Posted on December 18, 2012
Solar City (Ticker: SCTY) is in the news at least partly because last week Goldman Sachs was forced to price the initial public offering (IPO) at $8 per share which was about forty percent below the $13 – $15 price indicated in the original Securities Exchange Commission filing. Since Goldman is the most powerful securities underwriter the IPO price is a major concession.
Although based in Silicon Valley, Solar City does not manufacture electronic components. Instead, it installs photovoltaic panels much like thousands of local electrical contractors around the country. Goldman would have been no more likely to accept Solar City as a client than any such contractor but for two exceptions.
First, Solar’s “financial engineering” is the investment banking equivalent of OxyContin. Ultimately it is every bit as addictive and equally destructive. Specifically, SCTY vigorously promotes lease financing that (1) enables homeowners to avoid a down payment and (2) is structured in a manner to optimize tax and rebate incentives for investors providing the financing. For example, earlier this year Morgan Stanley sold investors $300 million in a fund used to provide such financing. For starters, investors get a 30% Federal tax credit as well as applicable utility rebates authorized by various state and local governments. The conventional interest rate return implicit in any lease is icing on the cake.
Second, Solar City is well connected in Silicon Valley. Elon Musk who was the founder of PayPal and current CEO at Tesla Motors is the Board Chairman. Draper, Fisher leads a group of venture capitalists who invested almost $500 million before the IPO. Read more…
Posted on November 27, 2012
As noted in my last post, I originally read “Adam Smith’s” The Money Game at the peak of a speculative market in 1968. Since then there have been a least three additional frightening collapses: (1) Junk-Bond Takeover Bust of the late 1980s, (2) Dot-Com Bubble at the turn of the century, and (3) Great 2008 Recession. Investors who experienced those events no doubt remember the losses as massive. Yet despite three debacles, the Dow Jones Industrial Average increased nearly 1,400 percent since 1968 providing a compound annual rate of return of almost 6%. Moreover, academic research normally uses the Dow -or similar – index as a proxy for overall stock market performance.
I question whether the six percent figure is valid.
The reason I doubt it is because the Dow Jones appears to be a “rigged” Index. Furthermore, all indexes seem to be similarly “rigged” for two reasons.
Frist, many of the most popular stocks during a speculative boom that later go bust, never get into the applicable index. Two examples are National Student Marketing and MP3.Com each of which once traded at over $100 per share. Both were popular with “performance” mutual funds, which means a great many investors were indirect shareholders. The endowment funds of the University of Chicago, Harvard and Cornell held stock in National Student Marketing as did Morgan Guaranty, Bankers Trust, Northern Trust, and General Electric Pension. Read more…
Posted on November 19, 2012
Addicted investors experience a boom-to-bust cycle much like a romance that ends badly. And like such romances, the first is always the most passionate. For me it was the late 1960s, although I was warned almost precisely at the top upon reading “Adam Smith’s” The Money Game in June 1968. But like a naive youth gradually losing his girlfriend to an unknown rival, I kept dating her for another year despite surprising and painful consequences. Fortunately, we broke-up while I still had enough money to finance a graduate education that landed me on Wall Street in the early 1970s.
But I would never again be so trustful of the market. I had learned my lesson. Or had I? As John Brooks put it in The Go-Go Years when commenting upon the message of Proust’s great book, “man’s apparent capacity to learn from experience is an illusion.” We fall in love again. The cycle repeats as evidenced by the dot-com period of the 1990s or the junk bond takeover era of the 1980s. Read more…
Posted on November 8, 2012
Woody Allen once made a science fiction movie parody entitled Sleeper. His character is awakened two hundred years after being cryogenically frozen in 1973. Although initially groggy, once he becomes alert he happily comments, “You know, I bought Polaroid at seven. It must be up millions by now.”
Despite an early 1970s triple digit stock price and a CEO with a captivating personality later emulated by Steve Jobs, Polaroid Corporation went bankrupt in 2001. Along with a great many 1970s-era investors, Allen failed to realize that the chemical process of film imaging was near a technological dead end. In the rearview mirror, Polaroid’s fate should not have been a surprise as underscored by the amplifying evidence of Kodak’s demise a decade later.
The first rule of technology stock investing is to accurately identify the current state-of-the-art within the applicable industry’s life cycle. For example, in the 1970s Kodak and Polaroid could make picture taking incrementally more convenient, but film technology was unlikely to ever reduce the consumer’s cost-per-snapshot or provide the versatility promised by the future of digital photography. In contrast, it was simultaneously becoming evident that semiconductor integrated circuits were beginning to comply with Moore’s Law whereby the cost-per-function dropped by half every eighteen months. Furthermore, the underlying miniaturization processes to manufacture the chips could be repetitively improved thereby implying the Law would last for years, if not the decades that it has actually persisted. Read more…
Posted on November 1, 2012
Last month Samsung introduced a new model of the Google Chromebook laptop computer priced at only $250. It may be the first computer using Google’s Chrome operating system priced aggressively enough to merit serious consideration. It is also a prototype version of a “Post-PC Era” computer.
Chromebook is designed with Cloud computing as its defining characteristic. There is no hard-drive because archival data and applications are maintained in the Internet Cloud on Google servers. Although icons for word processing, spreadsheets, presentations, and other applications appear on the computer screen in the normal manner, the applicable programs and files are actually located in the Cloud. When owners click-on one of the icons the pertinent program is transported over the Net and downloaded into Chromebook’s solid-state memory where it is cached while in use. Once the work is completed and saved to the “Google Drive”, it is returned over the Net to Google servers where is retained until summoned for use again.
Cloud computing endpoints, such as Google Chromebooks, can be designed without regard to the legacy restrictions of Microsoft or Apple computers. Those units were invented as isolated processors in an era preceding even the Local Area Networks (LANs) that emerged in the late 1980s. Consequently, Cloud computing endpoints can offer a number of advantages. Read more…
Posted on October 29, 2012
Beginning with introduction of Macintosh computers in 1984, Apple was consistently among the first to introduce significant industry innovations. But it wasn’t until after the turn-of-the-century that the company successfully translated technological leadership into economic leadership. During the 80s and 90s Microsoft was able to belatedly replicate Apple innovations – such as the mouse and graphical user interface – and still maintain industry dominance chiefly because of its larger ecosystem. In a virtuous cycle, independent software companies were far more likely to develop inventive programs for the Microsoft operating system than Apple’s principally because Microsoft had a gigantic market share lead.
Presently, the situation is nearly reversed among emergent devices. As smartphones and tablet computers rose to prominence after 2007 there was a simultaneous shift toward App-centric software as opposed to complex-to-install packages. In short, Apple has the gigantic lead among App-centric software vendors just as the PC starts to become an obsolete form factor. Simultaneously, Apple is beginning to behave like the Microsoft of the 80s and 90s as evidenced by the uninvited removal of Google Maps from iPhones. In short, Apple and Microsoft may be switching historical roles. Read more…
Posted on October 25, 2012
When a distinguished but elderly scientist states that something is possible, he is almost certainly right. When he states that something is impossible, he is very probably wrong.
– Arthur C. Clarke’s First Law of Prediction
Venerable computer industry pundit, John Dvorak, is probably wrong to “humbug” predictions of the Post-PC Era. Admittedly, John has expert credentials. He began writing columns for PC Magazine and InfoWorld in the 1980s. He’s also been a regular columnist for Barrons and Forbes magazines. Other Dvorak articles have appeared in The New York Times, Los Angeles Times, San Francisco Examiner, and International Herald Tribune. He was part of the start-up team at Cnet. He’s also hosted regular radio and TV shows for NPR and Tech TV. Finally, Dvorak has written or co-authored a dozen books.
Yet his denial of the emergent Post-PC Era is likely to soon become an embarrassment. Perhaps his decades of award winning recognition from yesterday’s industry frontrunners, leaves him unable to recognize when what is new is more significant than what is familiar.
Dvorak surprisingly makes the superficial mistake of assuming that mobility, as evidenced by tablets computers and smartphones, is the defining characteristic of the Post-PC Era. They are only one manifestation. The true defining characteristic is the displacement of over-powered endpoints, such as PCs, with thin client devices that access computing resources from applicable networks such as LANs or the Internet, to wit, Cloud Computing. Read more…
Posted on October 23, 2012
As William Faulkner put it, “The past is never dead. It’s not even past.”
As a stock analyst dining alone at Rickey’s Hyatt House in Palo Alto one evening in 1975, I couldn’t ignore an animated conversation by two middle-aged men in the next booth with profound viewpoints on the future of computing. Since I shared their passion, like most any obsessed youth I rudely introduced myself and was graciously invited to join them.
They were from Bell Northern Research, which was the Bell Labs of Canada. One of them, Joe, was an outside consultant who essentially functioned as a gadfly. His job was to get the technical staff to consider radical ideas from outsiders. Two ideas dominated Joe’s discussions that evening: (1) ARPANET and (2) timesharing. Read more…