Monthly Archives: July 2007

The Princess is In Another Castle

Nintendo continues to destroy everyone. Sony and MSFT should have known better than to take on the creators of Super Tecmo Bowl, Zelda and Mario Brothers. I mean seriously did they think they could compete? That would be like someone challenging MJ to a game of one on one. Even Lebron would have to bow.

Nintendo’s Profit Rises to Record on Wii, DS Sales

I can’t wait until their new toys come out…in the mean time I will just use it to play the games and watch Google video on my livingroom screen.

So Much For Optimism

This is the second morning I have awaken to a nice pop in the equity markets. Yesterday was long NVT – today was short CFC.

Countrywide – the largest subprime mortgage lender in the nation – has to date been able to avoid the implosion faced by many of its smaller rivals, primarily by focusing on the story of its diversification away from subprime lending. Today’s announcement shows that this has not prevented the challenges in the credit markets from hurting its results: CFC Reports a Little Problem and here is a jaw-dropper on their current foreclosures: Countrywide Foreclosures Blog

I also found another good article explaining some of the challenges in the credit derivatives markets. This one discusses the difference between basic CDOs (which are real estate-backed) and CLOs (which are corporate-backed). The article states that spreads have widened 4 percent for certain tranches in the last few months.

KKR, Homeowners Face Funding Drain as CDO Sales Slow

The bottom line is that reality is setting in as risk is repriced throughout the credit markets and the ramifications are huge.

Just as homeowners across the country are running into trouble as the interest rate ARM’s kick to floating at the same time the housing market is falling, so too a corporate borrower (especially a highly leveraged one) may become squeezed as inflation drives up costs, even in China , and borrowing gets more expensive.

Who is the Evil Empire?

As the I-Phone drives users back to AT&T, as discussed below, Google has also emerged as a possible player in the mobile space.

It appears that they are taking their approach straight to congress and taking on Mobile-MaBell head on in the process.

Not surprisingly, as discussed here (in a good piece), the tech crew is rooting for Google: The FCC Needs to Listen to Google

But I wonder if they continue to grow at this pace if anti-MSFT will be ditched for anti-GOOG.

A Nice Primer on Pessimism

This opinion piece on Bloomberg gives a nice overview of the situation in the credit markets and the various moving pieces I have been discussing with many of you over the last six months:

AAA Grades on Subprime CDOs May Give Cold Comfort: Mark Gilbert

It is hard to be gloomy when NVT pops like it did this morning

Happy Monday.

Convergence is Cool

So Google is now openly competing for wireless spectrum, adding cred to the rumor I helped spread a couple of weeks ago: Google open to wireless bid

I for one am glad to see new-tech co’s building new empires, as Facebook is clearly accomplishing as Ebay announded an app today: eBay Launches Facebook App

Almost lets me forget about the fact that the equity markets are finally starting to wake up: U.S. Stocks Retreat on Earnings, Bad-Loan Concern; Google Drops

I wonder if the stock market is to innovation as politics are to alternative investing…I was never good at those analogies.

TGIA

Last night I saw a performance by the LA Philharmonic and it made me realize that the oil doomsdayers are wrong. I refuse to believe the spew of The Long Emergency, regardless of its allure.

As I told my friend last night: the fact that human ingenuity can create music that lasts for hundreds of years gives me hope that we can tackle whatever challenges we face. Plus a recent report makes it sound like things are challenging, but not dire: Oil report’s conclusion: Broad effort needed to satiate energy demand

On that optimistic note, I wanted to point out an aggressive push that is happening over at Facebook which has recently been bombarded with new users and applications. Yesterday it announced the acquisition of Parakey in a push to fully integrate with the desktop and web browser. I think this move might backfire and turn the company into a MySpace/Microsoft amalgamation, but maybe the technology is good enough to pull it off. This article discusses the implications: Could Facebook Become the Next Microsoft?

The power of the Facebook, Pownce, Twitter, etc. crowd is the ability it gives us to connect with each and share content other instantaneously –> which should lead to better government and perhaps the prevention of massive private takings in the future.

In the mean time, the middle class in this country is feeling the reality of the headline subprime implosion and garbage is being spewed the local press about how their problems are becoming the convention.

So, on this Friday, take a moment to read this call to arms from a recent graduation speech.

I am optimistic that we will answer it, whether through a platform like Facebook, or some future innovation, to come together to make a change for the better.

Dark Clouds Grow Darker

As the headlines yesterday echoed, even the Fed has started to backtrack from its previous “well contained” dialogue to acknowledge that the credit crunch in the mortgage market is spreading. The Fed chief says subprime losses could hit $100bn, but if history is any judge the estimates they make are likely conservative

The place where the most obvious signs of the spreading is taking place, as noted here yesterday, is in the next step up on credit quality from subprime, to Alt-A, which is explained here: The Alt-A Word

That the ripple effects of deteriorating credit are having a large impact was exemplified by the blow up of Bear’s large subprime focused hedge funds, and investors who now are facing massive losses are not happy with that result.

As the trajectory of the contagion remains somewhat unclear, signs that the challenges will not only spread to higher quality assets here, but also to investors abroad hit the headlines today:
Australian investors hit by US subprime crisis
“An Australian investment fund is teetering on the brink of a billion-dollar collapse after being exposed to the subprime mortgage crisis in the United States.”

This is why I often prefer daydreaming about the future over thinking about the present…

Nature is Better Than the Internet (Maybe)

I just had to post these pictures of a Pride even though many of you will see it on Drudge . Photo’s like these make me wonder why I spend so much of my time staring at a screen and playing with new toys and websites with bad names.

But then I see what a fellow HBS grad was able to accomplish in less than two years in building a dope channel for distributing digital content at www.cruxy.com and it makes me realize that there is a lot of work yet to be done in making the Internet the powerful tool it can be.

So even if Cruxy fails or www.profilactic.com has a horrible name, the fact that people are creating on the Internet in ways that are new and different makes me think that it is worthwhile to spend time on in trying to achieve something great…though maybe nature is just a bit greater.

Rocky Waters Spur Change

Spending five minutes on this blog or talking to me will give you the clear impression that I am skeptical about the credit markets, and that I think this risk might spread further. The following highlights a similar concern amongst fund managers in a recent survey, though they remain optimistic about the equity markets.

Credit risk poses greatest risk to stability: survey

Signs that the cracks are spreading abound, and as the Bear Stearns funds now appear to be almost worthless, rumors that other funds are beginning to implode is not only not suprising but expected:
Hedge Fund Meltdown Rumors: Chapter Whatever

What the long term effects of this will be remain unclear, but one thing that is certain is that the alternative investment universe who previously had been riding a wave of liquidity to the IPO market is now seeking a more challenging environment:
Bell Canada bondholders to sue company over LBO

As the prospect of a smooth sailing IPO has become more challenging, true to form, Goldman seems to have provided an alternative outlet by creating a “private market” of sorts for them to seek refuge and gain liquidity at the same time:

Apollo set to list shares on ‘private’ new market – Times Online

And who knows…maybe all of this is an overreaction and the true contrarian play is to be long subprime and credit. At least some people think that might be the way to go:
Black Pearl Sails Into Subprime Seas

I for one, remain just a bit skeptical…at least until there is more red on the street.

Customized Content is King

Sometimes “bad news” is not so bad. The authors of Wired and surely the Pew Research Center for People & the Press probably thought this headline was a sign of the negative impact that the Internet is having on the masses:

Infoporn: Despite the Web, Americans Remain Woefully Ill-Informed

But as I read the article, I realized that it may tell more about the kinds of content that people are choosing to consume. The questions asked by the researchers were predominantly focused on issues related to politics and government.

That people are getting more of their information from the Internet and also now know less about politics does not necessarily imply that they are “ill-informed” but perhaps indicates that people are dissillusioned with government and choosing to spend their time thinking about other things.

This poll indicates such a theory is not far fetched: Voters unhappy with Bush; Congress: Reuters poll

I for one am glad that people are choosing to consume information that they want rather than eating what the media feeds them. Maybe in the future we will have a more widely informed citizenry capable of picking a more representative set of leaders, so that polls could conform to the people rather than the other way around.