OMG - WANT!! (Sarah Palin Cabbage Patch)

No freaking way can the US Dollar buy you anything cooler than this right now. Sarah Palin Cabbage Patch... Farking Awesome!

And, it's for charity... Find yours on eBay. My final bid guess is $12,000. 

Oh... and Sarah Palin's bid is currently 3 times the closest second. She's definitely the doll of choice in 2008.

Get Seth Godin's "Tribes" Book For Free

I'm a pretty big fan of Seth Godin's. I don't really agree with everything he writes, but I do agree with him that people should try hard to reach their potential in life. To some Tribes, We Need You To Lead Us may sound like a basic book about leadership, or maybe to others (marketers), it sounds like a guide to finally getting a viral YouTube campaign to work. Once you read it, however, I think you will find that it is more about courage. Mainly, the message was "if you conjure up the courage to open up your mouth and share your ideas, others will listen and respect you for it".

Ok, maybe there's more here. But that was my main takeaway. The more I run my mouth, the more I find others thankful that I did... Or at least they seem to listen. Then we have fun discussions, share ideas and come up with new ones. The world would be a lot better place if more people had the guts to speak their minds, take a risk and let others know what they are passionate about. If you'd like a very well written push in that direction, this is the book for you.

Oh, and how do you get Tribes for free?... Simple... Whoever leaves the best comment on any of my posts between now and next Wednesday (day after the presidential election), will get my copy. Seth encouraged us to share it, so that's what I intend to do. Shipping and handling is on me. Thanks for participating.

JP Morgan Chase Defeats Paulson & Taxpayers

It appears that Treasury Secrety Henry Paulson's $250 billion dollar cash installment is already looking like a scam. Unfortunately, if you believe this NYT recount of a recent JP Morgan Chase (JPM) conference call, even one of the best positioned banks in the land is sitting on their $25 billion dollar infusion, instead of lending it out. Apparently, they are still in bargain hunting mode. They believe the $25 billion "will help us ... perhaps be a little bit more active on the acquisition side or opportunistic side for some banks who are still struggling."

So, let me get this straight:

1. Paulson and Co. battle for weeks with the Senate and House to get a $700 billion dollar package passed, that is going to be used to buy up toxic assets from the banks... This gets the risky assets off the balance sheets and gives banks capital to start lending out to Main St. (small businesses, students, and purchases of homes and cars). Furthermore, this is an investment that will most likely be profitable for taxpayers. This sounds great!

2. With the first $250 billion, agreed to by Senate, Congress and W, Paulson instead decides to just "loan" the cash directly to the 8 US financial institutions who "need" it most (you know, like Wells Fargo and JP Morgan, who have publicly declared they didn't want the money). The thought here is that the stable banks will use the cash immediately to start lending again... Or as Paulson said, "Our purpose is to increase confidence in our banks, so that they will deploy, not hoard, their capital."

3. JP Morgan Chase, however, is in business to make money, and not act as a puppet of the government (shocker, right), so they've instead decided to hoard the capital, and potentially buy up more failing banks so they can one day become the biggest bank in the universe. The $25 billion is nice, but times are tough, so "loan volume will continue to go down as we continue to tighten credit."!!!

SUMMARY: Taxpayer dollars are going to JPM coffers to GREEDILY buy more failing banks instead of flowing back into the desperately needy economy!!! I own JPM stock, for god's sake, and even I'm pissed at this. WTF are these people doing!?!

In other words: FAIL!

Dow Gotcha Down? - Apply Chuck Norris

These jokes are mostly terrible, extremely nerdy, and have definitely brightened my day. Thanks to CNBC for sharing.

A couple favs:

Chuck Norris continues to short the Aussie market.

Chuck Norris still has his PB balances with Lehman.

Chuck Norris will sub-underwrite Iceland.

Chuck Norris doesn't hedge. He waits.

A couple weak attempts from me:

Chuck Norris's WaMu stock is still trading on the NYSE.

Chuck Norris doesn't time the market, the market times Chuck Norris.

Warren Buffet sold Chuck Norris preferred stock with a 10% dividend and stock warrants that are good for 5 years.

I look forward to more of these.

Apple Ridicules Marketing Over R&D - I'm An Irony

You know, I own some Apple stock (AAPL) stock now, so it saddens me to have to point out how ridiculous their new anti-Microsoft ads are. Basically, Apple is (again) mocking Microsoft's Vista OS, and points out that they are trying to fix the problem through advertising and not R&D. I generally agree that making your product perfect should be the first priority, and once you have that, hey, market that puppy to death (or better yet, let your happy customers do it for you). Apple makes a great point, over-spending on advertising when you don't have the product to back it up can eventually be your downfall. Apple misses sorely, however, when they say that is Microsoft's problem, when it is actually their own.

First of all, while these two are bickering, Google is slowly releasing a version of every piece of software that Microsoft makes, for free, and Asus is manufacturing $350 laptops, capable of meeting all the standard needs of college students everywhere. Google also released the first smartphone with a Google Android, which does not have an exclusivity contract and may soon greatly challenge the iPhone. I'm writing this on an Asus computer, and my life belongs to Google, and yet I've never seen a TV commercial for either. That's because Asus and Google focus on getting the product right, and letting it sell itself. All the while, Apple and Microsoft are spending like crazy...

"How crazy are they spending?" you ask? Great question. Instead of going to the headlines, we're going to hit up the most recently filed Income Statements instead. You know, the place where these companies have to legally disclose this stuff, unlike their press releases and seeded bloggerganda (if that's not a word, it should be).


We're going to compare the R&D (research and development) line item to SG&A (sales, general and administrative) for these companies. Granted, SG&A is a proxy for true marketing spend, but it works well for a large-cap, 3-company comparison in the same industry. So, away we go (Quarterly comparison of Q2 2008 (ending in June) - all numbers in $Millions):

Google: SG&A: $959, R&D: $682, Sales: $5,367
Microsoft: SG&A: $3,996, R&D: $2,035, Sales: $14,454
Apple: SG&A: $916, R&D: $292, Sales: $7,464

So what?
Apple's sales to R&D is 25/1 - so they only put $1 back into product development for every $25 spent. Google is 8/1 and Microsoft is 7/1. So Microsoft actually invests much more of it's profits back into the products we get.

Apple has a Marketing to R&D ratio of 3.13 - so for every $1 on R&D, $3.13 goes to Marketing and Overhead. Microsoft and Google's ratios are 1.96 and 1.40 respectively, much less than Apple, relatively speaking.

But sadly, Apple has the highest return on total (SG&A + R&D) investment, meaning they are making more money by spending on ads than spending on the products themselves. This, of course, is the fault of the consumer. Crap. Great for those of us that work in Marketing of course, but doesn't it piss the rest of you off?

Even worse, doesn't it piss you off that Apple makes commercials ridiculing spending on ads, when it is actually their core strategy? Uhg, I feel dirty.

Warren Buffet's New Scam Is Also Quite Brilliant

Warren Buffet continues to make some very impressive moves for Berkshire Hathaway (BRKA). A couple weeks ago I mentioned that his preferred purchases from Goldman Sachs and GE were now, essentially, insured by the government. So he's got $8.3 billion paying 10% risk-free, with some warrants thrown in just for fun. In the meantime, he's been selling a bunch of puts on Burlington Northern Santa Fe Corporation (BNI), a stock which Berkshire Hathaway is a major holder of. While this is a small move relatively speaking, it is a clever example of how Buffet is printing money for himself and Berkshire Hathaway stockholders (SWEET!) - Here's how this works:

Selling Puts? - The holder of a put has the right to sell a stock at a stated price at a stated future date, regardless of the current market value of the stock. A put holder makes money when the stock goes down, since they can still sell the stock at a higher price. Of course, the holder of the put must pay some price for the right to do this.

For Example, Buffet sold 1.2 million shares worth of BNI puts on October 10th for $7.09 a share, with a stated price of $75 dollars a share and an exercise date of December 12th. So, if the stock stays above $75 dollars between now and December 12th, then the puts are worthless, and Buffet pockets the $8.5 million bucks. If the stock drops below $75 dollars, then Buffet will be paying $75 a share for the stock, but since he's already collected $7.09 a share, he's really only paying $67.91. Nice discount.

Now here's the fun part - volatility these days is ridiculous on the market, so these puts are selling for a lot more than they should. Buffet collected $30.4 million bucks selling BNI puts, which are all currently worthless to the holders because BNI is trading in the mid-$80s. And, of course, the stock won't come back down because everyone knows Buffet is a buyer of the stock, so they surely won't sell their shares for less than $80. Better still, Buffet wants to buy these shares anyways, so he's really just giving himself a big discount, and will be keeping the price up above $80 to keep the $30 million in Berkshires Wallet.

This is really just another reminder that:

1. Warren Buffet has enough money and press to make moves none of us can make, so buy Berkshire Hathaway stock and ride the wave.

2. Buying puts in BNI for $80 or less (or god forbid, shorting the stock) makes you a moron.

GameStop (GME) - Fragzors Teh Recession!

If you are looking for a good recession play right now, GameStop (GME) stock is just the stock for you. I know, I know, "Why on EARTH would I want to buy a specialty retailer, that sells freaking video games for gods sakes, at a time like this?" Or, at least that's what I'd think old stodgy banker types would ask. That's a valid question, if you have never been into a GameStop. If you have, you already know the answer. Or maybe you know it, but just haven't realized it yet. Here's some things to ponder about the economy, video games, and GameStop:

1. The economy is pretty crappy. Retail numbers are no bueno. People are looking to spend less money on everything right now, from food, to travel, to Christmas gifts. Perfect! Video games offer 100s of hours of entertainment for a front-end investment of $60. I spend that in 2 hours at the bar. So, if you do the math, video games can save you (me) about $500 a week. Buy, Buy, Buy!!

2. NPDs number for September came out last night. They were... ok. Hardware unit sales were flat, though down based on $s (due to price cuts). But flat vs. last September, when Halo 3 came out, is pretty darn good. Furthermore, the install base of current generation systems is now over 200 million (XBox 360, PS3, Wii, DS, PSP). That means you already have 200 million systems out there that need games. No need for big purchases here, just lots of small ones... And GameStop is best positioned to make out huge here... Why's that?

3. GameStop thrives on Used Game Sales. That's right. GameStop buys and sells used games (in case you didn't know that). They allow people to trade in old titles for new titles, in thousands of locations in strip malls across the universe. This allows even folks with $0 dollars to contribute to their bottom line. And even people who have lots of moolah, may be more inclined to spend $55 on Grand Theft Auto IV, instead of $60. Prudent, right? What a brilliant business model!! Oh, almost forgot, margins on used games accounted for half of GameStop's profits last quarter, on only a quarter of total sales!!

So, as the Economy sinks, GameStop becomes even more profitable. YAY!! Oh, and that was published in August. Just imagine how many used games they are selling now. Rake in the dollars.

Given this environment, I'd expect to see this stock to easily hit or beat earnings expectations for the year of $2.49, regardless of sales. Margins may double this quarter, and profits will be wonderful in a time like this. At a current stock value of around $30, that's a 12 P/E for the year. That valuation makes this a value stock, and not really a growth play.

Of course, when the street starts to realize that they are more likely to be on the high end of earnings estimates, resulting in earnings growth of 40% YOY, it is more likely you'll see a valuation of 15-18 applied to the stock. That results in a conservative valuation of around $40, and certainly higher if they beat earnings.

By the way, the Wall St. folks already know this, and are starting to buy the stock. It is already up 15% in the last couple days (it got hurt on retail numbers, which clearly don't apply to GameStop as they do other retailers). I'll leave you with a note from Credit Suisse to ponder:

"In the near term, given the effective freeze on spending over the last few weeks, we do not expect a retailer we cover, with the possible exception of GameStop, to achieve
current consensus estimates for 2008 or 2009."

Obama Video Game Ads - Change I believe In

First, look at that picture. Soak it in. Pretty car, nice day, big-ole Obama billboard. Hopefully you realized a lot quicker than I did that it is a video game screen-shot from Burnout Paradise (found here), a very popular XBOX 360 game. And that big mug of your most likely next president, Barack Obama, is a digital, rotating, highly targeted advertisement. Welcome to America - I love it here.

We all know Obama has a ton of money, and we're seeing his face everywhere. TV and print ads were obviously expected. His online presence has been more saturating and detailed than we've ever seen before. He constantly points his audience to his website, so you can read every detail of his ideals and plans. They will even help you register to vote. He's also using text messaging to update and engage a population who subscribed to the messages. These are all expected uses of media, but Obama's newly launched video game ad campaign is not only a surprise, but X-TREMEly cool.

The campaign, so far, has launched in 9 popular EA (Electronic Arts - ERTS) titles, including Madden '09 and the previously mentioned Burnout Paradise. Not a big deal, except these deals were all made well after the games were published. So EA is selling dynamic ads space to the highest bidder, that changes over time. What's even cooler, is that Obama is only paying for these ads in 10 swing-states: Colorado, Florida, Iowa, Indiana, Montana, North Carolina, New Mexico, Nevada, Ohio and Wisconsin. Meaning EA at least has geographic targeting capabilities... hopefully the tip of the iceberg.

The downside is that users must use XBOX Live to get the ads (without being connected to the internet, they'd never get the billboards). Since this is currently still a $50 per year service (and lots of people fear online gaming), the audience has severe limitations. You could argue that most of those getting Obama ads won't even be able to vote for him (this time around at least), but the potential here is tremendous.

As big players like ERTS, TTWO, Activision-Blizzard, continue to make improvements to the targeting and delivery system, look to see more and more dollars poured into this channel. There are 70 million Wiis, XBox 360s, and PS3s out there, and another 120 million DSs and PSPs, with extremely captive audiences (try walking in front of the tv while someone is play Madden if you don't believe me). Even consumers could win with this, as the big game companies can subsidize sales revenue with ad revenue... In other words, more ads result in cheaper games for us... and hopefully an end to the $50 XBox Live annual fee.

Obama may turn into a visionary leader, that's yet to be seen. But it is very clear to me, Obama is already a visionary marketer.

Dear Cramer - Thanks For The Shout Out, Bro!

Apparently Jim Cramer, from CNBC fame, is a reader of my small-town blog. Tonight he did a whole show about how the latest Treasury news meant short-sellers were getting squeezed out of financials, just as I posted about earlier today.

Ok, I'm kidding, it's not like what I was talking about was much of a leap. But it is nice to see that Mr. Cramer had the same conclusion that I did. I have grown to respect his opinion a lot. Being right 70% of the time in this business is pretty damn good.

I mean, he might have sounded pretty "insane" at one point, but he was right...

Shorters... Better... Run...

Savvy investors were allowed to short financial stocks again last week, and the crap-talking, doom-saying on the stock message boards instantly exploded yet again. Not surprising, shorters thrive on fear, so building negative hype is an easy way to make some money. Unfortunately for them, today is going to be the worst day of their short-lived shorting lives...

Thank the guy on the right. Last night and early this morning, details were finally given on the additional $250 billion bank equity infusion. The summary version is that all the big banks are going to be getting a huge, non-dilutive, chunk of government sponsored cash... Cash at government rates, instead of mobster rates (see more on Warren Buffet). This is good news.

Here's why this is great for banks: Banks get to shore up balance sheets and begin to lend again without having to hawk their businesses. Rates will be low, ratings from Fitch and Moody's will improve, and cash can start moving again. $250 billion to banks is $2.5 trillion they can start lending again, especially if they are in good shape already (read: JPM, BAC, WFC). Or, if they aren't in good shape, now they have much less stress (read: C, MS, GS). 

Here's why this is great for us: First, we get an equity share so at least we'll benefit from these investments. Secondly, money will start flowing again. Mortgage rates will SINK - get ready to refinance!!! Wait for 4%. Seriously, it will be that good. And of course, government backing of all deposits right now means we can get that big lump of cash out of our wallets. Go ahead, throw it bank in the bank. It's all good!

Here's why it sucks for shorters: All of the major downside risk pressures (i.e., bank blowup) just got eliminated. That means doom-saying is completely irrelevant. There may be some serious inflation, but all of the banks left are going to be here for a while.

So, sit back and watch the shorters freak out and cover for a loss. And be glad you aren't one of them. Or cry that you are. Then take your money and go buy Kraft, the Google of the next five years.

WW(Beer)D? - The Religion, The Lifestyle, The T-shirt

So, I found myself at the Baltimore Oktoberfest over the weekend. The event was a good enough time. Not much Leiderhosen, but plenty of decent beer. Though only a few truly dressed the part, hundreds were at least wearing funny, beer-themed T-shirts.

As a lover of funny, beer-themed T-shirts, I was especially saddened to not be part of this club. Partly because I was wearing a DC United Jersey with a big fat VW Logo on it (the most German outfit I have), but also because I don't own a funny, beer-themed T-shirt... GHAST!!

... In light of this most isolating social faux pas, I was in need of atonement. I needed redemption... I needed... inspriration (If you don't see where this is going, please close this window).

Behold, the What Would Beer Do? T-shirt. Gosh, I love technology.

Special thanks to Nancy Pelosi for endorsement of this product. She's definitely at least 14 times as cool as I would have thought.

Warren Buffet's Goldman Sachs Deal Backed By Treasury

Man, Warren Buffet is one seriously smart cookie. First off, he works over Goldman Sachs in a monumental finance deal (*terms summarized below)... And now today, the government has somehow managed to make the deal even sweeter. Because today, Paulson announced that the Treasury would be buying stock in banking entities that needed cash (Goldman Sachs), at interest rates not required by mobsters (Warren Buffet).

As noted by the Wall St. Journal's MarketWatch.com, "Paulson went out of his way to say existing shareholders would be protected." So Goldman can borrow and not worry about nationalization, which would have been a serious stockholder bummer. Got Cash Problems?... Not anymore!!

So what does this have to do with Warren Buffet? This means he is holding Goldman Sachs corporate debt paying 10%, with stock warrants and a buy-back premium... WITHOUT ANY RISK!! The government has his back. And the government has a big fat wallet.

Gee, who'd have thunk Paulson would come up with some plan that saves the remaining risky banks (Goldman Sachs), without too much harm done to the stockholders (Paulson)?... Man, Warren Buffet - Brilliant!

*Terms: He loaned them $5 billion dollars at 10% interest ($500 million every year forever). Obviously, this is way more than Goldman Sachs normally pays for debt, but they needed liquidy, and they needed it immediately. Oh, so in addition to that, if Goldman every wants to rebuy the debt, they must pay a 10% premium. One last thing, Buffet also received a warrant to buy $5 billion in Goldman Sachs stock for $115 a share at any time over the next five years. Sure, it's low now like everyone else, but seeing $200 a share a couple years down the road doesn't seem that unrealistic.

** Disclosure: The writer has stock in almost all of the above mentioned parties, and is also a taxpayer. Meaning he's happy and pissed. YAY-BOO!! He also thinks, generally speaking, it's a good plan :-)

Gift Cards Are The Worst Possible Gift In 2008

Ok, this is for real... No matter what you do, DO NOT BUY ANYONE GIFT CARDS FOR CHRISTMAS THIS YEAR!!

Sorry for the caps, but it had to be said. It had to be said loudly.

You see, gift cards are considered a loan to the company on the card. That means that if they go into bankruptcy, as many retailers will this year (right after Christmas), you will join the list of creditors awaiting bankruptcy hearings and your cut of the fire sale profits.

NO!!... You do not get to use your gift card, even if the store stays open in bankruptcy.

NO!!... You will not ever see a dime for this purchase!

Yes!!... Every retailer, other than Wal-mart, is in danger this year. And if you buy someone a Wal-mart gift card for Christmas, you are a douche.

Don't buy gift cards... ever again.

McCain Bad Mortgage Plan Turns Reagan In Grave

In the debates last night, John McCain referenced Ronald Reagan as his hero. Undoubtedly, this was intended to try and hold on to the conservative voters he was about to send running to the hills. I realize that the economy is about as bad as any of us can remember, so bad that both sides agree government intervention is necessary. But John McCain's new plan is not only a blatantly populist move to try and save his collapsing campaign, but it's also terrible.

In case you don't know what I am talking about, here's the summary of his plan: Basically, he wants to take $300 billion dollars, buy up a bunch of bad mortgages and refinance them back to their owners at the real home value and not the one that speculators had bubbled it up to. Basically, this is a mark-to-market for home owners. Sounds like a win for the home-owner, who gets a lower priced mortgage, and a win for the loan holder, who gets to sell the asset to the government at face value, when it's actually a piece of crap. (Something smells fishy, eh?)

The no-brainer complaint here is from the 90% of us who don't have a mortgage we can't afford. "Where is my big fat windfall for not making horrible decisions?" Even worse than that, now we'll have that 90% regretting making good decisions. Wishing they had bought a house way outside of their means, so they would now be getting their mortgage chopped in half. Don't think that is the kind of behavior we want to encourage, eh?

But the really, REALLY, terrible part of the plan is this: IT ENCOURAGES PEOPLE TO STOP PAYING THEIR MORTGAGE!!!

That's right, somewhere in the details of this plan will be a cutoff. A line that says "We'll buy these mortgages, but not those." That line is going to be somewhere around 60 days of delinquency (where assets are officially accounted for as delinquent on bank balance sheets). This qualification will be public knowledge. So anyone who wants the windfall from the government will instantly stop paying their mortgage, and wait for the golden parachute to land in their yard.

This is proof that McCain is going down, and going down swinging. Hay-makers only. And he forgot to aim.

Bwahahaha - Best.Website.Ev4r!!

This is awesome!

Fed Tells Citigroup And Wells To STFU, Please

According to Bloomberg, Citigroup and Wells Fargo have agreed to temporarily stop suing the pants off one another over Wachovia. The reconciliation was made in light of impending economic doom looming over all of us.

Normally, banks suing one another for failed mergers would be pretty business as usual, but since the S&P has now hit 5 years lows and is down 32% in the last year, I think maybe investors have had enough drama for a while. The artificial cease-fire will last until noon on Wednesday, while the Fed officiates a peaceful resolve (in other words, Fed will threaten release rumors about FDIC seizure of Citi and or Wells if they don't play nice).

Putting these discussions behind closed doors is probably good for Citigroup, who is suing for $60 billion dollars on a failed $2 billion dollar deal. Apparently, normal folks are getting a little pissy about this kind of Wall St. greed.

As this mess continues, Citigroup, Wells Fargo and Wachovia are looking more like big losers. The Wachovia franchise is undoubtedly losing a lot more deposits as the drama continues (that regional king Bank of America is most likely scooping up), and the price of a juicy acquisition goes up for the eventual winner (as they will most likely end up in some sort of bidding war).

JP Morgan's steal of WaMu is looking better and better.

The Mortgage Mess Explained - Funny Stuff

This is hilarious and pretty accurate. Great read. Wish I knew who to give credit to. Not me.

Don't Be Fooled - Bailout Doesn't Stiff CEOs

It sounds to me like normal people are getting pretty sick of hearing about how CEOs are doing really bad work, for really high pay. There was a story about the lavish golden parachutes for Freddie and Fannie CEOs, two companies that are at the root of our current financial crisis. Then there's the story of WaMu, who golden parachuted one guy, only to have to golden parachute another guy 3 weeks later, at a cost of about $20 Million per. Stockholders, meanwhile, get nothing.

But at least now we've been given assurances by our government that CEOs are not going to benefit from the bailout. Nancy Pelosi went so far to declare that "We sent a message to Wall Street - the party is over!" That sure sounds comforting to all of us who think this bailout thing was really just going to benefit Wall St. execs - thank goodness, the party is over.

Actually, for the Billionaire boys club, the party will never end. We've been fed a bunch of rhetoric by politicians. Get used to it. Here's what the bill says:

5. Limit the compensation packages of corporate executives

Any company that participates in the bailout would not be able to pay a salary above $500,000 to its top five executives -- JV: So what, most of them don't anyways. They pay salaries of $500K-$1MM, then throw in lots of sweeteners (sound familiar?)... For example, Jamie Dimon made $1MM salary last year, but had total compensation over $15MM. So, this has no impact

Companies that sell the Treasury more than $300 million of assets would not be allowed to write new “golden parachute” packages for their executives during the duration of the program -- JV: "during the duration of the program..." Yeah, in other words, anyone who writes their golden parachute then sells the taxpayers a bunch of crappy assets is good to go

Companies would have to “claw back” past bonuses issued to executives that were based on misleading financial statements -- JV: Guess what, execs don't really do this anymore cause they are scared of prison. This was added just to sound meaningful... Are you feeling it?

Existing compensation packages contractually agreed to would not be adjusted except for cases of fraud -- JV: BIG WINNER - there will be no adjustments to exsisting contracts. Even the Freddie and Fannie guys will still get paid off. You can throw this pig against the wall, but it won't wear lipstick!

So, yeah, we're getting BS'd with again by politicians. I'm outraged... or bored... Oh well, at least my McDonalds stock is up. War Double-Cheeseburgers!