Even a stopped clock is right twice a day.
After being on the wrong side of "ACAS is a buy near $28" it is good to get something conspicuously right, though.
As predicted, Apple's dominance in the handheld market has grown: Apple is now not only the leading smartphone maker by profit, and the leading phone maker by profit, but has just become the #1 U.S.-based cell phone manufacturer by volume (Nokia and RIMM aren't U.S. firms). That's not smarphone volume, but all mobile phones by volume.
Apple is crushing its "we hope to get 1% of the market" objective it announced with it showed the first iPhone three years ago. There are folks predicting gloom, of course – Apple could hardly be worth investing in if "everybody knew" Apple was going to demolish its competition – but Apple's development environment and its freedom to source parts anyplace it likes (other vendors are stuck with the software supported by their OS vendor, though this situation will alleviate itself as competitors replace existing platforms with platforms built atop highly-portale Linux kernels; nevertheless, without a clever API, cross-platform compilation could stymie quick movement to different mobile architectures). Apple's control of its platform and its multiple-architecture-friendly development environment are an asset that shouldn't be discounted.
Apple will get serious competition in the cell phone market, to be sure; it has, after all, been forced to compete on price and features in the iPod space as well. Apple no longer commands the portable music market by force of buying all the 1.8" drives, or because it's cornered the market for solid state storage; anyone can buy the parts Apple buys. Apple just offers a system that's integrated in a way that appeals to users, and which Apple advertises so as to maintain its brand value. Apple dominates the mobile music market despite the obvious opportunity to compete, and despite commanding a premium for its products. Predicting gloom in the phone market seems premature when Apple is just getting warmed up.
I mean, Apple is just about to launch its first iPhone powered by its self-made processor, and will launch a background-processing system that will fool folks into believing they have full-on multitasking even while Apple is sleeping most of their applications (and saving the batteries from lots of avoidable processor cycles). Apple's competitive advantage is still developing.
It's going to be exciting to see Apple fight for more and more in the mobile market, while working to deliver more and more to deserve it. It's a great time to be a fan of gadgets.
Thursday, April 29, 2010
iPad Competitors Falling Like Flies?
In the wake of HP's refusal to discuss when or if it will ship its previously-announced Windows 7 Slate, Microsoft has pulled the plug on Courier. (FusionGarage's JooJoo Tablet, despite being available, doesn't seem to represent serious competition, with total unit sales apparently in the mere double digits. The linked video may suggest why it's not selling hard: it's not Apple-quality fit-and-finish. But then, what is? Money quote: "this is not impossible to use." Ahh ... gotta love praise like that.)
One wonders whether the loser is MS-Windows (assuming the Slate will return with zero-licensing-fee WebOS), or everyone selling hardware to compete with iPad.
Any ideas?
Presumably the tablet arena will attract competitors. However, if the market is going to involve well-performing high-quality devices, beige-box makers will have a strong incentive to ship an operating system that doesn't involve the substantial per-unit licensing fees that characterize Microsoft's business model. This might be an area in which, due to margins, Google and HP work on Linux-kernel operating systems and freeware interfaces to make hardware competitive in this market segment.
The alternative isn't attractive: it leaves most of the benefit of hardware manufacturers' efforts in Microsoft's coffers. Now that Android proves an alternative is feasible, and Apple has shown that desktop applications aren't the route to producing applications for handheld devices, why shouldn't powerhouses like Google and HP finally man up and produce a competing operating system eventually suitable for replacing desktop computers' operating systems?
The future is coming. Unless things change dramatically, I don't see Microsoft performing in the mobile space the sort of gatekeeping (and tax-collecting) role it's long played on the desktop. The war for platform superiority is on again in mobile space.
Only good can come of real competition.
One wonders whether the loser is MS-Windows (assuming the Slate will return with zero-licensing-fee WebOS), or everyone selling hardware to compete with iPad.
Any ideas?
Presumably the tablet arena will attract competitors. However, if the market is going to involve well-performing high-quality devices, beige-box makers will have a strong incentive to ship an operating system that doesn't involve the substantial per-unit licensing fees that characterize Microsoft's business model. This might be an area in which, due to margins, Google and HP work on Linux-kernel operating systems and freeware interfaces to make hardware competitive in this market segment.
The alternative isn't attractive: it leaves most of the benefit of hardware manufacturers' efforts in Microsoft's coffers. Now that Android proves an alternative is feasible, and Apple has shown that desktop applications aren't the route to producing applications for handheld devices, why shouldn't powerhouses like Google and HP finally man up and produce a competing operating system eventually suitable for replacing desktop computers' operating systems?
The future is coming. Unless things change dramatically, I don't see Microsoft performing in the mobile space the sort of gatekeeping (and tax-collecting) role it's long played on the desktop. The war for platform superiority is on again in mobile space.
Only good can come of real competition.
Apple Spells Out Its Position on Flash
In the tradition of his prior letter on DRM (before it died), Steve Jobs posted an open letter on Flash.
The upshot? The analysis of Apple's view here (and here, here, and here) has been spot-on: Flash is a buggy kludge designed to force people to use Adobe products and tends chiefly to decrease performance while increasing bugs. Flash has no place on Apple's mobile OS. Apple wants people to use Apple's APIs to leverage Apple's technological improvements, and Adobe's track record of exposing Apple's technology to developers through intermediary platforms isn't stellar. Adobe took ten years to move to Cocoa in its own products, and has a long record of churning out buggy, low-performance Mac software. Apple has no interest in forcing users to suffer through third-party software that is at least that bad.
Atop all this, rewriting apps to function with no mouseover won't happen, and this absence will prevent Flash apps from working as expected. Broken, unworking applications or parts of web pages are just not part of the environment Apple wants its users to experience on its platforms. This is completly justifiable. Adobe's argument that its proprietary plug-ins should be executed on Apple platforms in the name of "openness" are absurd, and should be loudly derided.
Apple is preventing users from suffering bugs, plain and simple. Apple could act differently, but its decision is entirely understandable. Adobe is justifiably disappointed (not just because it won't reach the market on Apple's mobile platforms, but because the shortcomings and lack of necessity of its Flash products have been made clearer to the world as a result of Adobe's conflict over accessing the Apple mobile platforms). At the end of the day, though, Apple has made its position clear and we'll see how users and developers react.
UPDATE: Adobe's already reacted, in the form of an interview given by its CEO Shantanu Narayen.
In the interview, Narayen claims Adobe is persecuted by Apple for promoting open content. This would, of course, be more plausible if anything about Adobe's Flash platform could be construed as "open" in any way. It's exactly as closed and proprietary as Win32 or any other proprietary API, and utterly unlike the HTML5, Javascript, CSS, H.264, and other standards Apple suggests developers consider as Flash alternatives.
Narayen denied that its Flash plug-ins are the main cause of application crashes on Macs, but supplied no data for the claim. Narayen blamed Apple for the crashes. Sigh.
Narayen contradicted Jobs' statements about Flash's impact on battery life, but – alas – offered no evidence. One solid piece of evidence might be a Flash application running on an iPhone using an Adobe cross-platform toolkit, showing exactly how Flash impacts (or doesn't impact) battery life. The power to put on the demo is entirely within Adobe's power, because the iPhoneOS developer tools enable developers to load apps onto iPhones using synch cables. Adobe could load a browser with and without Flash plug-ins, and show a bake-off with time-lapse cameras, showing the battery death. Narayen could prove Apple wrong in a heartbeat. But ... no. A cynical person might be tempted to doubt his statements about Flash performance.
Narayen's assetion that users should decide which apps should be allowed to run on the iPhone is the closest thing he comes to articulating a useful philosophical perspective. Narayen's position is not dissimilar to lots of similar articulations one can find on the blogosphere, and no more fleshed-out or well-explained. Of course, the fact is that the power to decide what Apple will and won't carry in its store is Apple's. Since the qualitative claims about his company's products seem so full of fluff, one has a hard time working up sympathy for the view Narayen's company has been wronged.
Let's face it: Narayen's claim against Jobs' position is a shoe cut to fit Narayen himself: "It doesn't benefit Apple, and that's why you see this reaction." Ha. Apple's position doesn't benefit Adobe, which is why we see Narayen's reaction. As for Apple's position, it makes sense that having browser users – and iPhone users are browser users – hit site after site that requires mouseover to work the interface ... well, with a UI that has no pointer to effect a mouseover effect, it's clear Apple can't make it work for users. Developers would have to make iPhone-specific Flash content. Adobe's vaunted cross-platform benefit would evaporate as developers were forced to make target-specific versions of Flash apps. Apple's point becomes clear: so long as they're rewriting anyway, why not rewrite to a standard that anyone can implement, instead of to some proprietary API that might or might not ever expose the advantageous features of the platform to developers for the enjoyment of users?
Narayen's statement that the future lies with multi-platform content is likely correct. The problem with Narayen's position is that multi-platform content will likely be delivered through standards – programming interfaces capable of being implemented independently by different vendors competing to deliver a superior experience, better performance, and improved security – and this future is unlikely to require the services of proprietary API vendors like Adobe to allow commonly-demanded functionality like exposing video or accepting clicks or the command to scroll. Narayen's "multi-platform" prognistication may be where he wins the battle, but it's surely where he loses the war.
Maybe Adobe will come back with a better articulation of why Flash doesn't suck on the iPhone, but this wasn't it.
The upshot? The analysis of Apple's view here (and here, here, and here) has been spot-on: Flash is a buggy kludge designed to force people to use Adobe products and tends chiefly to decrease performance while increasing bugs. Flash has no place on Apple's mobile OS. Apple wants people to use Apple's APIs to leverage Apple's technological improvements, and Adobe's track record of exposing Apple's technology to developers through intermediary platforms isn't stellar. Adobe took ten years to move to Cocoa in its own products, and has a long record of churning out buggy, low-performance Mac software. Apple has no interest in forcing users to suffer through third-party software that is at least that bad.
Atop all this, rewriting apps to function with no mouseover won't happen, and this absence will prevent Flash apps from working as expected. Broken, unworking applications or parts of web pages are just not part of the environment Apple wants its users to experience on its platforms. This is completly justifiable. Adobe's argument that its proprietary plug-ins should be executed on Apple platforms in the name of "openness" are absurd, and should be loudly derided.
Apple is preventing users from suffering bugs, plain and simple. Apple could act differently, but its decision is entirely understandable. Adobe is justifiably disappointed (not just because it won't reach the market on Apple's mobile platforms, but because the shortcomings and lack of necessity of its Flash products have been made clearer to the world as a result of Adobe's conflict over accessing the Apple mobile platforms). At the end of the day, though, Apple has made its position clear and we'll see how users and developers react.
UPDATE: Adobe's already reacted, in the form of an interview given by its CEO Shantanu Narayen.
In the interview, Narayen claims Adobe is persecuted by Apple for promoting open content. This would, of course, be more plausible if anything about Adobe's Flash platform could be construed as "open" in any way. It's exactly as closed and proprietary as Win32 or any other proprietary API, and utterly unlike the HTML5, Javascript, CSS, H.264, and other standards Apple suggests developers consider as Flash alternatives.
Narayen denied that its Flash plug-ins are the main cause of application crashes on Macs, but supplied no data for the claim. Narayen blamed Apple for the crashes. Sigh.
Narayen contradicted Jobs' statements about Flash's impact on battery life, but – alas – offered no evidence. One solid piece of evidence might be a Flash application running on an iPhone using an Adobe cross-platform toolkit, showing exactly how Flash impacts (or doesn't impact) battery life. The power to put on the demo is entirely within Adobe's power, because the iPhoneOS developer tools enable developers to load apps onto iPhones using synch cables. Adobe could load a browser with and without Flash plug-ins, and show a bake-off with time-lapse cameras, showing the battery death. Narayen could prove Apple wrong in a heartbeat. But ... no. A cynical person might be tempted to doubt his statements about Flash performance.
Narayen's assetion that users should decide which apps should be allowed to run on the iPhone is the closest thing he comes to articulating a useful philosophical perspective. Narayen's position is not dissimilar to lots of similar articulations one can find on the blogosphere, and no more fleshed-out or well-explained. Of course, the fact is that the power to decide what Apple will and won't carry in its store is Apple's. Since the qualitative claims about his company's products seem so full of fluff, one has a hard time working up sympathy for the view Narayen's company has been wronged.
Let's face it: Narayen's claim against Jobs' position is a shoe cut to fit Narayen himself: "It doesn't benefit Apple, and that's why you see this reaction." Ha. Apple's position doesn't benefit Adobe, which is why we see Narayen's reaction. As for Apple's position, it makes sense that having browser users – and iPhone users are browser users – hit site after site that requires mouseover to work the interface ... well, with a UI that has no pointer to effect a mouseover effect, it's clear Apple can't make it work for users. Developers would have to make iPhone-specific Flash content. Adobe's vaunted cross-platform benefit would evaporate as developers were forced to make target-specific versions of Flash apps. Apple's point becomes clear: so long as they're rewriting anyway, why not rewrite to a standard that anyone can implement, instead of to some proprietary API that might or might not ever expose the advantageous features of the platform to developers for the enjoyment of users?
Narayen's statement that the future lies with multi-platform content is likely correct. The problem with Narayen's position is that multi-platform content will likely be delivered through standards – programming interfaces capable of being implemented independently by different vendors competing to deliver a superior experience, better performance, and improved security – and this future is unlikely to require the services of proprietary API vendors like Adobe to allow commonly-demanded functionality like exposing video or accepting clicks or the command to scroll. Narayen's "multi-platform" prognistication may be where he wins the battle, but it's surely where he loses the war.
Maybe Adobe will come back with a better articulation of why Flash doesn't suck on the iPhone, but this wasn't it.
RIP PALM
PALM, last described here as being abandoned by its inhabitant rats, is dead as an independent company. HP bought PALM for $1.4B. (Or maybe $1.2B.)
HP presumably has plans for the Palm brand in its mobile device business, and will get a chance to consider whether the PalmOS (whose brains have already departed PALM) will get broader adoption in HP devices, or will be retired in favor of Android or another competitor.
Ahh, PALM. We hardly knew ye.
HP presumably has plans for the Palm brand in its mobile device business, and will get a chance to consider whether the PalmOS (whose brains have already departed PALM) will get broader adoption in HP devices, or will be retired in favor of Android or another competitor.
Ahh, PALM. We hardly knew ye.
Wednesday, April 28, 2010
ACAS: ECAS Making Good
Today after close of market, ACAS announced that its ECAS subsidiary received realizations of €131M in the course of the buyout of Spotless Group, in which ECAS was an equity holder and mezzanine lender. The receipts cause ECAS to realize a €14M equity gain, bringing ECAS' annualized return on its Spotless Group investment to 15% for debt investment and 21% for equity investment.
Although 15% and 21% are excellent annualized returns, they are absolutely ground-trembling in comparison to the hefty negative returns implied in ECAS' valuation since it began investing in Spotless Group in 2005. At the close of 2009, ACAS reported ECAS' "fair value" at $243M. At current exchange rates, the just-received €131M is about US$174M. Not to put too fine a point on it, but not all these numbers are likely correct. I suspect the weak link will prove to be the FAS-157 "fair value" of ECAS (discounted, as it is, by marketplace worries about ECAS' debt situation, which seems pretty good as its 2010 performance has raised cash with exit after exit).
Assuming that ECAS' assets are experiencing valuation improvement akin to ACAS' own, the return of ECAS to near-NAV "fair value" will have a dramatic impact on ACAS' NAV, and presumably also its share price.
Anyone care to speculate on ACAS' use of its hugening pile of cash? (Do you like the word hugening? Just made that up. Thank you very much.) I assume that since ACAS owns ECAS entirely, it reports debts and cash on a consolidated basis; the Spotless Group realization therefore should increase ACAS' cash position from the $835M at year-end to about $1.01B, not including either the $295M from its recent issuance or the $188M expected as the cash portion of its proceeds in the upcoming Mirion IPO, which would bring ACAS to about $1.5B in cash. Not including, you know, other exits ACAS might enjoy in the remaining 2/3 of 2010. ACAS could be protecting itself against the risk of future difficulty raising cash, so it can pay interest ... but in light of ACAS' 2x+ interest coverage, that seems a bit extreme. The initial payment due at the closing of its anticipated debt restructuring is less than $0.5B, so it's not as if ACAS is saving for a downpayment or at high risk of not making interest payments.
Something strategic is afoot. What is it?
If ACAS were to pay off all ECAS' debts, the valuation of ECAS would cease being a defaulted-debtor valuation (no debt means no debt covenant to blow), and ECAS value would soar from $243M to the $700M its assets had as fair value at year-end. But ECAS' assets are likely increasing similarly to ACAS'. The hundreds of millions in increased assets would definitely change ACAS' NAV, putting on a strong quarter of continued NAV increases and enhancing ACAS' appeaarance -- perhaps in the very same quarter in which ACAS restructures its overall debt to eliminate the parent company's default. ACAS could dramatically improve in NAV simply through clever financial engineering of the cure to its debt's technical default.
And with the overhanging debt default evaporating as a weight against valuation, ACAS would likely return toward near-NAV valuation. By the end of 2011, when ACAS is likely forced by prior-year income to issue a dividend again, ACAS' above-NAV valuation could become plausible again.
And then there are all those distressed opportunities ACAS could be chasing with the rest of that cash ....
Although 15% and 21% are excellent annualized returns, they are absolutely ground-trembling in comparison to the hefty negative returns implied in ECAS' valuation since it began investing in Spotless Group in 2005. At the close of 2009, ACAS reported ECAS' "fair value" at $243M. At current exchange rates, the just-received €131M is about US$174M. Not to put too fine a point on it, but not all these numbers are likely correct. I suspect the weak link will prove to be the FAS-157 "fair value" of ECAS (discounted, as it is, by marketplace worries about ECAS' debt situation, which seems pretty good as its 2010 performance has raised cash with exit after exit).
Assuming that ECAS' assets are experiencing valuation improvement akin to ACAS' own, the return of ECAS to near-NAV "fair value" will have a dramatic impact on ACAS' NAV, and presumably also its share price.
Anyone care to speculate on ACAS' use of its hugening pile of cash? (Do you like the word hugening? Just made that up. Thank you very much.) I assume that since ACAS owns ECAS entirely, it reports debts and cash on a consolidated basis; the Spotless Group realization therefore should increase ACAS' cash position from the $835M at year-end to about $1.01B, not including either the $295M from its recent issuance or the $188M expected as the cash portion of its proceeds in the upcoming Mirion IPO, which would bring ACAS to about $1.5B in cash. Not including, you know, other exits ACAS might enjoy in the remaining 2/3 of 2010. ACAS could be protecting itself against the risk of future difficulty raising cash, so it can pay interest ... but in light of ACAS' 2x+ interest coverage, that seems a bit extreme. The initial payment due at the closing of its anticipated debt restructuring is less than $0.5B, so it's not as if ACAS is saving for a downpayment or at high risk of not making interest payments.
Something strategic is afoot. What is it?
If ACAS were to pay off all ECAS' debts, the valuation of ECAS would cease being a defaulted-debtor valuation (no debt means no debt covenant to blow), and ECAS value would soar from $243M to the $700M its assets had as fair value at year-end. But ECAS' assets are likely increasing similarly to ACAS'. The hundreds of millions in increased assets would definitely change ACAS' NAV, putting on a strong quarter of continued NAV increases and enhancing ACAS' appeaarance -- perhaps in the very same quarter in which ACAS restructures its overall debt to eliminate the parent company's default. ACAS could dramatically improve in NAV simply through clever financial engineering of the cure to its debt's technical default.
And with the overhanging debt default evaporating as a weight against valuation, ACAS would likely return toward near-NAV valuation. By the end of 2011, when ACAS is likely forced by prior-year income to issue a dividend again, ACAS' above-NAV valuation could become plausible again.
And then there are all those distressed opportunities ACAS could be chasing with the rest of that cash ....
Monday, April 26, 2010
On Changes
This entry discusses the recent novel Changes by Jim Butcher, the twelfth in the "Dresden Files" urban fantasy series about Chicago's only advertising professional wizard.
If you are new to the "urban fantasy" genre, allow me to give a little background by way of comparison. The 1981 work of Vernor Vinge – True Names (the link leads to an apparently collectible original version; for less money, one can find the story in an anthology also containing essays about its influence: True Names and the Opening of the Cyberspace Frontier) – appears to contain fantasy elements but turns out not to be fantasy at all. The fantasy elements appear only as an interface – a metaphor – in a technological thriller. The sci-fi short story True Names is arguably the first Cyberpunk, and without uncertainty foresaw the virtual worlds that later be described in terms like "cyberspace". Say what you want about William Gibson or Bruce Sterling (for example, I say "read them!") and their work popularizing Cyberpunk, Vernor Vinge seemed to see it all first. That he did it in a slender novella (it's a bit long to call a short story) makes it much easier for the new reader to access. True Names is a miracle of fiction, introducing a genre and making it accessible to the masses in one swoop. To read True Names is to see the leaden weight of the man-against-the-system burden that would come to characterize the Cyberpunk protagonist, and to see the treacherous path between the unmitigated disasters that plague the cyberpunk characters' world, and the solution to the problem of surviving in that world. (And if you like it, you can read scads of it by Gibson and Sterling, and then explore steampunk: cyberpunk-style conflict set in the age of steam engines.)
Urban Fantasy is a close relative of sci-fi in that it is speculative (at the time it is written), but unlike hard sci-fi, Urban Fantasy offers no pretense that its characters' tools and objectives are grounded in the physics of a world you know. Unlike Star Wars or The Hobbit, however, Urban Fantasy does not reassure the reader that the world described therein is in some safely distant galaxy or that it existed in a faraway place at a time the rules were different. To appreciate Urban Fantasy, one might as well look at the first novel of Emma Bull, whose War for the Oaks leads the reader from a conflict between out-of-synch band members and the bar owner who booked them into a conflict still rooted in love and loyalty and outraged justice but nothing like the conflict we expect in the Minneapolis we expect to reach by car. By the time you are done, you know more about the conflicts between faerie creatures and their manipulation of the mortal world than you had any idea was available to learn in a local park, and you are ready to see a live musical act.
Jim Butcher does what few if any urban fantasy writers can claim: he has kept well-crafted storytelling alive for more than a mere six or eight books, and shows every sign of having a plan to keep delivering real stories – full meals, not mere teasers for later books as some tired authors have been reduced to producing – for a long time. Jim Butcher's next work, Ghost Story, is surely more of the same high-quality fare. Stop reading now and go read the series.
== SPOILER ALERT ==
This is a tame, tame spoiler; you get the same reading the first free paragraphs online. Still, you've been warned.
== SPOILER ALERT ==
The premise of Changes (the first one-word title in the Dresden series) is compelling. A man learns for the first time that he has a young daughter – in the same message (the same sentence!) that warns him she's been kidnapped by his mortal enemies. Of course he has to act.
The book is expressly about Dresden's relationships – family relationships, business relationships, relationships with friends/allies, relationships between his allies and their competitors. It's a story about responsibility and consequences. It's a rich ground for believable personal suffering. A great place to set a story. It's a conflict in which we can empathize much more than while Dresden is designing a new spell. I mean, how often have you got to do that? But we all manage our relationships.
Of course, Dresden's relationships produce lots of problems: he's furious his lover never told him they had a child; her ally has no love for him and is against the two being together; his strongest allies are unwilling to help, and he doesn't dare out the girl publicly as his daughter, lest she be used his whole life as a pawn to control him; his confidantes are few and their powers limited. And he learns – from an unexpected new apparent ally – that his enemies, whom he must confront in the seat of their power, possess godlike abilities he has no hope to confront with the power he can muster.
This is laid out with consistency of character, ample action, and plenty of mood lighting. And the fun really begins.
==== EXTRA-TERRIBLE SPOILER ALERT ====
Here, I even discuss stuff seemingly foreshadowed for future Dresden books.
Also: discussion of the book-ending disaster!
Don't read this if you haven't read the books; it's much worse than the spoilers I sometimes discuss because it gets worse and worse as foreshadowing that has materialized is discussed, and the apparent future meaning of new foreshadowing is considered.
You have been warned!
==== EXTRA-TERRIBLE SPOILER ALERT ====
The family-driven issues previously discussed in the Turn Coat review are back with a vengeance. Dresden's deprivation of family is taken to a new level. His deprivation of allies takes a new turn, as does his accumulation of enemies. By book-end, he owns a duffel full of magical curios and the pentagram given him by his mother, and nothing else: his enchanted coat is history, his house has been immolated, his dog has been sent to protect his daughter, he's sent his cat to live with his apprentice while he gets tangled in Winter Court conflicts. The Blue Beetle, which at the open of Storm Front was still blue ...
... is crushed in Changes and with it Dresden's staff. His blasting rod has been blasted. All Dresden has left, really, are his relationships. It's clear at book-end he's about lost even his life. Tearing Dresden down only to build him up again is a definite "yes but" end to the story question whether Dresden will overcome his conflicts. And the questions keep piling up:
The long-standing mystery of Dresden's apparent friend Mac (the proprietor of McAnally's Pub, the un-advertised supernatural hangout-and-accorded-neutral-territory; we can conclude Dresden is an ally because Mac asks Dresden to solve beer-related problems in the short stories Heorot and Day Off) gets advanced sharply toward the front row. The character was long depicted as silent, offering grunts for replies, and giving one-word answers, but in Changes, Mac slips out of character. For the first time the reader has ever seen (Dresden points this out as a Big Event), Mac uses whole sentences and exhibits real grammar as he warns Dresden he's going to have to work hard to keep his head on his shoulders while pursuing the mystery of his apparently missing daughter. It's a clue: the Silent Mac is an act. The Silent Mac is hiding who he really is, what his background is. We've known he was something special at least since Luccio saluted him when Dresden saw her first visit the pub, but it's clear now the background isn't just untold story. We're warned, in case we didn't previously pick up on it, that Mac has a big back story, and given clues Mac has been hiding a while for some purpose net yet disclosed.
The question of "what happened to the original Merlin" is dropped like an Easter Egg later on. The response (along the lines of "gee, nobody seems to know, and we don't think he'd have gone quietly") plainly pleads for the author's eventual answer. And in that regard Butcher has said not only that he knows where Dresden is going, but that his series concludes in an apocalyptic trilogy. Count me as a fan of the theory that as things all go to hell in a handbasket, Mac – the seemingly-fifty master of microbrewery – will reveal himself as Merlin. But technically ... we don't know.
New mysteries aren't the only thing we get. We see the results of off-stage drama, and speculate on more relationships. Dresden's godmother Lea, who appeared previously (in the comi/tragic Proven Guilty ... in which the anti-technological wizard Dresden is put up for auction on eBay while everyone's lives are being ruined in the aftermath of a horror-flick convention that is attacked by vampires and faeries) when she was seen entombed in the ice fountain atop the fortress of the Queen of Winter, where she ranted madly as if possessed or two minds, has been freed to do the bidding of her mistress Mab! We don't know exactly why she was locked up (was it related to the dagger she was given by Bianca so many books ago in Grave Peril?), but we surmise that it was pretty bad from the length of the entombment and the fact that the other character imprisoned atop the tower was executed during a major development in Changes. The question is whether the Lea who is free is the one who in Proven Guilty was trying to advise Dresden to protect himself, or the one who was trying to advise Dresden to free her to commit mischief. And what, exactly, was she charged by Dresden's mother with doing? And what was her price? And what was it Lea was trying to do to Mab when she was incarcerated in the fountain of Winter? So, we get mysteries even as we get answers. It's delicious: every answer a gate to two new questions (more, actually). Fans will love it.
As discussed previously, Changes is largely about family. Dresden's objective is to protect his family (his kidnapped girl), even as he feels it is being shattered (the betrayal felt at his lover's concealment that he had a child). The attack against Dresden is based on his family relationships, even those he doesn't realize have impacted his life from before the opening pages of Storm Front. Dresden's counterattack, in turn, wipes out his enemies' entire family. Dresden learns something about his family's limits: his half-brother is forced to work with Dresden to stop an attack on them all, but the half-brother's own family isn't inclined to lift a finger. Well, at least until the dust is settling. The book's conclusion is of the "yes-but" variety: he may have saved the girl from one fate, but she has no hope of a normal family life if Dresden will have any part of it; and if he doesn't, then he's failed to protect her from the orphan's existence he himself suffered and swore to keep her from. Ahh, the life of the modern wizard. (Maybe Dresden's half-brother, fighting for his life with no help but that arranged by Dresden, will re-commit himself to pulling himself free of the Dark Side. Maybe his attraction to/ hunger for Dresden's apprentice will help him with his perspective on the "people are food" problem. Being the uncle of a girl also promises to give him new questions about his appetites and his need to control them.)
In this book about relationships, Dresden's personal life takes a turn for the complicated: in assuming the mantle of Winter Knight, Dresden risks losing his relationships with ("fragile") mortals, including his daughter and his apparent new lover. As Winter Knight, Dresden's old pal Fix – who at the end of Summer Knight became the Summer Knight – will be gunning for him out of sheer paranoia: having previously shoved a shotgun in his face (if I recall, only a few books previously in Small Favor) over the fear Dresden had become Winter Knight, and after nervously reciting a statistic on the cause of death of the Summer Knights preceding Fix (with an emphasis on the starring role of the Winter Knight), it's sure that Dresden's one-time ally (from way back in Summer Knight, and again in Proven Guilty) will be gunning for Dresden (literally).
Well, if he hasn't already gunned him down. The suspect list is pretty short for the disaster at book-end. But then, human assassins had also been hired to take him out by the Red Court; supernatural enemies like his half-brother's family surely knew (after so many hours without the protection of wards) where he could be found; his armor was gone; and he was distracted by the promise of new love. Maybe Fix hasn't arrived yet, and will arrive just in time to shoot him the minute he gets out of his current predicament.
The nature of that predicament is the likely background for Butcher's next Dresden book – its title, Ghost Story, which one can see at Jim Butcher's site, seems to suggest the nature of Dresden's conflicts. Dresden's been a ghost before, but he hadn't been shot through the heart and had someone on-hand to revive him with CPR. Things are different, now. No matter who shot him, he's in a bad fix.
And how will Dresden get out of the "I'm just about dead" jam? Well, two things work in Harry's favor. First, he's been dead (briefly) and got over it. Remember the twist in Grave Peril? Of course, at that time he expected to be killed in advance, didn't have fatal trauma to the chest, and had an ally pre-prepared standing by to give him CPR. This solution isn't at hand – at least, not by Dresden's design. The second thing to remember is how Dresden got out of his scuffle with Gravine in Dead Beat: he had help there, too. The same help that turned up in White Night. The local copy of the coin-trapped demon Lasciel, bent on seducing him to the Dark Side (as it were), wanted to keep Dresden alive in order to make its investment in his recruitment pay off. After the brain damage sustained in White Night (as the local copy apparently takes a bullet for Dresden so he can escape The Deeps), Dresden suffered a couple of books with chronic headaches. In Changes, those headaches weren't present at all. Their only reference was the mention of Tylenol with codeine Dresden didn't want the FBI to find in his place as he fled into the realm of Faerie as they broke down his door. So, what about those headaches?
After Harry burned his left hand in his fight with Mavra, he couldn't use it for a while and eventually he started using it without thinking about it – gripping his staff in fury, and the like – then, he started using his hand on purpose in physical therapy, eventually using it to play guitar. Remember that guitar-playing he did with the help of Lash, while nobody was looking? And how Lash's influence led him to anger quickly, overreact, and blow things up a bit more than was his wont? And how, after White Night, Dresden couldn't talk to Lash, and nothing seemed to be left than her influence over his guitar-playing? And in the book immediately after, Dresden for reasons he couldn't discover had terrible headaches?
I'm thinking Dresden's head finally healed up, and with it, whatever is left of Lash. (You notice Dresden was awfully quick to anger and had nearly-out-of-control fury for much of the book, requiring intervention to prevent fury-driven assaults while Dresden unconsciously caused runes to glow and fires to grow; this is all quite reminiscent of his behavior under Lash's influence. At the end of the book when he has no bed to sleep on, he doesn't head to the protection of the church, which was a place that made Lash feel sad, but to an unprotected and unwarded boat floating out on a lake known to ground magical powers, where he's been previously ambushed by shooters (e.g., in Proven Guilty.) This speculation is, of course, based on nothing more than my (not always accurate) conclusions about what Butcher has been telegraphing us with his carefully-added but not immediately useful details in the prior books.
Still, little is thrown in without intent. Whose is the woman's voice on that last page, hushing Dresden's memory of Gravine's curse?
(1) Karrin Murphy. Surely the reader wants Karrin Murphy to be with Dresden; it's been long set up, and they were, after all, just about to go on a date. And she's a great rescuer. But this is surely wrong: Dresden has been shot in the chest precisely to prevent his hooking up with Karrin. Continued vulnerability to White Court attacks will become more important with the removal of the Red Court, of course, so succeeding in his evening plans would undermine the effort to keep Dresden in fear of every possible enemy. And you ask: how can you be so cynical as to predict who Dresden's rescuer is by its likelihood to make his problems worse? Fine. Maybe he is allowed to win sometimes. But you can get to the same place by applying logic to the story facts and not just to the story structure: Murphy wasn't expected to be back at the dock yet so she's an unlikely firsthand witness; she can't speak underwater so Dresden would not have heard her whisper; she would not hear Gravines' curse in Dresden's head and could not hush him; and she has no apparent capacity to be able to figure out how to retrieve Dresden from the depths of Lake Michigan without an emergency crew and dive equipment (but perhaps emergency sirens and pen-lights for his eyes are the apparent oncoming train; hope springs eternal). And there's more: a short story (apparently, one that is turning into a novella, despite being part of a short story compilation) from the perspective of Karrin Murphy is in the works, set forty-five minutes after the curtain falls (as it were) in Changes. Presumably, she sees the aftermath (hence the title Aftermath) and isn't on the scene when the curtain falls. (Presumably, the aftermath provides another "yes, but" resolution that places her in a position in which she is unwilling to consider dating Dresden soon, or unable to contact him, or simply ruins her life so she's not available as an ally. Maybe the aftermath is so apparently bad that she takes possession of the magic artifacts and illegal contraband Dresden stashed in the boat to prevent their being found in a subsequent investigation, which also interferes with Harry's access to it.) The voice isn't Murphy.
(2) Mab, Queen of Winter. The "familiar" female voice isn't the description we'd expect of Mab. When Dresden was running up an Aztec pyramid during battle and heard her incomprehensible whisper, he even then recognized his queen. If merely hearing incomprehensible whispers is enough for instant recognition of the Queen of Winter by her Knight, then there's no question the merely familiar voice urging Dresden's memory of Gravine to "hush" is likely not Mab. The cold dark of Lake Michigan in winter is a plausible place of power for the Winter Court, but Mab is not the whispering voice.
(3) Margaret "Le Fay" McCoy. Dresden's mother's voice is certainly familiar after hearing it when soulgazing Thomas and, more recently, while listening to her memories. However, the dead relative who's reached out to Dresden before was his father. And we suspect his mother was destroyed in an attack by Outsiders, which might impact her freedom to reach him. Actually being dead might make him easier for a dead person to reach him, admittedly. Still, how would she know what Dresden heard in his imagination? Why would she be whispering? I'm not betting on Dresden's mother Maggie as the whispering voice . The aid she can give him is likely being carefully restricted by the author, and with it her ability to contact him and spell out the nature of her counterattack against the White King and his relationship with the Outsiders and her mechanism of circumventing Lord Raith's immunity to magical attack. If Dresden could reach her, the secret of the impending apocalypse would be spoiled! Of course she won't be the voice!
(4) Susan. While we're talking about the dead, one wonders whether Susan's violent death will leave her in a position to haunt someone, or protect someone, or the like. We've gotten a little primer on "how one becomes a haunting ghost" in Grave Peril, and one might make an argument that the factors apply. However, we have some of the same problems for Susan as for Margaret: would she know what Gravine said in his head? Or maybe Gravine is haunting Dresden, and is visible to haunting ghosts. Still, I don't think it's Susan: "familiar" doesn't seem to be the description one would expect for her voice; she is too intimate and too recently spoken-to to just be "familiar". I think the "familiar" voice is one he knew well once but hasn't heard in a while. Susan's voice wouldn't be merely "familiar" and it might have the effect of making him at peace with being shot: he loves her, after all. Being at peace isn't Dresden's immediate fate. The voice isn't Susan's ghost.
(5) Lash. Dresden's local copy of the trapped-in-a-coin demon Lasciel is an ideal candidate for Dresden's rescuer because she has (well, had) millennia of experience surviving as a purely-spiritual being. The original Lasciel surely possesses an enormous trove of expertise on survival as a spirit, working magic as a spirit, and taking control of a body; Dresden's local copy, though having changed over the time it's been separated from the original (a reason Butcher can give for decreasing Lash's power: it's lost a lot while Dresden recovered from the injury that knocked Lash offline as White Night reached its climax, and won't necessarily provide a deus ex machina for every conflict), could possess enormously useful and applicable resources. Moreover, not dying is a trick with which Lash can help: as in Dead Beat (the fight with Gravine) and White Night (getting over the Outsider-enhanced psychic attack in order to effect escape from the bomb-rigged caves of the Raith estate), Lash might help slow time (as Dresden perceives it) long enough for Dresden to leverage Winter Court powers or Lash's expertise or the protection of Mab to prevent his death. Even if the expertise on slowing time to fix one's problems is insufficient to save Dresden before his corpse is eaten by something in Lake Michigan, Lash could have techniques useful for fixing things (e.g., Dresden's shot-up body) from the position of a spirit, then taking control of it again. All this is plausible Lash knowledge, and after White Night, it's clear Lash has been converted to Dresden's side. Lash might lack the strength to do more than whisper: if Lash is appearing at all she is, after all, just getting back from the equivalent of a several-year coma. As for fitness with the information we see at the end of Changes: Lash would know what Dresden heard in his imagination, could have responded to it with a command to "hush," and would be an ideal character for saving Dresden's bacon by leveraging Dresden's huge winter-court powers in those last fractional seconds. Lash is my favorite for this job. Lash also offers Butcher a vehicle through which to offer Dresden any tutorial he needs in metaphysical things, while being limited whenever Butcher wants by the excuse that some of her knowledge was blown away or rendered hard to access by the injury sustained in White Night. Besides, we all wanted to see Lash again, right?
Of course, in the next book we could learn Dresden was screaming without realizing it, the "hush" was directed at him by someone unaware of his private fears about Gravine's curse, and we could learn the voice proves Dresden has fallen into the clutches of a returned enemy like the youngest Queen of Winter, who would likely have a lot of power in the cold waters of Lake Michigan in winter. Her price for help could be steep ....
One question is whether, if Dresden dies briefly, he'll lose the mantle of the Winter Knight and thereby invoke the wrath of Mab for escaping servitude, but thereafter be free. Hmm. Too easy? Yeah. Dresden has to spend time squaring Mab's orders to kill (presumably with magic) with his commitment to the Laws of Magic. And so long as Dresden retains the mantle of Winter Knight, he presumably has committed enemies like the eldest Gruff and other highly-powerful beings capable of causing Dresden trouble. And, of course, the White Council won't be happy to worry he's become a tool of outsiders – his access to allies will only shrink while he is allied with the Winter Court. (The flip side is that although everyone knows he's the Winter Knight because Mab made it a public event for all of faerie, nobody would know he lost it and everyone would target him all the same. Ohh, this could be the best of both worlds: losing power, making enemies of Summer, and making a serious personal enemy of Mab. Perfect!)
The title Ghost Story suggests we may spend quite a while in the next book learning how Dresden gets out of his current scrape, and I for one can't wait to start.
=====
Extra-awful-Spoiler
Do-not-read-if-your-name-is-Jim-Butcher
I don't want to poison anything you might be thinking of writing but not yet committed to --
So stop!
=====
Speculation or foreshadowing?
Discussing his godmother's duties with the freed Lea, Harry considers what legacy he would leave, and realizes the only thing that can't easily be replaced is knowledge. Harry's possession of his mother's memory of the Ways may turn out to contain more knowledge than just the Ways: it may be able to answer questions about where she went last, and offer clues to how she circumvented Raith and the Outsiders with her death curse. It also suggests the legacy Harry may try leaving to Maggie, and the legacy Dresden's ancestors may be seeking to leave him. Why is it Odin takes such a curiosity in the young wizard? Why did Odin first train Merlin? How big is Dresden's family? What was Odin's real reason for thwarting a curse on Dresden's entire family? The family relationships and the web of clues could be getting interesting, indeed. Harry's vulnerability to the White Court will mirror that of his dead mother's now that he's lost protection against their attacks and they know it, and he will surely find himself looking (as his mother did) for solutions. The lesson on vampire vulnerability he learned from Lea will surely become important in Harry's effort to stay ahead of the vampires. Harry's brother is an interesting problem; will he end up in a coup d'état? Cured of vampirism? Martyred for love? Enslaved to his addictions and hunted as a murderer and enemy? What of Molly's attraction to him? So many questions invited by Butcher's Changes.
Definitely proof Butcher is till atop his game, and still looking down the road to the ending he's got in mind. Here's to another twelve years of Dresden books!
If you are new to the "urban fantasy" genre, allow me to give a little background by way of comparison. The 1981 work of Vernor Vinge – True Names (the link leads to an apparently collectible original version; for less money, one can find the story in an anthology also containing essays about its influence: True Names and the Opening of the Cyberspace Frontier) – appears to contain fantasy elements but turns out not to be fantasy at all. The fantasy elements appear only as an interface – a metaphor – in a technological thriller. The sci-fi short story True Names is arguably the first Cyberpunk, and without uncertainty foresaw the virtual worlds that later be described in terms like "cyberspace". Say what you want about William Gibson or Bruce Sterling (for example, I say "read them!") and their work popularizing Cyberpunk, Vernor Vinge seemed to see it all first. That he did it in a slender novella (it's a bit long to call a short story) makes it much easier for the new reader to access. True Names is a miracle of fiction, introducing a genre and making it accessible to the masses in one swoop. To read True Names is to see the leaden weight of the man-against-the-system burden that would come to characterize the Cyberpunk protagonist, and to see the treacherous path between the unmitigated disasters that plague the cyberpunk characters' world, and the solution to the problem of surviving in that world. (And if you like it, you can read scads of it by Gibson and Sterling, and then explore steampunk: cyberpunk-style conflict set in the age of steam engines.)
Urban Fantasy is a close relative of sci-fi in that it is speculative (at the time it is written), but unlike hard sci-fi, Urban Fantasy offers no pretense that its characters' tools and objectives are grounded in the physics of a world you know. Unlike Star Wars or The Hobbit, however, Urban Fantasy does not reassure the reader that the world described therein is in some safely distant galaxy or that it existed in a faraway place at a time the rules were different. To appreciate Urban Fantasy, one might as well look at the first novel of Emma Bull, whose War for the Oaks leads the reader from a conflict between out-of-synch band members and the bar owner who booked them into a conflict still rooted in love and loyalty and outraged justice but nothing like the conflict we expect in the Minneapolis we expect to reach by car. By the time you are done, you know more about the conflicts between faerie creatures and their manipulation of the mortal world than you had any idea was available to learn in a local park, and you are ready to see a live musical act.
Jim Butcher does what few if any urban fantasy writers can claim: he has kept well-crafted storytelling alive for more than a mere six or eight books, and shows every sign of having a plan to keep delivering real stories – full meals, not mere teasers for later books as some tired authors have been reduced to producing – for a long time. Jim Butcher's next work, Ghost Story, is surely more of the same high-quality fare. Stop reading now and go read the series.
== SPOILER ALERT ==
This is a tame, tame spoiler; you get the same reading the first free paragraphs online. Still, you've been warned.
== SPOILER ALERT ==
The premise of Changes (the first one-word title in the Dresden series) is compelling. A man learns for the first time that he has a young daughter – in the same message (the same sentence!) that warns him she's been kidnapped by his mortal enemies. Of course he has to act.
The book is expressly about Dresden's relationships – family relationships, business relationships, relationships with friends/allies, relationships between his allies and their competitors. It's a story about responsibility and consequences. It's a rich ground for believable personal suffering. A great place to set a story. It's a conflict in which we can empathize much more than while Dresden is designing a new spell. I mean, how often have you got to do that? But we all manage our relationships.
Of course, Dresden's relationships produce lots of problems: he's furious his lover never told him they had a child; her ally has no love for him and is against the two being together; his strongest allies are unwilling to help, and he doesn't dare out the girl publicly as his daughter, lest she be used his whole life as a pawn to control him; his confidantes are few and their powers limited. And he learns – from an unexpected new apparent ally – that his enemies, whom he must confront in the seat of their power, possess godlike abilities he has no hope to confront with the power he can muster.
This is laid out with consistency of character, ample action, and plenty of mood lighting. And the fun really begins.
==== EXTRA-TERRIBLE SPOILER ALERT ====
Here, I even discuss stuff seemingly foreshadowed for future Dresden books.
Also: discussion of the book-ending disaster!
Don't read this if you haven't read the books; it's much worse than the spoilers I sometimes discuss because it gets worse and worse as foreshadowing that has materialized is discussed, and the apparent future meaning of new foreshadowing is considered.
You have been warned!
==== EXTRA-TERRIBLE SPOILER ALERT ====
The family-driven issues previously discussed in the Turn Coat review are back with a vengeance. Dresden's deprivation of family is taken to a new level. His deprivation of allies takes a new turn, as does his accumulation of enemies. By book-end, he owns a duffel full of magical curios and the pentagram given him by his mother, and nothing else: his enchanted coat is history, his house has been immolated, his dog has been sent to protect his daughter, he's sent his cat to live with his apprentice while he gets tangled in Winter Court conflicts. The Blue Beetle, which at the open of Storm Front was still blue ...
... is crushed in Changes and with it Dresden's staff. His blasting rod has been blasted. All Dresden has left, really, are his relationships. It's clear at book-end he's about lost even his life. Tearing Dresden down only to build him up again is a definite "yes but" end to the story question whether Dresden will overcome his conflicts. And the questions keep piling up:
The long-standing mystery of Dresden's apparent friend Mac (the proprietor of McAnally's Pub, the un-advertised supernatural hangout-and-accorded-neutral-territory; we can conclude Dresden is an ally because Mac asks Dresden to solve beer-related problems in the short stories Heorot and Day Off) gets advanced sharply toward the front row. The character was long depicted as silent, offering grunts for replies, and giving one-word answers, but in Changes, Mac slips out of character. For the first time the reader has ever seen (Dresden points this out as a Big Event), Mac uses whole sentences and exhibits real grammar as he warns Dresden he's going to have to work hard to keep his head on his shoulders while pursuing the mystery of his apparently missing daughter. It's a clue: the Silent Mac is an act. The Silent Mac is hiding who he really is, what his background is. We've known he was something special at least since Luccio saluted him when Dresden saw her first visit the pub, but it's clear now the background isn't just untold story. We're warned, in case we didn't previously pick up on it, that Mac has a big back story, and given clues Mac has been hiding a while for some purpose net yet disclosed.
The question of "what happened to the original Merlin" is dropped like an Easter Egg later on. The response (along the lines of "gee, nobody seems to know, and we don't think he'd have gone quietly") plainly pleads for the author's eventual answer. And in that regard Butcher has said not only that he knows where Dresden is going, but that his series concludes in an apocalyptic trilogy. Count me as a fan of the theory that as things all go to hell in a handbasket, Mac – the seemingly-fifty master of microbrewery – will reveal himself as Merlin. But technically ... we don't know.
New mysteries aren't the only thing we get. We see the results of off-stage drama, and speculate on more relationships. Dresden's godmother Lea, who appeared previously (in the comi/tragic Proven Guilty ... in which the anti-technological wizard Dresden is put up for auction on eBay while everyone's lives are being ruined in the aftermath of a horror-flick convention that is attacked by vampires and faeries) when she was seen entombed in the ice fountain atop the fortress of the Queen of Winter, where she ranted madly as if possessed or two minds, has been freed to do the bidding of her mistress Mab! We don't know exactly why she was locked up (was it related to the dagger she was given by Bianca so many books ago in Grave Peril?), but we surmise that it was pretty bad from the length of the entombment and the fact that the other character imprisoned atop the tower was executed during a major development in Changes. The question is whether the Lea who is free is the one who in Proven Guilty was trying to advise Dresden to protect himself, or the one who was trying to advise Dresden to free her to commit mischief. And what, exactly, was she charged by Dresden's mother with doing? And what was her price? And what was it Lea was trying to do to Mab when she was incarcerated in the fountain of Winter? So, we get mysteries even as we get answers. It's delicious: every answer a gate to two new questions (more, actually). Fans will love it.
As discussed previously, Changes is largely about family. Dresden's objective is to protect his family (his kidnapped girl), even as he feels it is being shattered (the betrayal felt at his lover's concealment that he had a child). The attack against Dresden is based on his family relationships, even those he doesn't realize have impacted his life from before the opening pages of Storm Front. Dresden's counterattack, in turn, wipes out his enemies' entire family. Dresden learns something about his family's limits: his half-brother is forced to work with Dresden to stop an attack on them all, but the half-brother's own family isn't inclined to lift a finger. Well, at least until the dust is settling. The book's conclusion is of the "yes-but" variety: he may have saved the girl from one fate, but she has no hope of a normal family life if Dresden will have any part of it; and if he doesn't, then he's failed to protect her from the orphan's existence he himself suffered and swore to keep her from. Ahh, the life of the modern wizard. (Maybe Dresden's half-brother, fighting for his life with no help but that arranged by Dresden, will re-commit himself to pulling himself free of the Dark Side. Maybe his attraction to/ hunger for Dresden's apprentice will help him with his perspective on the "people are food" problem. Being the uncle of a girl also promises to give him new questions about his appetites and his need to control them.)
In this book about relationships, Dresden's personal life takes a turn for the complicated: in assuming the mantle of Winter Knight, Dresden risks losing his relationships with ("fragile") mortals, including his daughter and his apparent new lover. As Winter Knight, Dresden's old pal Fix – who at the end of Summer Knight became the Summer Knight – will be gunning for him out of sheer paranoia: having previously shoved a shotgun in his face (if I recall, only a few books previously in Small Favor) over the fear Dresden had become Winter Knight, and after nervously reciting a statistic on the cause of death of the Summer Knights preceding Fix (with an emphasis on the starring role of the Winter Knight), it's sure that Dresden's one-time ally (from way back in Summer Knight, and again in Proven Guilty) will be gunning for Dresden (literally).
Well, if he hasn't already gunned him down. The suspect list is pretty short for the disaster at book-end. But then, human assassins had also been hired to take him out by the Red Court; supernatural enemies like his half-brother's family surely knew (after so many hours without the protection of wards) where he could be found; his armor was gone; and he was distracted by the promise of new love. Maybe Fix hasn't arrived yet, and will arrive just in time to shoot him the minute he gets out of his current predicament.
The nature of that predicament is the likely background for Butcher's next Dresden book – its title, Ghost Story, which one can see at Jim Butcher's site, seems to suggest the nature of Dresden's conflicts. Dresden's been a ghost before, but he hadn't been shot through the heart and had someone on-hand to revive him with CPR. Things are different, now. No matter who shot him, he's in a bad fix.
And how will Dresden get out of the "I'm just about dead" jam? Well, two things work in Harry's favor. First, he's been dead (briefly) and got over it. Remember the twist in Grave Peril? Of course, at that time he expected to be killed in advance, didn't have fatal trauma to the chest, and had an ally pre-prepared standing by to give him CPR. This solution isn't at hand – at least, not by Dresden's design. The second thing to remember is how Dresden got out of his scuffle with Gravine in Dead Beat: he had help there, too. The same help that turned up in White Night. The local copy of the coin-trapped demon Lasciel, bent on seducing him to the Dark Side (as it were), wanted to keep Dresden alive in order to make its investment in his recruitment pay off. After the brain damage sustained in White Night (as the local copy apparently takes a bullet for Dresden so he can escape The Deeps), Dresden suffered a couple of books with chronic headaches. In Changes, those headaches weren't present at all. Their only reference was the mention of Tylenol with codeine Dresden didn't want the FBI to find in his place as he fled into the realm of Faerie as they broke down his door. So, what about those headaches?
After Harry burned his left hand in his fight with Mavra, he couldn't use it for a while and eventually he started using it without thinking about it – gripping his staff in fury, and the like – then, he started using his hand on purpose in physical therapy, eventually using it to play guitar. Remember that guitar-playing he did with the help of Lash, while nobody was looking? And how Lash's influence led him to anger quickly, overreact, and blow things up a bit more than was his wont? And how, after White Night, Dresden couldn't talk to Lash, and nothing seemed to be left than her influence over his guitar-playing? And in the book immediately after, Dresden for reasons he couldn't discover had terrible headaches?
I'm thinking Dresden's head finally healed up, and with it, whatever is left of Lash. (You notice Dresden was awfully quick to anger and had nearly-out-of-control fury for much of the book, requiring intervention to prevent fury-driven assaults while Dresden unconsciously caused runes to glow and fires to grow; this is all quite reminiscent of his behavior under Lash's influence. At the end of the book when he has no bed to sleep on, he doesn't head to the protection of the church, which was a place that made Lash feel sad, but to an unprotected and unwarded boat floating out on a lake known to ground magical powers, where he's been previously ambushed by shooters (e.g., in Proven Guilty.) This speculation is, of course, based on nothing more than my (not always accurate) conclusions about what Butcher has been telegraphing us with his carefully-added but not immediately useful details in the prior books.
Still, little is thrown in without intent. Whose is the woman's voice on that last page, hushing Dresden's memory of Gravine's curse?
(1) Karrin Murphy. Surely the reader wants Karrin Murphy to be with Dresden; it's been long set up, and they were, after all, just about to go on a date. And she's a great rescuer. But this is surely wrong: Dresden has been shot in the chest precisely to prevent his hooking up with Karrin. Continued vulnerability to White Court attacks will become more important with the removal of the Red Court, of course, so succeeding in his evening plans would undermine the effort to keep Dresden in fear of every possible enemy. And you ask: how can you be so cynical as to predict who Dresden's rescuer is by its likelihood to make his problems worse? Fine. Maybe he is allowed to win sometimes. But you can get to the same place by applying logic to the story facts and not just to the story structure: Murphy wasn't expected to be back at the dock yet so she's an unlikely firsthand witness; she can't speak underwater so Dresden would not have heard her whisper; she would not hear Gravines' curse in Dresden's head and could not hush him; and she has no apparent capacity to be able to figure out how to retrieve Dresden from the depths of Lake Michigan without an emergency crew and dive equipment (but perhaps emergency sirens and pen-lights for his eyes are the apparent oncoming train; hope springs eternal). And there's more: a short story (apparently, one that is turning into a novella, despite being part of a short story compilation) from the perspective of Karrin Murphy is in the works, set forty-five minutes after the curtain falls (as it were) in Changes. Presumably, she sees the aftermath (hence the title Aftermath) and isn't on the scene when the curtain falls. (Presumably, the aftermath provides another "yes, but" resolution that places her in a position in which she is unwilling to consider dating Dresden soon, or unable to contact him, or simply ruins her life so she's not available as an ally. Maybe the aftermath is so apparently bad that she takes possession of the magic artifacts and illegal contraband Dresden stashed in the boat to prevent their being found in a subsequent investigation, which also interferes with Harry's access to it.) The voice isn't Murphy.
(2) Mab, Queen of Winter. The "familiar" female voice isn't the description we'd expect of Mab. When Dresden was running up an Aztec pyramid during battle and heard her incomprehensible whisper, he even then recognized his queen. If merely hearing incomprehensible whispers is enough for instant recognition of the Queen of Winter by her Knight, then there's no question the merely familiar voice urging Dresden's memory of Gravine to "hush" is likely not Mab. The cold dark of Lake Michigan in winter is a plausible place of power for the Winter Court, but Mab is not the whispering voice.
(3) Margaret "Le Fay" McCoy. Dresden's mother's voice is certainly familiar after hearing it when soulgazing Thomas and, more recently, while listening to her memories. However, the dead relative who's reached out to Dresden before was his father. And we suspect his mother was destroyed in an attack by Outsiders, which might impact her freedom to reach him. Actually being dead might make him easier for a dead person to reach him, admittedly. Still, how would she know what Dresden heard in his imagination? Why would she be whispering? I'm not betting on Dresden's mother Maggie as the whispering voice . The aid she can give him is likely being carefully restricted by the author, and with it her ability to contact him and spell out the nature of her counterattack against the White King and his relationship with the Outsiders and her mechanism of circumventing Lord Raith's immunity to magical attack. If Dresden could reach her, the secret of the impending apocalypse would be spoiled! Of course she won't be the voice!
(4) Susan. While we're talking about the dead, one wonders whether Susan's violent death will leave her in a position to haunt someone, or protect someone, or the like. We've gotten a little primer on "how one becomes a haunting ghost" in Grave Peril, and one might make an argument that the factors apply. However, we have some of the same problems for Susan as for Margaret: would she know what Gravine said in his head? Or maybe Gravine is haunting Dresden, and is visible to haunting ghosts. Still, I don't think it's Susan: "familiar" doesn't seem to be the description one would expect for her voice; she is too intimate and too recently spoken-to to just be "familiar". I think the "familiar" voice is one he knew well once but hasn't heard in a while. Susan's voice wouldn't be merely "familiar" and it might have the effect of making him at peace with being shot: he loves her, after all. Being at peace isn't Dresden's immediate fate. The voice isn't Susan's ghost.
(5) Lash. Dresden's local copy of the trapped-in-a-coin demon Lasciel is an ideal candidate for Dresden's rescuer because she has (well, had) millennia of experience surviving as a purely-spiritual being. The original Lasciel surely possesses an enormous trove of expertise on survival as a spirit, working magic as a spirit, and taking control of a body; Dresden's local copy, though having changed over the time it's been separated from the original (a reason Butcher can give for decreasing Lash's power: it's lost a lot while Dresden recovered from the injury that knocked Lash offline as White Night reached its climax, and won't necessarily provide a deus ex machina for every conflict), could possess enormously useful and applicable resources. Moreover, not dying is a trick with which Lash can help: as in Dead Beat (the fight with Gravine) and White Night (getting over the Outsider-enhanced psychic attack in order to effect escape from the bomb-rigged caves of the Raith estate), Lash might help slow time (as Dresden perceives it) long enough for Dresden to leverage Winter Court powers or Lash's expertise or the protection of Mab to prevent his death. Even if the expertise on slowing time to fix one's problems is insufficient to save Dresden before his corpse is eaten by something in Lake Michigan, Lash could have techniques useful for fixing things (e.g., Dresden's shot-up body) from the position of a spirit, then taking control of it again. All this is plausible Lash knowledge, and after White Night, it's clear Lash has been converted to Dresden's side. Lash might lack the strength to do more than whisper: if Lash is appearing at all she is, after all, just getting back from the equivalent of a several-year coma. As for fitness with the information we see at the end of Changes: Lash would know what Dresden heard in his imagination, could have responded to it with a command to "hush," and would be an ideal character for saving Dresden's bacon by leveraging Dresden's huge winter-court powers in those last fractional seconds. Lash is my favorite for this job. Lash also offers Butcher a vehicle through which to offer Dresden any tutorial he needs in metaphysical things, while being limited whenever Butcher wants by the excuse that some of her knowledge was blown away or rendered hard to access by the injury sustained in White Night. Besides, we all wanted to see Lash again, right?
Of course, in the next book we could learn Dresden was screaming without realizing it, the "hush" was directed at him by someone unaware of his private fears about Gravine's curse, and we could learn the voice proves Dresden has fallen into the clutches of a returned enemy like the youngest Queen of Winter, who would likely have a lot of power in the cold waters of Lake Michigan in winter. Her price for help could be steep ....
One question is whether, if Dresden dies briefly, he'll lose the mantle of the Winter Knight and thereby invoke the wrath of Mab for escaping servitude, but thereafter be free. Hmm. Too easy? Yeah. Dresden has to spend time squaring Mab's orders to kill (presumably with magic) with his commitment to the Laws of Magic. And so long as Dresden retains the mantle of Winter Knight, he presumably has committed enemies like the eldest Gruff and other highly-powerful beings capable of causing Dresden trouble. And, of course, the White Council won't be happy to worry he's become a tool of outsiders – his access to allies will only shrink while he is allied with the Winter Court. (The flip side is that although everyone knows he's the Winter Knight because Mab made it a public event for all of faerie, nobody would know he lost it and everyone would target him all the same. Ohh, this could be the best of both worlds: losing power, making enemies of Summer, and making a serious personal enemy of Mab. Perfect!)
The title Ghost Story suggests we may spend quite a while in the next book learning how Dresden gets out of his current scrape, and I for one can't wait to start.
=====
Extra-awful-Spoiler
Do-not-read-if-your-name-is-Jim-Butcher
I don't want to poison anything you might be thinking of writing but not yet committed to --
So stop!
=====
Speculation or foreshadowing?
Discussing his godmother's duties with the freed Lea, Harry considers what legacy he would leave, and realizes the only thing that can't easily be replaced is knowledge. Harry's possession of his mother's memory of the Ways may turn out to contain more knowledge than just the Ways: it may be able to answer questions about where she went last, and offer clues to how she circumvented Raith and the Outsiders with her death curse. It also suggests the legacy Harry may try leaving to Maggie, and the legacy Dresden's ancestors may be seeking to leave him. Why is it Odin takes such a curiosity in the young wizard? Why did Odin first train Merlin? How big is Dresden's family? What was Odin's real reason for thwarting a curse on Dresden's entire family? The family relationships and the web of clues could be getting interesting, indeed. Harry's vulnerability to the White Court will mirror that of his dead mother's now that he's lost protection against their attacks and they know it, and he will surely find himself looking (as his mother did) for solutions. The lesson on vampire vulnerability he learned from Lea will surely become important in Harry's effort to stay ahead of the vampires. Harry's brother is an interesting problem; will he end up in a coup d'état? Cured of vampirism? Martyred for love? Enslaved to his addictions and hunted as a murderer and enemy? What of Molly's attraction to him? So many questions invited by Butcher's Changes.
Definitely proof Butcher is till atop his game, and still looking down the road to the ending he's got in mind. Here's to another twelve years of Dresden books!
Thursday, April 22, 2010
On Apple and ARM
With Google buying the company formed by Apple's just-departed PA Semi engineers, the rumored Apple purchase of ARM might be a defensive measure intended to make sure that it didn't get frozen out of the best designs in the ARM segment. Google's purpose might be to provide set-top web access on every television it can reach, which would lead it into competition with Apple's "still-just-a-hobby" project, AppleTV.
Another purpose is margins. Apple could foresee a future in which companies are forced to compete on price for functionally similar devices (especially as patents expire), and Apple has announced it wants to own the primary technology in every device it creates. The statement, first given by Jobs years ago, was echoed by Tim Cook more recently. By owning the ARM technology, it will be the only ARM vendor with no per-unit ARM licensing fee. This is a margins win. It also allows Apple to contribute to and guide future ARM development, know about the ARM roadmap, and attract engineers with a desire to have their work in devices all over the world. Apple could license the things ARM now licenses, and collect royalties, without sacrificing the ability to deliver unique implementations.
Since the value in ARM is in its worldwide licensing, it might be hard to see Apple demolishing that overnight. Just as Apple maintained PA Semi's military supply contracts when it bought the company, Apple will surely maintain existing licenses even if only to avoid the expense of buying them out of whatever contract term exists in the ARM license.
And I wonder what goodies Apple Legal might consider inserting in the next ARM license. Hmm.
Another purpose is margins. Apple could foresee a future in which companies are forced to compete on price for functionally similar devices (especially as patents expire), and Apple has announced it wants to own the primary technology in every device it creates. The statement, first given by Jobs years ago, was echoed by Tim Cook more recently. By owning the ARM technology, it will be the only ARM vendor with no per-unit ARM licensing fee. This is a margins win. It also allows Apple to contribute to and guide future ARM development, know about the ARM roadmap, and attract engineers with a desire to have their work in devices all over the world. Apple could license the things ARM now licenses, and collect royalties, without sacrificing the ability to deliver unique implementations.
Since the value in ARM is in its worldwide licensing, it might be hard to see Apple demolishing that overnight. Just as Apple maintained PA Semi's military supply contracts when it bought the company, Apple will surely maintain existing licenses even if only to avoid the expense of buying them out of whatever contract term exists in the ARM license.
And I wonder what goodies Apple Legal might consider inserting in the next ARM license. Hmm.
Tuesday, April 20, 2010
Bond Bummer
Imagine this: you have spent a small fortune developing a major international blockbuster film involving one of the most highly-recognized action characters in the history of film, and because your distributor has financial concerns, you decide to sit on the film for another year.
Sound crazy? Read about it.
MGM is sitting on an apparently-all-filmed James Bond movie starring the best James Bond they ever had (the James Craig Casino Royale remake being the best Bond film ever, see it). Rather than get solve the distribution funding issues with a business deal, MGM apparently wants to leave this to collect dust on the shelf until MGM is sold to someone.
Groan.
Time value of money, anyone?
Sound crazy? Read about it.
MGM is sitting on an apparently-all-filmed James Bond movie starring the best James Bond they ever had (the James Craig Casino Royale remake being the best Bond film ever, see it). Rather than get solve the distribution funding issues with a business deal, MGM apparently wants to leave this to collect dust on the shelf until MGM is sold to someone.
Groan.
Time value of money, anyone?
AAPL: $13.5B Quarter
Good news for Apple investors. Some points to think about:
Apple's iPod unit sales were steady, but the iPod Touch component was on fire, with an iPod Touch revenue growth of 63% year-over-year. Apple may be doing to music players what it did with computers, convincing people to pay more for more and taking greater profits in the process. Apple's iPod inventory is 4-6 weeks, which is what Apple tends to target.
Apple's Mac sales were up 33%, which must mean Apple gained share because the industry was only up 24%. Apple set a new quarterly record for Mac revenue.
Apple's iPhone, which took J.D. Power's top spot again, sold 8.75m units for $5.3B, an average of $600 each. The iPhone is on fire, setting a new quarterly record. Apple's phone sales growth is three times that of the industry, so Apple is taking share even as it maintains profits. Photos of Apple's next iPhone are also in high demand ... I'll be all over an 80GB 4G iPhone that lets me finally replace my iPod while letting me carry all my current work files. Imagine DropBox running on your iPhone so you can't lose your data even though you have only one "computer". But back to the earnings call: China's iPhone sales have multiplied about 9x, and the product enjoys 800 more points of distribution than it did a year previously. Only the U.S., Spain, and Germany have carrier-exclusivity agreements at present. When Apple's iPhone 3G became available last year at a subsidized price of $99, Apple was surprised how many people still bought the iPhone 3GS. Apple is clearly attracting a consumer with premium tastes and willingness to spend to get Apple's premium products in the phone segment.
Apple's iPad is selling well, a fact so anticipated that it has already impacted eBook pricing. (Okay, Apple calls them iBooks, but this seems confusing because the consumer notebooks were recently called iBooks, so I say eBooks for now.) Apple's comment was that it had high hopes for the iPad, and it's exceeded those. Apple will report iPad revenues as it does iPhone revenues, with a separate line item.
Apple's retail results are strong and strengthening. In China, Apple will launch 2 stores in Shanghai this summer and will have 20 in China by the end of 2011. Half of Apple's retail sales are still to new-to-Mac buyers. $5.9M/store average revenue and increases in per-store revenue; cash flow from established stores are strong.
AppleTV is up 34% y/y, but this is a tiny number, representing a hobby. AppleTV and the iAd platform both allow Apple to learn how to compete in this arena, and represent investments in the future more than they represent current profit centers. Apple predicted iAd not being meaningful to the bottom line in 2010, but offering an opportunity for Apple to learn about the advertising space.
App Store and iTunes Store still exist to make the products more valuable, not to represent a major revenue source. Both operate at slightly above break-even (recall, Apple transmits lots of free apps and doesn't yet share any ad revenue).
In short, Apple is rocking along very nicely. Apple's announced iPhone OS and accidentally-released hardware suggest that Apple's future product releases are going to be well-received. I'm definitely still in for the long term.
Apple's iPod unit sales were steady, but the iPod Touch component was on fire, with an iPod Touch revenue growth of 63% year-over-year. Apple may be doing to music players what it did with computers, convincing people to pay more for more and taking greater profits in the process. Apple's iPod inventory is 4-6 weeks, which is what Apple tends to target.
Apple's Mac sales were up 33%, which must mean Apple gained share because the industry was only up 24%. Apple set a new quarterly record for Mac revenue.
Apple's iPhone, which took J.D. Power's top spot again, sold 8.75m units for $5.3B, an average of $600 each. The iPhone is on fire, setting a new quarterly record. Apple's phone sales growth is three times that of the industry, so Apple is taking share even as it maintains profits. Photos of Apple's next iPhone are also in high demand ... I'll be all over an 80GB 4G iPhone that lets me finally replace my iPod while letting me carry all my current work files. Imagine DropBox running on your iPhone so you can't lose your data even though you have only one "computer". But back to the earnings call: China's iPhone sales have multiplied about 9x, and the product enjoys 800 more points of distribution than it did a year previously. Only the U.S., Spain, and Germany have carrier-exclusivity agreements at present. When Apple's iPhone 3G became available last year at a subsidized price of $99, Apple was surprised how many people still bought the iPhone 3GS. Apple is clearly attracting a consumer with premium tastes and willingness to spend to get Apple's premium products in the phone segment.
Apple's iPad is selling well, a fact so anticipated that it has already impacted eBook pricing. (Okay, Apple calls them iBooks, but this seems confusing because the consumer notebooks were recently called iBooks, so I say eBooks for now.) Apple's comment was that it had high hopes for the iPad, and it's exceeded those. Apple will report iPad revenues as it does iPhone revenues, with a separate line item.
Apple's retail results are strong and strengthening. In China, Apple will launch 2 stores in Shanghai this summer and will have 20 in China by the end of 2011. Half of Apple's retail sales are still to new-to-Mac buyers. $5.9M/store average revenue and increases in per-store revenue; cash flow from established stores are strong.
AppleTV is up 34% y/y, but this is a tiny number, representing a hobby. AppleTV and the iAd platform both allow Apple to learn how to compete in this arena, and represent investments in the future more than they represent current profit centers. Apple predicted iAd not being meaningful to the bottom line in 2010, but offering an opportunity for Apple to learn about the advertising space.
App Store and iTunes Store still exist to make the products more valuable, not to represent a major revenue source. Both operate at slightly above break-even (recall, Apple transmits lots of free apps and doesn't yet share any ad revenue).
In short, Apple is rocking along very nicely. Apple's announced iPhone OS and accidentally-released hardware suggest that Apple's future product releases are going to be well-received. I'm definitely still in for the long term.
On ACAS' Issuance
Prelude:
Today, my paper loss in ACAS has declined to less than half my basis. This means that if ACAS – which as I mentioned is now a 10-bagger off its 2009 nadir – doubles again, I'll be in the black.
Sound crazy?
Consider that over most of the history of ACAS, it's traded at a premium to its net asset value. Currently, ACAS is trading at a steep discount to NAV. The fact that the street can get excited enough to bid ACAS to $6 on the strength of news ACAS issued shares at $5 is something that should make one stop and think a bit about just how undervalued ACAS is just now.
The Main Event:
I suspect (on the basis of the crazy analysis I've heard of the ACAS issuance, and on the strength of the identity of the major buyer) that ACAS' buyers weren't creditors being paid to accept strange credit terms, but genuine investors interested in what ACAS can do with $300m in cash that's not locked up in a forebearance agreement with longstanding creditors. In my fantasies, this is a distressed asset purchase that turns out to be a gold mine. Of course, it's possible that the distressed-asset buyer that invested in ACAS did so on the basis of the manipulation of an accounting principle – that is, that ACAS can, by doing something trivial like paying debt owed by ECAS, cause ECAS to be revalued in such a way as to impact now only ACAS' NAV, but ACAS' ability to function normally.
The other time ACAS issued "dilutive" shares was to buy ECAS, which was also trading well below NAV – so much so that the net effect of the transaction was accretive. I suspect that ACAS has another transaction in mind that similarly involves known quantities and does not involve speculating on the future performance of some new acquisition target. The question is whether it's some sexy distressed-asset find with a future potential that makes it a steal, or whether (like the ECAS purchase) it's an accounting-driven transaction designed primarily to revalue existing assets. A one-time accounting bump might not be a big benefit for long-term holders, while a super-discounted quality asset could pay off for years. You can see where my heart is. Still, a short-term accounting-driven transaction could set ACAS up for a much better negotiating position with its creditors, which has long-term benefits of its own.
We may learn more May 5, when management discusses its May 4 report of its 1Q2010 results.
Today, my paper loss in ACAS has declined to less than half my basis. This means that if ACAS – which as I mentioned is now a 10-bagger off its 2009 nadir – doubles again, I'll be in the black.
Sound crazy?
Consider that over most of the history of ACAS, it's traded at a premium to its net asset value. Currently, ACAS is trading at a steep discount to NAV. The fact that the street can get excited enough to bid ACAS to $6 on the strength of news ACAS issued shares at $5 is something that should make one stop and think a bit about just how undervalued ACAS is just now.
The Main Event:
I suspect (on the basis of the crazy analysis I've heard of the ACAS issuance, and on the strength of the identity of the major buyer) that ACAS' buyers weren't creditors being paid to accept strange credit terms, but genuine investors interested in what ACAS can do with $300m in cash that's not locked up in a forebearance agreement with longstanding creditors. In my fantasies, this is a distressed asset purchase that turns out to be a gold mine. Of course, it's possible that the distressed-asset buyer that invested in ACAS did so on the basis of the manipulation of an accounting principle – that is, that ACAS can, by doing something trivial like paying debt owed by ECAS, cause ECAS to be revalued in such a way as to impact now only ACAS' NAV, but ACAS' ability to function normally.
The other time ACAS issued "dilutive" shares was to buy ECAS, which was also trading well below NAV – so much so that the net effect of the transaction was accretive. I suspect that ACAS has another transaction in mind that similarly involves known quantities and does not involve speculating on the future performance of some new acquisition target. The question is whether it's some sexy distressed-asset find with a future potential that makes it a steal, or whether (like the ECAS purchase) it's an accounting-driven transaction designed primarily to revalue existing assets. A one-time accounting bump might not be a big benefit for long-term holders, while a super-discounted quality asset could pay off for years. You can see where my heart is. Still, a short-term accounting-driven transaction could set ACAS up for a much better negotiating position with its creditors, which has long-term benefits of its own.
We may learn more May 5, when management discusses its May 4 report of its 1Q2010 results.
Monday, April 19, 2010
ACAS Soars On ...?
This morning, ACAS announced a private offering. The terms were that institutional buyers would get ACAS shares for a few pennies above $5. The result was ACAS, which had traded above that number, going up.
In recap: ACAS says it will sell shares for $5.06, and the market quickly bids ACAS toward $6.05. Got that?
So, what's going on?
1) ACAS could be selling shares to pay debt. This belief would not explain ACAS' price action. It also makes no sense: why would ACAS, which has close to $1B in cash without diluting shareholders, dilute shareholdes all of a sudden for a relatively measly $295M? If ACAS were about paying down debt, ACAS would have been able to do that with the $800B or so on hand. Also, selling shares for $5.06 doesn't explain why the shares would go from $5.50 up. A transaction like this would be dilutive and scare people from holding.
2) ACAS has a deal to eliminate all its debt and needs the remaining $295M to in a hurry to pull it off. The only way this is a plausible answer is if the institutional buyers on the other side of the transaction are ACAS' creditors, and the private issuance transaction is part of a larger transaction to solve the debt issues that have been repeatedly prolonged. In this scenario, people are celebrating because the acceleration risk ends and ACAS goes back to business as usual. The celebration is that with the acceleration risk off the table, and the technical default over, nobody views ACAS as a defaulted borrower ready to fold – a scenario painted by others who weren't noticing how ACAS was stockpiling cash and continuing to buy portfolio companies and make add-on investment in existing companies. This makes sense because with the cloud of fear gone, ACAS can raise toward NAV, and even diluting that NAV with cheap shares would raise the price. Having big institutional lenders interested in ACAS' success bodes well for ACAS' future dealmaking. ACAS could also be getting beneficial interest rates, an agreement to accept shares in lieu of cash at a time cash is valued at a premium in the M&A world, new debt caps, the future ability to pay down and draw on new debt without worrying about the debt, and improvement in ACAS' debt-to-equity ratio (because ACAS just got more equity; this is true if ACAS isn't also coughing up a boatload of cash to the creditors ... on the other hand, maybe the creditors want to keep debt deployed in the hands of a paying debtor).
3) ACAS is seen as able to raise cash. This is silly, but might explain the price action: if the market (falsely) views ACAS as a defaulted (technically true) debtor unable to satisfy its obligations because it lacks cash (false, it has cash just not assets surpassing a value threshold in a debt covenant), the ability to raise hundreds of millions of dollars at will "proves" ACAS has access to investment funds, can survive whatever creditors demand, and will have the ability to patiently wait for sales opportunities for its existing portfolio. I don't like this as a justification for a price rise, but it might sell to nitwits on the street.
4) ACAS' existing cash is locked up due to the lock-up agreements that prevent banks from accelerating, but ACAS has an opportunity to buy valuable but illiquid business opportunities for 10¢ on the dollar if it can raise cash from someplace not tied up in the lock-up agreements; selling equity for 50¢ on the dollar means ACAS gets a 5:1 return, and the result of the transaction is accretive rather than dilutive as would apprear from the press release, and the market is so sophisticated in its analysis of ACAS that it's picked up on this subtlety and is already celebrating. This is actually my favorite. But, no. It depends on the market pricing ACAS on the basis of fire-sale-bought investments' anticipated returns. Although a deal like this is consistent with what management has said it's interested in doing, it doesn't explain the market action. The market has generally underestimated or failed to understand ACAS' investment ideas rather than getting out in front and celebrating them. A secret deal to make a return on an investment ... this would not explain pre-transaction celebration.
Although (4) is the most exciting, my gut says that (2) is probably our winner. Let's watch and see if the buyers turn out to be ACAS' creditors, after all.
In recap: ACAS says it will sell shares for $5.06, and the market quickly bids ACAS toward $6.05. Got that?
So, what's going on?
1) ACAS could be selling shares to pay debt. This belief would not explain ACAS' price action. It also makes no sense: why would ACAS, which has close to $1B in cash without diluting shareholders, dilute shareholdes all of a sudden for a relatively measly $295M? If ACAS were about paying down debt, ACAS would have been able to do that with the $800B or so on hand. Also, selling shares for $5.06 doesn't explain why the shares would go from $5.50 up. A transaction like this would be dilutive and scare people from holding.
2) ACAS has a deal to eliminate all its debt and needs the remaining $295M to in a hurry to pull it off. The only way this is a plausible answer is if the institutional buyers on the other side of the transaction are ACAS' creditors, and the private issuance transaction is part of a larger transaction to solve the debt issues that have been repeatedly prolonged. In this scenario, people are celebrating because the acceleration risk ends and ACAS goes back to business as usual. The celebration is that with the acceleration risk off the table, and the technical default over, nobody views ACAS as a defaulted borrower ready to fold – a scenario painted by others who weren't noticing how ACAS was stockpiling cash and continuing to buy portfolio companies and make add-on investment in existing companies. This makes sense because with the cloud of fear gone, ACAS can raise toward NAV, and even diluting that NAV with cheap shares would raise the price. Having big institutional lenders interested in ACAS' success bodes well for ACAS' future dealmaking. ACAS could also be getting beneficial interest rates, an agreement to accept shares in lieu of cash at a time cash is valued at a premium in the M&A world, new debt caps, the future ability to pay down and draw on new debt without worrying about the debt, and improvement in ACAS' debt-to-equity ratio (because ACAS just got more equity; this is true if ACAS isn't also coughing up a boatload of cash to the creditors ... on the other hand, maybe the creditors want to keep debt deployed in the hands of a paying debtor).
3) ACAS is seen as able to raise cash. This is silly, but might explain the price action: if the market (falsely) views ACAS as a defaulted (technically true) debtor unable to satisfy its obligations because it lacks cash (false, it has cash just not assets surpassing a value threshold in a debt covenant), the ability to raise hundreds of millions of dollars at will "proves" ACAS has access to investment funds, can survive whatever creditors demand, and will have the ability to patiently wait for sales opportunities for its existing portfolio. I don't like this as a justification for a price rise, but it might sell to nitwits on the street.
4) ACAS' existing cash is locked up due to the lock-up agreements that prevent banks from accelerating, but ACAS has an opportunity to buy valuable but illiquid business opportunities for 10¢ on the dollar if it can raise cash from someplace not tied up in the lock-up agreements; selling equity for 50¢ on the dollar means ACAS gets a 5:1 return, and the result of the transaction is accretive rather than dilutive as would apprear from the press release, and the market is so sophisticated in its analysis of ACAS that it's picked up on this subtlety and is already celebrating. This is actually my favorite. But, no. It depends on the market pricing ACAS on the basis of fire-sale-bought investments' anticipated returns. Although a deal like this is consistent with what management has said it's interested in doing, it doesn't explain the market action. The market has generally underestimated or failed to understand ACAS' investment ideas rather than getting out in front and celebrating them. A secret deal to make a return on an investment ... this would not explain pre-transaction celebration.
Although (4) is the most exciting, my gut says that (2) is probably our winner. Let's watch and see if the buyers turn out to be ACAS' creditors, after all.
Saturday, April 17, 2010
Rats Queue To Depart PALM
PALM, which isn't doing well in a phone market now that it includes the iPhone, just lost the brains behind its WebOS. Presumably, its plans to retake quality rankings will be fumbled by the B-team. Around the same time, PALM has had to pay $250K each in cash to retain both its global operations chief and its CFO. The rest of the executive team is being hosed down with PALM shares to prevent departures.
Investors: PALM is sinking, run for the hills!
In other news: Apple continues to benefit from high-profile unpaid product placement, which now includes its just-launched iPad.
Investors: PALM is sinking, run for the hills!
In other news: Apple continues to benefit from high-profile unpaid product placement, which now includes its just-launched iPad.
Thursday, April 15, 2010
CNAM: The Year(s) Ahead
Leaving aside for the moment that China's currency – the operative currency of CNAM's business – may become more valuable as it is repriced, let's look at what the year ahead holds for CNAM and its shareholders on an assumption of steadily-valued renminbi.
The April 1, 2010 guidance offered by the Company shows an expectation of revenue growing from 86.9M to $220M and net income blooming from $5.1M to over $12M. If CNAM had less than 12M outstanding shares (based on current BusinessWeek stats), CNAM would be headed toward over $1/sh. However, CNAM recently issued shares under the exercise of warrants conveyed to buyers in a private offering conducted in 2008. The expected 2010 income per share hasn't been projected to reach $10 after this dilution, but north of $0.80. At a P/E of 10, this implies a valuation after publishing the 2010 numbers that should exceed $8. On the other hand, perhaps CNAM's growth rate will prove to justify a greater P/E than 10 ....
Considering CNAM's recent pull-back, and thinking on the fact eliminating the Chinese currency's 40% devaluation over the next four or five years will add approximately 50% to the value of whatever earnings or assets exist at that time, it seems CNAM is an attractive long-term buy. Leveraging its infrastructure expertise through the dramatic increase in the capital it is able to deploy will allow CNAM to earn much more than it used to earn on its traditional commodity delivery business, and the new steel recycling business appears on track to reach full capacity in a Chinese marketplace with a long term trend toward consuming increasingly large quantities of steel. CNAM's growing income in Chinese currency will increase in local currency even as the Chinese currency itself increases in value.
The April 1, 2010 guidance offered by the Company shows an expectation of revenue growing from 86.9M to $220M and net income blooming from $5.1M to over $12M. If CNAM had less than 12M outstanding shares (based on current BusinessWeek stats), CNAM would be headed toward over $1/sh. However, CNAM recently issued shares under the exercise of warrants conveyed to buyers in a private offering conducted in 2008. The expected 2010 income per share hasn't been projected to reach $10 after this dilution, but north of $0.80. At a P/E of 10, this implies a valuation after publishing the 2010 numbers that should exceed $8. On the other hand, perhaps CNAM's growth rate will prove to justify a greater P/E than 10 ....
Considering CNAM's recent pull-back, and thinking on the fact eliminating the Chinese currency's 40% devaluation over the next four or five years will add approximately 50% to the value of whatever earnings or assets exist at that time, it seems CNAM is an attractive long-term buy. Leveraging its infrastructure expertise through the dramatic increase in the capital it is able to deploy will allow CNAM to earn much more than it used to earn on its traditional commodity delivery business, and the new steel recycling business appears on track to reach full capacity in a Chinese marketplace with a long term trend toward consuming increasingly large quantities of steel. CNAM's growing income in Chinese currency will increase in local currency even as the Chinese currency itself increases in value.
Why I Don't Invest in Bank of America
I'm shopping for a home. Since we sold our last home due to outgrowing it, we've been renting. It's a buyer's market, so this seemed an auspicious time to shop.
Among the potential picks was a property located close to the Texas Medical Center and not far from a pool where underwater hockey is played. It's not far from my kids' school. The location had a lot going for it.
The asking price – when I first noticed the property – was north of $410K. The property was owned by Bank of America following a foreclosure, which occurred in 2009. In 2005, the house sold for $550,000. A deal in the making?
The Harris County Appraisal District thinks the land (ignoring the structures) is worth a shade north of $300,000. The house is old, and not good-old. The garage is a fright. We offered dirt value.
There is a good reason we offered dirt value: Bank of America would not let us inspect the property before it had a contract. We couldn't assume anything had value other than the dirt. Had Bank of America allowed us to spend a few hundred bucks inspecting the property, we could have learned more, faster, and shortcuted this whole fiasco by either finding the right price up front or discovering we could not agree.
Bank of America, which was conned into lending on the house in 2005 on the theory it was worth $550,000, apparently believed that there was still value in the structures, and made a counter-offer accordingly. We shrugged, said "Okay" and played ball: we bid on the assumption that the structures had some value. At the speed of a squatting glacier, we reached a price. It took Bank of America's property person a week to get around to signing the contract that Bank of America had written. I say Bank of America wrote it because they sent us an addendum that was full of a complete set of terms and stated that it superseded other agreements to the extent of any conflict. Once BoA's lawyers had done with that agreement, it really didn't matter whether or not there was another document: the addendum covered everything, and did so in BoA's favor.
While this was going on, I was informed that we wouldn't get a contract from Bank of America until we were pre-approved through Bank of America. I pointed out that I had been pre-approved by a financial institution with which I was actually willing to be in an ongoing business relationship, and that pre-approval from Bank of America couldn't do anything but reduce my credit. Bank of America was adamant. So we lost another day getting pre-approved by some loan agent at Bank of America.
Still, they took forever with the contract addendum. Then, they demanded we send another, "corrected" copy of the original contract we'd sent them – making corrections that the addendum was designed to obsolete, and which the addendum said were corrected in the addendum. It was a make-work project, and it took another half a week to get them to process. Their seller's agent also sent us a raft of papers that are apparently highly prized in the office, but which don't purport to be contracts and which don't have anyplace for a signature by the seller. They apparently like to paper their files with this crud. I told them I was through humoring them and left them with a keen idea what I thought they could do with their papers.
Then, they said I needed to put money into an escrow account "by noon". A day previously, the story had been that I could mail a check. Now, they wanted certified funds by noon. I considered driving to the place with cash, but I didn't have the time. TD Ameritrade will wire money without charge from individual accounts they categorize with mine, so I got the escrow company's information – Charter Title – and sent it there, for the benefit of L and myself.
Bank of America owns Charter Title.
Once it became clear that the house's exterior was covered in wood whose damage could not be diagnosed because it had all been concealed with putty and recently repainted (Bank of America said it wasn't required to produce the seller's disclosures Texas law requires, because it didn't know anything about the condition of the house), and that the structure that wasn't covered in putty and paint (the garage) was infested with active termites, and that the water heater was freely leaking and that standing water had pooled beneath the floor beams and was sitting there in the shade growing whatever is possible to grow in stagnant water shaded from the sun in the swamps of south Texas, and all the electrical work had been done by a weekend warrior with no concept of the safety codes, and the upstairs renovations had been done by the same dufus and almost all of the bedrooms had serious fire safety concerns, and ... and ....
As you can imagine, I didn't feel it likely I would succeed in educating Bank of America about the value of its foreclosure. Some of the structural problems would have been readily ascertainable in 2005 had a real inspection been done, but Bank of America apparently still doesn't think its properties are worth knowing anything about. Bank of America's ask price has drifted south of $370 on the property, but the cost to level the structures and haul off the debris will push the net value of the property below dirt value. Apparently, Bank of America hopes to hold the land until it's worth more.
So under the contract (which, following Bank of America's addendum, had no option period), I instructed Bank of America what features made the property unfit at the price we'd agreed. Knowing Bank of America was not about to put a cent into the property, this was tantamount to exercise of an option to cancel, because the consequence of Bank of America refusing to correct demonstrated flaws was termination.
So I asked for the escrow money back, a process that involves getting Bank of America's consent on a form (tick tick tick) and asking Charter Title how it planned paying me. I had an itch to demand certified funds by noon, but I was being nice. It went like this:
I have the wire confirmation showing their wire instructions were followed to a T, but their response – after having my money for two weeks, and allowing me to inspect the property following instruction they'd forbid it until earnest money was in escrow – was that they had no idea where the money was. Isn't the point of an escrow agent to be able to receive and hold money while a transaction is pending? What does Bank of America think it's doing with an escrow company that has no idea when it has money and no file explaining what it's to do with the funds?
Of course, this isn't the first time I've seen Bank of America pull some outrageous gaffe, but it's the most recent. Maybe I shouldn't've wired the money April 1.
Next time I talk about Bank of America I'll tell you about how they treat old accounts. Bottom line? If you want to invest in a financial institution, consider one with competence in financial matters.
Among the potential picks was a property located close to the Texas Medical Center and not far from a pool where underwater hockey is played. It's not far from my kids' school. The location had a lot going for it.
The asking price – when I first noticed the property – was north of $410K. The property was owned by Bank of America following a foreclosure, which occurred in 2009. In 2005, the house sold for $550,000. A deal in the making?
The Harris County Appraisal District thinks the land (ignoring the structures) is worth a shade north of $300,000. The house is old, and not good-old. The garage is a fright. We offered dirt value.
There is a good reason we offered dirt value: Bank of America would not let us inspect the property before it had a contract. We couldn't assume anything had value other than the dirt. Had Bank of America allowed us to spend a few hundred bucks inspecting the property, we could have learned more, faster, and shortcuted this whole fiasco by either finding the right price up front or discovering we could not agree.
Bank of America, which was conned into lending on the house in 2005 on the theory it was worth $550,000, apparently believed that there was still value in the structures, and made a counter-offer accordingly. We shrugged, said "Okay" and played ball: we bid on the assumption that the structures had some value. At the speed of a squatting glacier, we reached a price. It took Bank of America's property person a week to get around to signing the contract that Bank of America had written. I say Bank of America wrote it because they sent us an addendum that was full of a complete set of terms and stated that it superseded other agreements to the extent of any conflict. Once BoA's lawyers had done with that agreement, it really didn't matter whether or not there was another document: the addendum covered everything, and did so in BoA's favor.
While this was going on, I was informed that we wouldn't get a contract from Bank of America until we were pre-approved through Bank of America. I pointed out that I had been pre-approved by a financial institution with which I was actually willing to be in an ongoing business relationship, and that pre-approval from Bank of America couldn't do anything but reduce my credit. Bank of America was adamant. So we lost another day getting pre-approved by some loan agent at Bank of America.
Still, they took forever with the contract addendum. Then, they demanded we send another, "corrected" copy of the original contract we'd sent them – making corrections that the addendum was designed to obsolete, and which the addendum said were corrected in the addendum. It was a make-work project, and it took another half a week to get them to process. Their seller's agent also sent us a raft of papers that are apparently highly prized in the office, but which don't purport to be contracts and which don't have anyplace for a signature by the seller. They apparently like to paper their files with this crud. I told them I was through humoring them and left them with a keen idea what I thought they could do with their papers.
Then, they said I needed to put money into an escrow account "by noon". A day previously, the story had been that I could mail a check. Now, they wanted certified funds by noon. I considered driving to the place with cash, but I didn't have the time. TD Ameritrade will wire money without charge from individual accounts they categorize with mine, so I got the escrow company's information – Charter Title – and sent it there, for the benefit of L and myself.
Bank of America owns Charter Title.
Once it became clear that the house's exterior was covered in wood whose damage could not be diagnosed because it had all been concealed with putty and recently repainted (Bank of America said it wasn't required to produce the seller's disclosures Texas law requires, because it didn't know anything about the condition of the house), and that the structure that wasn't covered in putty and paint (the garage) was infested with active termites, and that the water heater was freely leaking and that standing water had pooled beneath the floor beams and was sitting there in the shade growing whatever is possible to grow in stagnant water shaded from the sun in the swamps of south Texas, and all the electrical work had been done by a weekend warrior with no concept of the safety codes, and the upstairs renovations had been done by the same dufus and almost all of the bedrooms had serious fire safety concerns, and ... and ....
As you can imagine, I didn't feel it likely I would succeed in educating Bank of America about the value of its foreclosure. Some of the structural problems would have been readily ascertainable in 2005 had a real inspection been done, but Bank of America apparently still doesn't think its properties are worth knowing anything about. Bank of America's ask price has drifted south of $370 on the property, but the cost to level the structures and haul off the debris will push the net value of the property below dirt value. Apparently, Bank of America hopes to hold the land until it's worth more.
So under the contract (which, following Bank of America's addendum, had no option period), I instructed Bank of America what features made the property unfit at the price we'd agreed. Knowing Bank of America was not about to put a cent into the property, this was tantamount to exercise of an option to cancel, because the consequence of Bank of America refusing to correct demonstrated flaws was termination.
So I asked for the escrow money back, a process that involves getting Bank of America's consent on a form (tick tick tick) and asking Charter Title how it planned paying me. I had an itch to demand certified funds by noon, but I was being nice. It went like this:
JadedConsumer: How will you transmit the escrowed funds back to us?Actually, their exact words were "We do not have this file here." They also had no idea where the file was, or if it even existed. Doing business with a Bank of America company is never as easy as you expect.
Charter Title: What funds?
I have the wire confirmation showing their wire instructions were followed to a T, but their response – after having my money for two weeks, and allowing me to inspect the property following instruction they'd forbid it until earnest money was in escrow – was that they had no idea where the money was. Isn't the point of an escrow agent to be able to receive and hold money while a transaction is pending? What does Bank of America think it's doing with an escrow company that has no idea when it has money and no file explaining what it's to do with the funds?
Of course, this isn't the first time I've seen Bank of America pull some outrageous gaffe, but it's the most recent. Maybe I shouldn't've wired the money April 1.
Next time I talk about Bank of America I'll tell you about how they treat old accounts. Bottom line? If you want to invest in a financial institution, consider one with competence in financial matters.
Wednesday, April 14, 2010
Surprisingly Strong iPad Demand Delays Global Launch
Supplying iPad demand outside the US will take a bit more time than Apple initially projected: the new iPad availability date outside the U.S. is at the end of May. Pre-orders won't be accepted for delivery outside the U.S. until May 10. Foreign cell providers are preparing 3G data plans for the iPad, which should be interesting: the device has no contracts and competition will be unfettered everywhere it's launched.
Monday, April 12, 2010
Double Double: Celebrating Recent Investment Results
The Jaded Consumer has discussed investments on more than a few occasions, but rarely describes results. Having just noticed two doubles over the last year, I thought I'd share. To give a little perspective, my top seven holdings by (present) value have yielded the following returns ...
The top holding by present value is ACAS, in which as I mentioned last year I nearly doubled my position at $1.80. Now that ACAS has recovered from $0.58 per share to over $5 per share, it's nearly a 10-bagger off its nadir. Of course, yours truly started buying when ACAS was in the $40s, so it's actually been in the -98% return range while I've held it. Since ACAS remains dramatically below the company's asset value, I expect further increases. I don't think bailing out of anger makes much sense, particularly since my thesis regarding ACAS' underpricing seems to be proving out. Patience, patience. But note: I'm not hiding my losers, and I'm trying to keep my head on straight while thinking about them.
The second holding is a much newer holding, entered during the dark days when stocks were battered irrationally and I didn't think Berkshire Hathaway's B-shares were fairly priced below $3000 apiece (before a 50-for-1 split). I first bought BRK.B on April 3, 2009, so the 39% gain is nearly an annualized result. Not bad for a widows-and-orphans stock. As the broad market improves, the negative valuation given Warren Bufffet's long-term derivative investments (valued on the Black-Scholes model despite being exercisable only on the expiration date years from now) will plummet and the company will enjoy a recovery from the nasty shock its shares took in the crash. Meanwhile, GEICO and Dairy Queen and Sees Candies and Star Furniture and all those other businesses will keep cranking out cash for poor Warren and Charlie to invest for me. Poor souls. This one is a hold for the long term. Because there's no dividend, it's a fine hold for accounts with no special tax treatment – just don't sell and you won't pay any taxes.
The next stock, at plus 100%, is the first of the reasons I am posting: it's just doubled from where I bought it. General Electric looked great at $7 where I established half my current position on March 6, 2009, but I doubled the position on April 28, 2009 just over $11 and have an average price a bit over $9. Doubling GE in a year feels nice largely because I am not worried about finding an exit. GE is a stock I'd like to hold forever. GE is in a diversified business, pays a dividend it's announced it'll begin raising again next year, and is in a great position to benefit both from trends toward increasing investment in medical technology and energy, but also in credit quality: GE was hammered by people who feared it should be valued like a financial and bailed on it. I didn't see GE owning any defaulting home mortgages, but as financing to its long-known customers the purchase of productive business equipment. I actually like GE's finance business going forward. As the economy improves, demand for GE's big machines and little medical devices will also improve. And I will keep holding.
The last recent double is AAPL, from the 120 price at which I re-entered after liquidating to avoid the consequences of being over-leveraged during the crash. The AAPL repurchase occurred April 13, 2009, so the double is approximately an annualized result. I've gone on and on about AAPL on this blog so I don't feel I need to rehash the grounds for my long-term bullish position, but AAPL will require a more careful eye than GE or BRK.B because its business is more concentrated, its competition more vicious, and the valuation multiples more apt to change in a hurry based on market sentiments. I first invested in AAPL a couple splits ago when the stock was printing $14 and $20, after the NeXT purchase but before Jobs became iCEO. From a split-adjusted $5 or less, this has been some ride.
After AAPL on my highest-holdings list is a stock I only just bought December 4, 2009: Hasboro. HAS has leapt from 30 (where I had a GTC order) to past 38 in less than half a year, and I'm as pleased with the nearly 40% return in that time as I am with the return I've had on GE. Of course, GE did its thing while also paying me a dividend. Hmm. Looks like GE gave me a 100% return faster than I first noticed. I've discussed why HAS is a buy, and I continue to expect great things from management's efforts to realize value from its brand portfolio.
The sixth stock on that list, up less than 3%, was bought December 7, 2009 and has had some bad news since then. DVN's sale of assets to BP has been threatened by an ExxonMobil fight-of-first refusal. Confusion over the future of this sale has impacted folks' valuation of the company. Eventually, the numbers will come out and uncertainty will pass. I think DVN's onshore US gas operations are going to produce good value as energy demand increases, and I'm willing to wait for performance. Energy demand will increase, and everybody's hydrocarbons will become more valuable as that trend intensifies. As that occurs, domestic supply will be more valuable than offshore supply due to maintenance overhead and transportation costs. DVN is in a good place for the future of energy in North America.
The seventh stock was bought December 8, 2009, so having a 20% gain isn't bad. The company sells things like road salt and other unexciting things, but also ammunition. The recent publicity about the Second Amendment can't hurt ammunition demand, and military contracts are nice, but I think the comp
any's real future lies in the unexciting business of delivering unexciting industrial chemicals – a market in which the company is a leader. Olin may be up 16% from where it was recommended by the market research team tool offered at TD Ameritrade, but it's up over 20% from where I bought. And Ameritrade can't really claim credit for recommending the stock, because the last "upgrade" was to "hold" -- presumably from the "run for the hills" rating it must have had before. Olin (OLN) pays a dividend that is about 4% of my purchase price, its lame-o ratings suggest it's not being overvalued by exuberant buyers, and it has a huge share of the market for some extremely boring chemical business lines in which its economies of scale make its process innovation investment much more profitable than in the hands of competitors. Olin's occasional wins like its recent sole-source Winchester ammunition contract are nice assurances that all its business segments are capable of landing profitable sales. So next winter, pray for hard freezes and a need for road salt, and enjoy the news every time you hear about some shack in Idaho found full of weapons and ammunition. Every frozen road and armed hillbilly is a harbinger of profit.
I can't say my investment has been all gravy, and my experience with ACAS since I first started applauding its management has been a prime example of how unappreciated risks can thwart even a largely-correct investment thesis. On the upswing of the economy, I expect all these companies to do well. Unfortunately, I get busy with my "real work" I haven't time to discuss it all, but feel free to comment – it helps to know what you're thinking.
I wish you the success I've been having this last year. Feel free to post your best ideas – I know I have!
The top holding by present value is ACAS, in which as I mentioned last year I nearly doubled my position at $1.80. Now that ACAS has recovered from $0.58 per share to over $5 per share, it's nearly a 10-bagger off its nadir. Of course, yours truly started buying when ACAS was in the $40s, so it's actually been in the -98% return range while I've held it. Since ACAS remains dramatically below the company's asset value, I expect further increases. I don't think bailing out of anger makes much sense, particularly since my thesis regarding ACAS' underpricing seems to be proving out. Patience, patience. But note: I'm not hiding my losers, and I'm trying to keep my head on straight while thinking about them.The second holding is a much newer holding, entered during the dark days when stocks were battered irrationally and I didn't think Berkshire Hathaway's B-shares were fairly priced below $3000 apiece (before a 50-for-1 split). I first bought BRK.B on April 3, 2009, so the 39% gain is nearly an annualized result. Not bad for a widows-and-orphans stock. As the broad market improves, the negative valuation given Warren Bufffet's long-term derivative investments (valued on the Black-Scholes model despite being exercisable only on the expiration date years from now) will plummet and the company will enjoy a recovery from the nasty shock its shares took in the crash. Meanwhile, GEICO and Dairy Queen and Sees Candies and Star Furniture and all those other businesses will keep cranking out cash for poor Warren and Charlie to invest for me. Poor souls. This one is a hold for the long term. Because there's no dividend, it's a fine hold for accounts with no special tax treatment – just don't sell and you won't pay any taxes.
The next stock, at plus 100%, is the first of the reasons I am posting: it's just doubled from where I bought it. General Electric looked great at $7 where I established half my current position on March 6, 2009, but I doubled the position on April 28, 2009 just over $11 and have an average price a bit over $9. Doubling GE in a year feels nice largely because I am not worried about finding an exit. GE is a stock I'd like to hold forever. GE is in a diversified business, pays a dividend it's announced it'll begin raising again next year, and is in a great position to benefit both from trends toward increasing investment in medical technology and energy, but also in credit quality: GE was hammered by people who feared it should be valued like a financial and bailed on it. I didn't see GE owning any defaulting home mortgages, but as financing to its long-known customers the purchase of productive business equipment. I actually like GE's finance business going forward. As the economy improves, demand for GE's big machines and little medical devices will also improve. And I will keep holding.
The last recent double is AAPL, from the 120 price at which I re-entered after liquidating to avoid the consequences of being over-leveraged during the crash. The AAPL repurchase occurred April 13, 2009, so the double is approximately an annualized result. I've gone on and on about AAPL on this blog so I don't feel I need to rehash the grounds for my long-term bullish position, but AAPL will require a more careful eye than GE or BRK.B because its business is more concentrated, its competition more vicious, and the valuation multiples more apt to change in a hurry based on market sentiments. I first invested in AAPL a couple splits ago when the stock was printing $14 and $20, after the NeXT purchase but before Jobs became iCEO. From a split-adjusted $5 or less, this has been some ride.
After AAPL on my highest-holdings list is a stock I only just bought December 4, 2009: Hasboro. HAS has leapt from 30 (where I had a GTC order) to past 38 in less than half a year, and I'm as pleased with the nearly 40% return in that time as I am with the return I've had on GE. Of course, GE did its thing while also paying me a dividend. Hmm. Looks like GE gave me a 100% return faster than I first noticed. I've discussed why HAS is a buy, and I continue to expect great things from management's efforts to realize value from its brand portfolio.
The sixth stock on that list, up less than 3%, was bought December 7, 2009 and has had some bad news since then. DVN's sale of assets to BP has been threatened by an ExxonMobil fight-of-first refusal. Confusion over the future of this sale has impacted folks' valuation of the company. Eventually, the numbers will come out and uncertainty will pass. I think DVN's onshore US gas operations are going to produce good value as energy demand increases, and I'm willing to wait for performance. Energy demand will increase, and everybody's hydrocarbons will become more valuable as that trend intensifies. As that occurs, domestic supply will be more valuable than offshore supply due to maintenance overhead and transportation costs. DVN is in a good place for the future of energy in North America.
The seventh stock was bought December 8, 2009, so having a 20% gain isn't bad. The company sells things like road salt and other unexciting things, but also ammunition. The recent publicity about the Second Amendment can't hurt ammunition demand, and military contracts are nice, but I think the comp
any's real future lies in the unexciting business of delivering unexciting industrial chemicals – a market in which the company is a leader. Olin may be up 16% from where it was recommended by the market research team tool offered at TD Ameritrade, but it's up over 20% from where I bought. And Ameritrade can't really claim credit for recommending the stock, because the last "upgrade" was to "hold" -- presumably from the "run for the hills" rating it must have had before. Olin (OLN) pays a dividend that is about 4% of my purchase price, its lame-o ratings suggest it's not being overvalued by exuberant buyers, and it has a huge share of the market for some extremely boring chemical business lines in which its economies of scale make its process innovation investment much more profitable than in the hands of competitors. Olin's occasional wins like its recent sole-source Winchester ammunition contract are nice assurances that all its business segments are capable of landing profitable sales. So next winter, pray for hard freezes and a need for road salt, and enjoy the news every time you hear about some shack in Idaho found full of weapons and ammunition. Every frozen road and armed hillbilly is a harbinger of profit.I can't say my investment has been all gravy, and my experience with ACAS since I first started applauding its management has been a prime example of how unappreciated risks can thwart even a largely-correct investment thesis. On the upswing of the economy, I expect all these companies to do well. Unfortunately, I get busy with my "real work" I haven't time to discuss it all, but feel free to comment – it helps to know what you're thinking.
I wish you the success I've been having this last year. Feel free to post your best ideas – I know I have!
Saturday, April 10, 2010
Make Money Amusing the Masses
There are lots of theories about how to make money on the consumer trends that obtain in a depression, or that will obtain in a recovery. The Jaded Consumer, long having claimed to have no power to time purchases or the market, has a theory on making money on consumers. The theory is simple:
Invest In Entertainment People Can Afford
Now that Pixar isn't traded any longer, and Marvel has been taken off the market (hmm, both by Disney ... there's a thought), I thought it was worth looking for some companies which are reliably called upon to entertain the masses regardless how employment was going or the trade deficit looked. (I didn't used to like Disney because I viewed it as dependent on people having enough extra cash to blow on a trip to Orlando where they know in advance they will be soaked with exorbitant fees. This is a capital-intensive business that depends on macro trends in transportation and employment to work. Yuck. And its films ... did anyone actually see the movie "Brother Bear"? There was a real drought there for a while. But with the addition of both Pixar and Marvel, it is definitely worth looking at whether the overall economics of DIS support purchase. And have you noticed how many Disney characters turn up in toys/dolls/plates/cups/costumes/shirts that depict princesses/pixies/magic? There is definitely mass-market opportunity in the Disney portfolio even outside Pixar and Marvel.)
(1) Hasboro. You played with Mr. Potato Head until your dog ate all the pieces. You bought Chutes and Ladders as your kids' first board game. And there is always another generation of kids about to learn about Dungeons and Dragons. Did you realize that Hasboro can turndolls action figures into multimillion dollar box office franchises? Think about G.I. Joe and the Transformers. Only a decade ago those seemed so tired, valueless. Now, one wonders when the movies will ever stop. And they don't require some multimillion-dollar lead to sell, like the Bourne Identity or Mission Impossible franchises; they're selling the brand, not the actors. It's genius. What other properties has Hasboro got that it can feed into its magic wheel, and spin into gold? Hasboro has made it clear that they actively review their properties to develop those with the potential to become globally dominant brands. Hasboro has a vision of the future and it knows how to market. Ever heard of Monopoly? (Recently, Leno made a joke involving two board games, and I was entertained that both were Hasboro properties. Why? Hasboro has so many entertainment products that are household words that choosing two is better than chance.) As a parting shot, I note that Hasboro's properties are so ubiquitous and so iconic that when Pixar wanted to engage viewers with the nostalgia for kids' toy collections – important to engage the first movie's audience early in the film and essential to making Woody a plausible icon in the second film – Pixar populated the toy collection with the likes of Mr. Potato Head and a company of "green army men" soldiers ... which Hasboro now offers in a set. Hasboro will benefit from population growth because parents who associate Hasboro products with their youth will shower their own children with them. Combined with management's proven capacity to turn seemingly-dead portfolio components into blockbuster profit centers, Hasboro is a definite winner.
(2) Dreamworks Animation. I don't want to get into the argument with you about the social value of DWA's products. Next to Pixar's Monsters Inc. – full of important commentary on the value of friends, the reliability of character, and what it means to do the right thing, and capped with the lesson that monsters only have power so long as they are feared – DWA's Shrek was from opening scene (fart humor in a pond, as the male lead eats a fume-killed fish) straight through (short jokes, etc.) to the end (top-hits song licensing) designed to appeal not to our sophisticated tastes or our deep philosophical needs but to ... well, to the lowest common denominator. The films aren't sophisticated, they're base. And they make a ton of money. (They also command some star talent salaries, since the leads are celebrities; Pixar seems to have learned to cut its celebrity count from two (Toy Story's Tom Hanks and Tim Allen) to one (Monsters Inc. had Billy Crystal and Finding Nemo had Ellen Degeneres) to zero (WALL•E? Up?). But with hundreds of millions in assured revenues, DWA can afford to pad the Shrek franchise's expense column with the likes of Eddie Murphy, Cameron Diaz, Mike Meyers, John Lithgow, Justin Timberlake, Antonio Banderas, Eric Idle, John Cleese, Julie Andrews and whomever they think of next.) The Madagascar and Kung Fu Panda franchises will certainly continue to provide both small-screen and large-screen opportunities, and the company is clearly able to develop casts and worlds audiences like to visit. The money-making potential of the company will increase with its catalog, and the licensing opportunities will only get better and better. Dreamworks has matured beyond simply copying Pixar (Antz to A Bug's Life, Shrek to Monsters Inc., A Shark Tale to Finding Nemo ... notice the old pattern?) and has the power to attract scripts and fund top-quality projects. While it's unfortunate that DreamWorks is no longer in the business of making products like Galaxy Quest, it's making a consistent profit on a growing portfolio of characters with a real following. The share price pullback on disappointment following the #1-on-opening-weekend 3-D feature How To Train Your Dragon (rated 98% on Rotten Tomatoes) is a buy op; with ratings like that, there will be a long-tail following and a receptive audience for sequel material. (Unlike Pixar, Dreamworks makes some small-screen offerings to boost ongoing cash from its character portfolio.) If Dreamworks' idea of bad is the #1 box office opener, folks could do worse. Take advantage of the pullback in the full knowledge that Antonio Banderas will be back as Puss in Boots, Shrek will ride again, and content like How To Train Your Dragon will yield dividends for years. (Imagine what will happen to the value of 3D content when 3D TV becomes commonplace. Re-release, anyone? Films with 98% rating and fast-action flying sequences will enter every library.)
That's my suggestion on entertainment. But I forget ... when you consider trying films like Shreck II or Transformers at home, you're at least as likely to rent than to buy. My eloquent paragraph here was eaten by an apparent bug in Blogger's text input interface, but the gist is that entertainment for the masses is a thesis that also leads to Netflix (NFLX), and Netflix >> Blockbuster. Convenience rules: from the time I first streamed La Femme Nikita on a whim, I was sold. I was using a subscription I got as a promotion when I rolled money into an account at TD Ameritrade, and I never canceled. To see what I wanted, I didn't have to be healthy enough to go to a local Blockbuster, and I didn't have to be patient enough for the U. S. Postal Service. All I had to do was to tolerate a Silverlight plug-in. On the iPad I won't have to do even that. Just thinking about it, I have an inkling to stream La Femme Nikita (this link DVD) again. With unlimited free streaming, why shouldn't I? And if, halfway through, I find I jones for even older action, I can stream Akira Kurusawa's Seven Samurai. No extra charge.
So I give you:
(3) Netflix. I have a friend who canceled his cable subscription recently in favor of a Mac Mini-powered video setup that provides his HDTV with Netflix, Hulu, NBC, ABC, and all kinds of other content when he's not spinning a disc. (Okay, he encoded all the discs and "spins" them streaming on his LAN through his Mac Mini, which thinks each disc image is a mounted DVD, but it's all the same without the risk of scratches to his originals. The fact you get stuck with ads on free Hulu is different than paid cable in what way?) My friend did some math and realized he was ahead in terms of content (the shows he wants, when he wants them, and often ad-free; he's not a sports fan, so the need for live video is about nil) and ahead in monthly expense. As more and more people do this kind of math, Netflix' subscriptions will grow and with subscribers will grow its profit. Netflix is a near-term bet on videophiles and a long-term bet on the trend toward digital content delivery – a trend likely to accelerate as net infrastructure improves.
Of the three, DWA has the most risk because it is least diversified. DIS is similar (Okay, I've given three and a half) but has a larger pool of video properties. Now that DIS has – post Pixar purchase – learned how to make movies again (if you have kids, you need to own Bolt), I suppose I've really made four investment suggestions. Netflix is a bet on viewing trends. Hasboro is a bet on entertainment broadly, as it includes board games, movies, toys (I was at a 5-year-old's surprise party where tripod-mounted belt-fed Nerf guns raked the adults with harmless fire, you've got to see the stuff they make these days), but especially is a bet on the company's management's proven excellence in enhancing to global stature its portfolio brands. All are a bet on the tendency of people to pay for <$20 amusements even when things are tough. All these companies make a fortune on <$20 amusements – movie tickets, action figures, T-shirts, subscriptions – and the size of this market will grow with population regardless what happens to the population's income (short of a food shortage). All are seriously attractive, particularly in my view the one's I've numbered.
Today, I'm off to see How To Train Your Dragon with my youngest (she likes to be a little scared) and a friend and her oldest (who won't be scared). I happen to like dragons :-)
Invest In Entertainment People Can Afford
Now that Pixar isn't traded any longer, and Marvel has been taken off the market (hmm, both by Disney ... there's a thought), I thought it was worth looking for some companies which are reliably called upon to entertain the masses regardless how employment was going or the trade deficit looked. (I didn't used to like Disney because I viewed it as dependent on people having enough extra cash to blow on a trip to Orlando where they know in advance they will be soaked with exorbitant fees. This is a capital-intensive business that depends on macro trends in transportation and employment to work. Yuck. And its films ... did anyone actually see the movie "Brother Bear"? There was a real drought there for a while. But with the addition of both Pixar and Marvel, it is definitely worth looking at whether the overall economics of DIS support purchase. And have you noticed how many Disney characters turn up in toys/dolls/plates/cups/costumes/shirts that depict princesses/pixies/magic? There is definitely mass-market opportunity in the Disney portfolio even outside Pixar and Marvel.)
(1) Hasboro. You played with Mr. Potato Head until your dog ate all the pieces. You bought Chutes and Ladders as your kids' first board game. And there is always another generation of kids about to learn about Dungeons and Dragons. Did you realize that Hasboro can turn
(2) Dreamworks Animation. I don't want to get into the argument with you about the social value of DWA's products. Next to Pixar's Monsters Inc. – full of important commentary on the value of friends, the reliability of character, and what it means to do the right thing, and capped with the lesson that monsters only have power so long as they are feared – DWA's Shrek was from opening scene (fart humor in a pond, as the male lead eats a fume-killed fish) straight through (short jokes, etc.) to the end (top-hits song licensing) designed to appeal not to our sophisticated tastes or our deep philosophical needs but to ... well, to the lowest common denominator. The films aren't sophisticated, they're base. And they make a ton of money. (They also command some star talent salaries, since the leads are celebrities; Pixar seems to have learned to cut its celebrity count from two (Toy Story's Tom Hanks and Tim Allen) to one (Monsters Inc. had Billy Crystal and Finding Nemo had Ellen Degeneres) to zero (WALL•E? Up?). But with hundreds of millions in assured revenues, DWA can afford to pad the Shrek franchise's expense column with the likes of Eddie Murphy, Cameron Diaz, Mike Meyers, John Lithgow, Justin Timberlake, Antonio Banderas, Eric Idle, John Cleese, Julie Andrews and whomever they think of next.) The Madagascar and Kung Fu Panda franchises will certainly continue to provide both small-screen and large-screen opportunities, and the company is clearly able to develop casts and worlds audiences like to visit. The money-making potential of the company will increase with its catalog, and the licensing opportunities will only get better and better. Dreamworks has matured beyond simply copying Pixar (Antz to A Bug's Life, Shrek to Monsters Inc., A Shark Tale to Finding Nemo ... notice the old pattern?) and has the power to attract scripts and fund top-quality projects. While it's unfortunate that DreamWorks is no longer in the business of making products like Galaxy Quest, it's making a consistent profit on a growing portfolio of characters with a real following. The share price pullback on disappointment following the #1-on-opening-weekend 3-D feature How To Train Your Dragon (rated 98% on Rotten Tomatoes) is a buy op; with ratings like that, there will be a long-tail following and a receptive audience for sequel material. (Unlike Pixar, Dreamworks makes some small-screen offerings to boost ongoing cash from its character portfolio.) If Dreamworks' idea of bad is the #1 box office opener, folks could do worse. Take advantage of the pullback in the full knowledge that Antonio Banderas will be back as Puss in Boots, Shrek will ride again, and content like How To Train Your Dragon will yield dividends for years. (Imagine what will happen to the value of 3D content when 3D TV becomes commonplace. Re-release, anyone? Films with 98% rating and fast-action flying sequences will enter every library.)
That's my suggestion on entertainment. But I forget ... when you consider trying films like Shreck II or Transformers at home, you're at least as likely to rent than to buy. My eloquent paragraph here was eaten by an apparent bug in Blogger's text input interface, but the gist is that entertainment for the masses is a thesis that also leads to Netflix (NFLX), and Netflix >> Blockbuster. Convenience rules: from the time I first streamed La Femme Nikita on a whim, I was sold. I was using a subscription I got as a promotion when I rolled money into an account at TD Ameritrade, and I never canceled. To see what I wanted, I didn't have to be healthy enough to go to a local Blockbuster, and I didn't have to be patient enough for the U. S. Postal Service. All I had to do was to tolerate a Silverlight plug-in. On the iPad I won't have to do even that. Just thinking about it, I have an inkling to stream La Femme Nikita (this link DVD) again. With unlimited free streaming, why shouldn't I? And if, halfway through, I find I jones for even older action, I can stream Akira Kurusawa's Seven Samurai. No extra charge.
So I give you:
(3) Netflix. I have a friend who canceled his cable subscription recently in favor of a Mac Mini-powered video setup that provides his HDTV with Netflix, Hulu, NBC, ABC, and all kinds of other content when he's not spinning a disc. (Okay, he encoded all the discs and "spins" them streaming on his LAN through his Mac Mini, which thinks each disc image is a mounted DVD, but it's all the same without the risk of scratches to his originals. The fact you get stuck with ads on free Hulu is different than paid cable in what way?) My friend did some math and realized he was ahead in terms of content (the shows he wants, when he wants them, and often ad-free; he's not a sports fan, so the need for live video is about nil) and ahead in monthly expense. As more and more people do this kind of math, Netflix' subscriptions will grow and with subscribers will grow its profit. Netflix is a near-term bet on videophiles and a long-term bet on the trend toward digital content delivery – a trend likely to accelerate as net infrastructure improves.
Of the three, DWA has the most risk because it is least diversified. DIS is similar (Okay, I've given three and a half) but has a larger pool of video properties. Now that DIS has – post Pixar purchase – learned how to make movies again (if you have kids, you need to own Bolt), I suppose I've really made four investment suggestions. Netflix is a bet on viewing trends. Hasboro is a bet on entertainment broadly, as it includes board games, movies, toys (I was at a 5-year-old's surprise party where tripod-mounted belt-fed Nerf guns raked the adults with harmless fire, you've got to see the stuff they make these days), but especially is a bet on the company's management's proven excellence in enhancing to global stature its portfolio brands. All are a bet on the tendency of people to pay for <$20 amusements even when things are tough. All these companies make a fortune on <$20 amusements – movie tickets, action figures, T-shirts, subscriptions – and the size of this market will grow with population regardless what happens to the population's income (short of a food shortage). All are seriously attractive, particularly in my view the one's I've numbered.
Today, I'm off to see How To Train Your Dragon with my youngest (she likes to be a little scared) and a friend and her oldest (who won't be scared). I happen to like dragons :-)
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