Observe Business

I remember when Enron was making the cover page as the best stock to buy. Analysts get a lot of press when they give positive coverage, I wonder why no one goes back and sees if they recommended duds.

A great article from Gawker.com (which these days has more credibility with me than MSM) about how magazines led investors into ruin. How Magazines Led Investors to Ruin

Think about this logically. Magazines rely on ads and subscribers. Ads are bought by the same companies that get plugged. Mention an stock as a big buy, and bam! you sold a few ad pages.

Now, this is the kind of guy you want to listen to:

David Einhorn. He is a fund manager who I think he made a ton of money off Lehman’s collapse. But you won’t hear from him. You know why? Because he doesn’t write a magazine. He is a real investor. One who does his own research, his own legwork, and takes his own risks. If you want to invest, do your own research. Or, be prepared to be led around like a sheep. And remember how most sheep end up.

How many people think that this school has major problems? This is a case of where advertising is overdone. The more this school shouts out its qualifications, the less we believe it.

I am continually amazed at how companies decide they want to save money and increase customer satisfaction by taking customer service to the web…and then they completely flub the user experience. As seen above, United Healthcare has taken complication to a whole new level. If I get this right, you have to enter a number as part of your username, unless you enter an email address, in which case you do not. Plus you can use some special characters but not all. Why not bar all special characters? Why not say ‘no numbers’?

This company should lookat how Google or Yahoo let people choose usernames.

AIG was a party of many transactions where the underlying product was valued theoretically instead of a market comparison.

Let me give a simple example:

Let’s say Company X issued a bond of 100 million USD to cover 1000 second mortgages of 100K each. What is this bond worth now?

Until recently, this bond is worth whatever the Company X says it is. That is because the company can say that “we cannot find a similar match for this in the market and so we are going to value it the best we know how”. I call this ‘fuzzy valuation’.

But what if the ’similar match’ came on the market?

Let’s say company Y had done the same thing, not the exact same thing, but a bond similar enough.

Now, company X would have to revalue the bond they issued. And knowing how the market has gone through the floor, they surely would have to revalue it lower. If they didn’t, they would be lying on their financial statements, which under Sarbanes-Oxley, sends executives to jail for lying.

Then they have to report a lower value on their books, lowering their stock price.

How does AIG come into all this?

AIG is a party to many transactions. Now that AIG is owned by Uncle Sam, its management has no incentive to continue this fuzzy valuation. If AIG starts reporting honestly, then everyone else will have to, which means lower(and more honest) valuations for all.

The Detroit car companies have seemed completely oblivious to the reality of life. They continue to make SUV’s and refuse to make any decent small cars. GM is pouring a ton of money into its Chevy Volt, when it could just bring back the Geo Metro. Why some company doesn’t bring back the most popular small car of all time, the Volkswagen Beetle (the classic, not the ugly new thing which is a Jetta with a new shell), I don’t know.

But anyway, here is a nice article from a few months back about how Allan Mulally, who turned around Boeing, has brought some light at Ford. Note that Ford has hundreds of executives, but it took someone from the outside to come tell them the plain truth: at $4 a gallon, SUV’s are not the future, small cars are.

Thain is a better schoolboy than Fuld.

A very instructive paragraph froma nice article on Slate:

Thain, in other words, had been dealt a tough hand, but, unlike his compatriots at Bear, Lehman, Fannie, Freddie, and other firms, he played it well. Specifically, instead of blaming skeptics and short-sellers for Merrill’s sagging stock price, Thain focused on strengthening the firm’s balance sheet. Several times over the next few quarters, he swallowed his pride, took more enormous write-offs, and raised even more capital.

This brings to mine the most important lesson that any man(or woman) can learn, “You must adapt to changing circumstances“.

When I was younger I was invited to see a planned demolition of a building. I drove a hundred miles at 5 AM to the building site, and with a few hundred other people, ate some cookies and sandwiches until the planned moment. It was all anticipation. And then boom! The building went down. It was so fast. We all looked around stunned and then made our way to the parking lot and then home.

It is always interesting to see a collapse, be it Enron, a large building or now Lehman Brothers. This one is going to be a total mess. Lehman Brothers is actually a collection of interconnected companies, but not all of them have filed bankruptcy.

Anytime a Wall Street icon like Enron or Lehman go down, it is interesting to read what the analysts who were fist-pumping the company just a few days ago have to say.

I have found a really good roundup on Lehman Brothers at FierceFinance.

And here is another very good article on Lehman by way of our British friends, from the Telegraph in the UK, who still write opinionated newspapers.

I am very surprised the Feds didn’t step in with a bailout, because Lehman Brothers people had historically contributed a lot of money to the politicians. Things must be really bad if the politicians in DC won’t take your call.

Just for the record:

Bear Sterns should not have been bailed out.

Fannie and Freddie should not have been bailed out.

The market should be allowed to work itself out.