcy Watch: April 2009 Update

GM's new CEO says the biggest U.S. auto maker may face bankruptcy.  Hmm.  Where have we heard that bankruptcy might be GM's best shot before?

I guess that's why they pay these brainiacs the BIG bucks ;-)