Thursday, February 28, 2013

Gruber: Apple Hater Hammers See Only Apple-Bad Nails

John Gruber (of "Daring Fireball" fame) writes of a recent Apple's Reign Is Over article that When All You Have Is an ‘Apple Is Doomed Without Steve Jobs’ Hammer, Everything Looks Like a Nail. Although the focus of the article is on product comparisons between Apple and a supposed new King (which hasn't actually netted money in hardware yet), the Apple Isn't Over thrust of the article is reminiscent of the Jaded Consumer's piece last year On The 'Decline' of Apple, which responded to (and laughed at) a piece by the CEO of Forrester Research called Apple=Sony.

Apple = Sony is about as real as Google > Apple, which Gruber laughs at in his new article by focusing on hardware offerings and their relevancy in the consumer market. While a rebuttal isn't possible for every silly opinion piece on Apple, Gruber's comparison is perspective-building. Expect more of the same anti-Apple drivel from other click-baiters fishing for Apple haters – just don't expect long-term bets on such theses to pan out well.

White House Tries Intimidating Bob Woodward

Unhappy with Bob Woodward's article on the administration's handling of forced federal spending cuts, a senior Obama official wrote the Watergate reporter saying that he would "regret" writing it.

Is this the way a democracy handles private purveyors of opinion?

Wednesday, February 27, 2013

Sex Traffic Alive and Well in America

Pimps troll social networks for victims to coerce into slavery. This isn't new, but it's not the "slavery" Americans think of simply because no war's been fought over it. It's overlooked. It's not a feature of the thugocracy thriving in the former Soviet Union, it's right here in the U.S.

Tuesday, February 26, 2013

Mac Growth Shows Error Of Projecting Last Quarter's Numbers

Apple's results last quarter included a decline in Mac sales, and the cry was immediate: Apple's past it's prime. But today's news on Mac sales is that January's sales are 31% up from same-period sales last year. And its highest-end iMacs are still in short supply. Expect iMac sales to do even better as availability improves.

On another note (ba-da-boom), the recorded music industry grew revenue for the first time since 1999. The net growth is due in large part to 9% growth in digital revenue. Apple holds a large share of the digital music market, so the market's growth is of interest to Apple. Particularly as Apple sells in markets like India, where the for-sale music market is under pressure from IP thieves and Apple's hardware sales growth is in high gear.

ACAS' Discount and Aquisition Prospects

Over on at Seeking Alpha, the article Understanding American Capital's 4Q2012 Earnings Announcement has attracted an interesting comment by Not My Business. It suggests that ACAS' discount (relative to Net Asset Value per share ("NAV")) makes it attractive for an outsider like GE Capital to acquire. Buying ACAS below NAV would deploy capital at attractive returns, so why not?

The funds management contracts described in SEC filings by ACAS' managed funds MTGE and AGNC seem to make change in control a situation in which managed capital clients can depart with the managed funds. It'd be awful for American Capital Ltd. (ACAS' funds-management subsidiary) to lose all its funds management business overnight. The fact that ACAS' funds-management subsidiary is also ACAS' largest single holding (by "fair value") seems to act as a poison pill for ACAS: unfriendly takeover could destroy a significant and growing funds-management business that contributes both to NOI and to NAV.

So, maybe a buyer wants to buy a managed funds from ACAS, in the same spirit of the transactions years ago when ACAS sold a 30% stake of its whole portfolio to investors who wanted ACAS' management of funds. If someone like GE wanted to buy a portfolio from ACAS, ACAS would want to make good money on it rather than to sell it for a song. Would GE want to pay ACAS to manage funds for it? I haven't seriously considered this, but my first impression is that GE Capital has managers whose pride and confidence would work against pitching to their superiors – as their capital deployment idea – the idea of paying of third-party managers to do things they themselves theoretically do for their salaries.

If ACAS restructured so that it had a big externally managed bond fund – and that fund traded below NAV – then I can see institutions becoming interested in buying at a discount for a margin of safety. But this wouldn't be a purchase from ACAS' inventory, it'd be a purchase of shares of a company that's paying ACAS a management fee based on assets' "fair value". It would, in essence, be like an investment in MTGE or AGNC (which early in their lives both traded below NAV, too). 

ACAS would like to have institutions interested in its managed funds, of course. So restructuring to place investment holdings into an externally-managed, publicly-traded BDC seems an interesting way to attract institutional interest, and broaden demand for ACAS-managed funds.

If AGNC and MTGE offer any example, the new fund would likely trade at a NAV discount until its dividend is seen as reliable.  One way for ACAS to create this structure might be to raise new money in a new investment vehicle, then buy the assets from ACAS at "fair value" to get them off ACAS' books and onto the books of the new entity. ACAS could participate in the deal by supplying capital for the new entity just as it did with AGNC and MTGE (each of which ACAS since exited). Once the fund traded at a premium to NAV, ACAS could exit and deploy its returned capital elsewhere, while continuing to enjoy funds-management fees.

Some questions would be: will lenders require ACAS to guarantee debt? Will the new BDC get lending terms as good, without the additional safety of the funds-management business and the equity of the portfolio companies? Real roadblocks could kill the idea, even if it were of interest to shareholders.

But I don't see ACAS being bought out. I believe management wants to stay in the funds management business, and that the fallout of a buyout would wreck ACAS' value in a hostile takeover.  I much more credit the idea of ACAS restructuring to allow asset classes the market might value favorably to stand apart from the parts of ACAS that are historically not accorded much value (e.g., non-dividend-paying equity). The restructuring has some good precedent in the development of ACAS' funds-management business through AGNC and MTGE, and serves as a plausible model for future fundraising in an environment that prices ACAS' own shares below NAV.

Thursday, February 21, 2013

On ACAS' 2012 Earnings

At Seeking Alpha, the latest Jaded Consumer article on American Capital is available: Understanding American Capital's 4Q2012 Earnings Announcement. (What's more, it's an Editors' Pick!)  Frequent commenter Not_My_Business returned to the theme that the company might unlock shareholder value through a restructuring that would spin off an interest-bearing-debt company, externally managed by ACAS, to pay dividends to shareholders (and create demand by dividend hounds). While I don't see this in the immediate future, the freedom to restructure in this fashion is exactly what I think keeps ACAS' debt:equity so low: it's interested in maintaining the freedom to do this (which secured creditors with an interest in the debt would veto).

One thing to like in spinning out some debt ACAS wants held for the long term is that ACAS can get a management fee for keeping funds from the permanent capital pool invested in suitably attractive debt instruments. ACAS can itself be a co-owner of this fund, making it like the pool ACAS sold years ago when it sold 30% of all its investments into a pool it managed – except that the pool is public, strangers can invest, and ACAS can raise money in it.

The problem I have with AINV isn't that it's an externally-managed fund, but that it combines high fees with willingness to issue equity below NAV. That's why I concluded Berkshire was a better use of capital. Berkshire has discipline, and AINV's management doesn't.

Assuming ACAS launches such a fund, it'd be interesting to see how it's valued by the market. The question is: if ACAS can syndicate debt from One Stop Buyouts into its public bond fund, will it fight as hard for deals that arms' length buyers would buy or will its managers settle for deals it can do this quarter? Without the constant pressure to get third parties to support ACAS' deals in the syndicated-debt market, what will ensure the deals have the metrics and prospects that will really perform for investors? Will we rely on ACAS doing deals more and more within specific spheres of expertise?  Will ACAS have some other method of keeping its managers demanding in their tastes for suitable risk-adjusted returns?

Can anyone remember the name of that search engine optimization company that ACAS invested in right before Google changed its algorithm and obliterated its business? We need to avoid more of that kind of boondoggle. ACAS needs a scheme to detect it early.  Investing in what you know is some protection – ask Berkshire – and the movement toward concentrating in areas of expertise like energy/infrastructure, and healthcare, may help ACAS in that direction. Does the plan go deeper?

UPDATE: Geosign collapsed weeks after ACAS' acquisition for $130 million plus affiliate money for a total of $160,000,000. Then, Bam! Google wised up to its business model – click arbitrage, selling Google advertising more expensively to Yahoo! – and killed it with algorithms that detected Geosign's violation of Google's Terms of Service. Rebellion Media Group, which apparently succeeded Moxy Media, which apparently received ACAS' part of Geosign's assets, was last listed with a fair value of $24.8 million. What a difference a few weeks makes. Remember Rule One.

Sunday, February 17, 2013

On Violence Policy

Looking at news stories about violence in Chicago and its impact on Chicago gun control politics, it seemed worth looking into whether Chicago's highly-publicized murder rate for the partial-year 2013 placed it in a different league than other cities, and whether there was reason for optimism that the murders rate would be affected by the laws being proposed.

First: Forbes lists America's top-ten most-dangerous cities in order of violent crime rate – which is different than the murder rate. In the United States, our violent crime rate is generally lower than it is in the UK, but our murder rate is higher. That is, we have less violence, but its likelihood of proving fatal is higher when it does occur. With that in mind, Forbes claims Detroit tops America's most-dangerous cities (violent crimes occur 2.137 times per year per 100 population). Tenth on the list is Buffalo, with 1.238 violent crimes per year per 100 residents. Forbes doesn't give particulars, though, on the involvement of firearms or the extent of fatalities in the cities it lists. All the places on the list have hundreds of thousands in population, but the four largest cites aren't on the list. It offers little insight into Chicago.

Second: U.S. News and World Report looks at several years of historical data, including property crime data, to list America's eleven-most-dangerous cities. Of interest is that its ranking is based on an index in which 100 is the national average; the score, therefore, shows the percent of risk faced in the city, all things being equal. Tied for tenth place are Cleveland and Minneapolis with an index of 331. Interestingly, Minneapolis' murder rate is described as declining; it's the overall crime rate that drives the "danger" there. The same is true of Cleveland: over the 2006-2010 period of the data driving the rankings, Cleveland's homicides dropped 40%. According to US News & World Report, only burglary increased – and that was a 2% rise. In common with the Forbes list are several other cities, such as Baltimore (index 339), Memphis (index 361), Detroit (index 369), Birmingham (index 380), and Atlanta (index 484). But Atlanta isn't really a particular risk for violent crime. "violent crime rates in Atlanta were only slightly higher than the national figure. But property crimes were markedly higher, with motor vehicle theft 55 percent greater ... and burglary 38 percent greater." This list doesn't really help with the firearm-homicide question that drives the gun control debate.

An article at the Huffington Post in December compares Chicago's higher homicide rates to New York's falling figures.  Bullet points include that Chicago blames gang violence for the murder spike and says 80% of victims are African-American. New York's stop-and-frisk policies seem to reduce deaths and shootings.  The contrast between the nation's largest cities seems enormous: near the end of December, as Chicago approached its 500th murder of the year, New York – with three times the population – had suffered fewer overall murders with a record low of only 414 (since reliable records were first kept in 1963). Both New York and Chicago have histories of draconian gun-control laws, so the vast difference between their murder rates isn't attributable to official tolerance of armed citizens. New York's homicides included a 20% drop in deaths from bullets, down to 237 people. New York's achievement in homicide reduction is apparently attributable to prevention: Police Commissioner Raymond Kelly cites stop-and-frisk as successful in removing 8,000 illegal weapons from the streets, including 800 firearms. Shopkeepers like Dmitry Novosyolov report that when he sees kids, he sees them with parents; he attributes crime reduction to the presence of families rather than loners.

Chicago's homicides are down from the 928 Chicago recorded in 1991 when it was a felony to own a handgun and handguns were defined as unregisterable firearms. The current number is, however, the first time since 2008 that Chicago passed the 500 benchmark. At Northeastern Illinois University, assistant director of Inner City Studies Lance Williams attributes the increase in violence to the unraveling of societal fabric associated with ongoing trends in public housing and school policies in the West Side and in the South Side of Chicago – which every fan of Jim Croce knows "is the baddest part of town."  While firearms are described as widely-available, that's a claim people have laid nationwide. The longstanding hostility of Chicago law to handgun owners (and its requirement that all firearms be registered with a government office) seems to work against the claim that a handgun ban would have a material impact on Chicago violence.

The bigger problem in Chicago seems to be social. Violence is concentrated in parts of Chicago that are socially and geographically associated with trends unrelated to firearm legality, that have resulted in a resurgence of violence. New York seems to prove that enforcement of existing law is effective in preventing violence, just as Chicago proves that more draconian laws have little practical effect on the behavior of criminals.

Gun control is an area in which people reason with their gut more than with their brains, though. The cure for the problem is better data. Without solid data, we have little hope to develop rationally-founded policy.

Olymipc Masters To Dump Wrestling?

The International Olympic Committee – the folks who've brought us all those wonderful bribery scandals and outrageous outcomes in judged events over the years – has apparently not been paid enough by the advocates of traditional, old, Classical-Olympics-era sports like wrestling. So, effective 2020, they're dumping it.

Wrestling isn't a high-tech sport requiring lots of infrastructure to practice; it's accessible to people who have nearly no means at all. Countries can be competitive despite small size. Wrestling is exactly the kind of sport we want to see – a sport that rewards athletes, not high-dollar sled design or high-tech equipment. Wrestling isn't made easier with slick suits, and you don't need expensive facilities to practice.

Wrestling is a real man's sport – a a real woman's. Wrestling is, in a nutshell, exactly what the Olympics is about.

Like Mike Downey says, Don't drop wrestling from the Olympics.

If low-overhead individual sports like wrestling are dumped because they lack star power or don't have enough sponsor funding, the result isn't hard to imagine. The Olympics will become indistinguishable from franchises like the NBA and Pro Golf and the numerous purveyors of equipment and dietary supplements for triathlon competitors. Sport drink vendors and apparel brands will dominate an event that should be about the struggle and triumph of individuals and teams. The Olympics will end up a collection of games athletes can't crack without access to elaborately manicured golf courses, or years-long basketball training programs complete with modern facilities and big organizations of teams to ensure regular inter-organization competition and maintain year-long funding for the marketing machines needed to sell tickets and apparel needed to keep their back-end operations running, or essential funding for engineering teams needed to keep aerodynamic and steering technology in the same league as competitors' in sports involving boats, bicycles, sleds, and so forth. Resources rather than skill alone will determine who can walk in the doors of the games. What a sad world is that.

Wrestling is so traditional that its ejection should be immediately viewed with suspicion.  Its requirements are so basic, and the nature of the competition so tool-free and fundamental, that it should be viewed as democratizing a Games lately dominated by equipment-driven performance analysis (ever notice who's in the diving and ski-jumping competitions?) and equipment (who's in the final rounds of the luge and bobsled events?).

Unlike basketball, soccer, baseball, and other sports the Olympics plans to retain, the international wrestling bodies actually use the Olympics to identify the world champion wrestler. Bicyclists and triathletes and marathoners have other world-profile events with which to select their leaders, but wrestlers actually use the Olympics to name their world champion.

Shouldn't wrestling get a break?

It's hard to believe the IOC isn't kicking wrestling simply because it's not able to sustain the kind of bribery that drives favorable rulings from the IOC and its subordinate bodies. If wrestling poured more cash into IOC coffers, we'd never see this kind of thing.

Thursday, February 14, 2013

Google Can't Be Trusted With Your Personal Information, Either

Now, we learn that Google can't be trusted with your private information, either. When you buy through Google Play, vendors get personal information with which to target you with attention you had no desire to invite. This is interesting in light of Google's prior explanation that of course it won't disappoint users with its privacy practices, or they'd refuse to use Google.

This seems to continue a negative trend.  Recently I wrote about Google apparently misusing my credit card info, then offering no way at all to ascertain why it was making charges to my credit card. Unable to get relief from Google, I had to tell my credit card company to deny all transactions from Google in the future.

So much for Don't Be Evil.

Apple's Disproportionate Profit

A new report credits Apple with over 70% of all smartphone profits globally last quarter, on over 40% of the world's smartphone revenues. It continues an existing trend in which Apple (AAPL) smelts a minority market share by units into an outsized profit.  It's the inverse of the lesson Dell taught us – with huge sales volume and minuscule profits – that unit share isn't profit share

Apple's outsized profitability in the mobile market has been in evidence as far back as 2009, when Apple and BlackBerry (BBRY) (née Research In Motion) together shared less than 3% of the market's unit sales but reaped 35% of its profit.   Since 2011, Apple's smartphone profits have exceeded those of all other smartphone makers combined.

The 72%-of-all-smartphone-profits metric is all the more astounding in light of the press declaring that Apple is suddenly floundering. Apple's "share" isn't in jeopardy now more than last year.  Apple's last quarter wasn't the anemic result one would infer from headlines; when the truth catches up to Apple, it'll be a wind ride. Again. With huge advantages in the international market – where the growth is – Apple is looking good as its business heads into the future.

Wednesday, February 13, 2013

Apple: Eating Microsoft's Lunch?

The climb of Macs in market share has placed Apple in the top tier of PC vendors in a number of industrialized countries, though Apple remains too low in unit sales to be a top-five vendor by volume globally. If one counts tablets among PCs, Apple leads the world in PC unit sales. But being the biggest manufacturer by volume doesn't mean Apple's platform sells more units than platforms that are distributed by multiple hardware vendors: when tablets are considered PCs, Apple's share of the PC market is 20%. So is this a big deal, or not?

At Asymco, Horace Dediu illustrates how the dominance of Microsoft's platform has eroded since 2004. Particularly when one considers phones and tablets, Microsoft's platforms no longer show the dominance they once held. This is particularly true as one considers that Apple holds the top-end of the markets in which it competes: Microsoft appears in many cases to be selling to a less desirable and less profitable customer. As recently illustrated by its huge iTunes sales numbers, Apple's ability to generate post-sales revenues on content easily surpasses that of Microsoft.

Canalys goes further: the Wintel share of the computer market – the share occupied by Microsoft Windows running on Intel-compatible hardware – is set to fall 65% in 2013. What people thought of as a "PC" through the '90s won't really be the face of the PC at all any more.

Opera To Go WebKit

Opera has announced its next browsers will use the open-source WebKit rendering engine first developed by Apple from the KHTML code base when Apple launched Safari (version 1.0 dates to 2003).

The benefit of standards on consumer product choice and the ability of different vendors to compete on features (as opposed to compatibility with undocumented file formats) is a theme previously hit on here. The upside of WebKit is that it allows multiple vendors – now providing the majority of web users with their browser of choice, a rather different situation than depicted not long ago by Microsoft's Steve Ballmer – to share the burden of a high-performance standards-compliant code base, while focusing on other areas of development for differentiating features. By promoting standards, we allow users choice by lowering the barriers of lock-in caused by common but ill-documented products previously targeted on the Internet.

Remember the old notices to come back with a different browser? Or that a site looks best on some browser you don't want to use? Or those messages generated by servers that sniff your browser agent-string to determine that you aren't using the browser distributed by the vendor of the site developer's web design tools, and send you bogus error messages claiming your browser is incompatible – without even bothering to send you the page to see if it is or not? And how you used to rig your browser to LIE about its identity so other browsers would treat it like "one of the gang" and send the real content, which it displayed error-free despite the bogus warnings sent by the crooks trying to control your browser choice?

No?  Well, it wasn't that long ago.  If you can't remember it, be thankful for things like WebKit.  Without its ubiquity, smartphones wouldn't have the wonderful access they now enjoy to the Web.

Without crashing. And for a look at how different browsers can be while using the same rendering engine, consider Google's Chrome.

Now, go back to the rest of the web :-)

Monday, February 11, 2013

Siri: Remind Me To Make Bread

People have been reporting all kinds of things about Siri, its utility, its entertainment value, and its accuracy. In the spirit of accurate documentary, I will post Siri's results from time to time so curious onlookers can tell how it's doing solving users' language puzzles.

This specimen followed the request: "Remind me at 1:45 to make bread."
The result: