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Dana Blankenhorn
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Dana Blankenhorn has been a business journalist since 1978, and a futurist all his life.He warned about the coming Houston oil collapse in 1979. He began making a living on the Internet in 1985. He launched the first e-commerce daily for CMP in 1994, warned of the... More
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  • If It Is 1929 In China, Have We Learned Anything?

    Today is a day to make an Austrian economist's heart go pitter-pat.

    The fall of China's market, becoming more spectacular by the day, is creating a contagion that is triggering a bear market in U.S. stocks.

    To the Austrians, this is heaven. We're all about to lose our faith in central banks, they say. We need hard money, they say.

    But what's money in the first place? Gold is not money. Oil is not money. If we have learned anything in the 86 years since the great Wall Street crash, it is that money is not a noun, but a verb. Money is a medium of exchange, not some object. When everyone is selling, simply ignoring the money problem and buying actually works.

    That's why the Austrians were forced out of Austria in the first place. Europe, specifically Germany and Japan, went in and bought. They told the old debtors to pound sand, they created new money and new structures for themselves, and they bought. When the Austrians landed on these shores with their ignorant economic belief system, many Americans bought the nonsense, and rewrote a history of minor tinkering under Franklin Roosevelt into one of wild deficit spending.

    History shows the wild deficit spending came later, when America learned what Germany had been spending all that money on, and that it worked.

    So there are three ways this thing can go. We can listen to the Austrians, as Herbert Hoover did, and refuse to intervene in the economy. We can tinker at the margins, as Franklin Roosevelt did, and make ourselves feel better.

    Or we can take the opportunity to spend.

    Now is the time for a National Infrastructure Bank, a $1 trillion fund of new projects, with 10-year business models that return the investment. I'm talking toll roads, improved ports, environmental projects, and gigabit Internet for everyone. It's not as if there aren't good places to spend new money. It's not as if there aren't huge problems that demand solution. It's not as if you can't make money solving these problems.

    If this once-in-a-lifetime opportunity is not seized by us, someone else will seize it, and they may not be buying solutions with it, but problems. Right now we're lucky, in that Russia can't afford guns, and China can't afford guns, and even the sheikhs in the Middle East can't afford guns. If we soak up the demand with projects that actually do some good for people, there won't be as much left to buy guns with.

    If it really is 1929 in China, in other words, we have the chance to create a new 1930s. Or go through the old one all over again. Which will we do, focus on the problems or the opportunity?

    Tags: economy
    Aug 24 10:51 AM | Link | 8 Comments
  • Disney, Mondelez, And The Greed Portion Of Our Program

    The recent falls in Apple (NASDAQ:AAPL) after earnings, followed by collapses in media stocks and the Ackman-Peltz move on Mondelez (NASDAQ:MDLZ), are signs of where we are in the economic cycle.

    Welcome to the greed portion of our program. It could go on for a while.

    Every economic recovery has different phases. There is repair, the initial job of fixing what went wrong previously, which lasted years this time because the Great Recession was so disastrous. During this period all sectors but those most damaged by the previous recession, like the big financials, rise sharply. During the recovery phase, stocks move up in line with the economy's performance and in the growth phase, new economic leadership is established.

    The greed phase can last just a few months or several years, depending on whether the underlying recovery is on solid ground. The last decade's market was not, and the greed phase was measured in months. The greed phase of the 1990s recovery went on for over three years, ending in early 2000. That of the 1980s actually survived the 1987 crash, the economy not falling into recession until right after the Iraq War. The 1970s cycle was foreshortened by high commodity prices.

    During the greed phase, the performance of traders and investors will diverge sharply in the short term. As we saw with Apple and Disney (NYSE:DIS), the fall of a stock may not be related to corporate performance and may seem to hit hard, but it provides a great opportunity for real investors to get into good stocks for less than they might otherwise. When people talk about "buying the dips" or "waiting for shares in X to hit attractive levels," they're assuming that this is a regular thing. It's not.

    It's a thing during the greed phase only because traders are trying to wring big profits out of businesses that are promising more modest growth, and will either trade in-and-out quickly, buying rumors and selling news, or engage in complex financial engineering schemes to wring out fat profits. That's what is going on at Mondelez, itself the product of Kraft's break-up between food units that were slow-growth and domestic focused, and those that were growing faster and had an international bent.

    Mondelez is already doing most of what an activist would want, like zero-based budgeting that forces managers to justify every paper clip. What Blll Ackman and Normal Peltz seem to want, with their 10.5% stake, is a major transaction that can be hyped as creating value, or synergy, or at least a short-term profit. Then they will sell. They have no interest in the long-term health of the company.

    One way to extract profit is to load up the company with debt and throw more money to shareholders. Mondelez has almost $2 billion in cash according to its June report, and a debt-to-assets ratio of a little more than 25%. That's barely half that of Kraft-Heinz (HNZ), which Warren Buffett and 3G Capital are backing. A strategic transaction might also include passing Mondelez off to another food company with less leverage, or to spin it off to a company in another country. Mondelez could also do an inversion, moving its official headquarters to Ireland, where its Cadbury unit is based.

    There are all sorts of games that could be played aimed not at increasing the company's value, but at giving Peltz and Ackman a short-term profit that will cause them to go away. Short-term profit is now the name of the game.

    But how long will we be here? Economic signals remain strong. Stocks are somewhat overvalued, but that may be a product of the strong dollar, which is not going to reverse soon.

    All of which means we may be for quite a while. You can pick up some bargains on days like today, while the big boys are forced to earn their cheese with creative financing. I would not be surprised to be writing this same story a year from now.

    Tags: MDLZ, long-ideas
    Aug 07 8:28 AM | Link | Comment!
  • AOL, Yahoo Need To Just Change Names

    There are two tech companies I write about that are guaranteed not to draw an audience, but which should.

    These are AOL (NYSE:AOL) and Yahoo (NASDAQ:YHOO).

    I wrote a positive story about AOL just last week, suggesting that Comcast (NASDAQ:CMCSA) had made what could be the first move toward buying them, and fewer than 1,000 people read it.

    They don't want to hear that Tim Armstrong has transformed the company, using its remaining dial-up revenue to create a growth machine that grew revenuer 13% during the December quarter and brought over 8% of it to the net income line.

    They don't want to hear about its video operations, about its video ad shop or web series. They see the name, they think dial-up, they may think The Huffington Post, and they figure it can't possibly be any good. Please don't tell them that the company had another beat on earnings this morning, earning 34 cents per share on $625 million in revenue, led by those video ads. Please don't tell them that year-over-year growth is coming in at 12%. That would break their hearts.

    The same is true of Yahoo. Marissa Mayer has created some organic, top-line growth, 8% year-over-year. They don't want to hear about the buy rating from MKM Partners, which notes that mobile is now delivering 33% of the company's revenue, up 22% from a year ago. After re-negotiations with Microsoft the company is now free to pursue new ways to monetize that mobile traffic. I wrote about this just last month but no one read it.

    No, when people think Yahoo they think of the 1990s search engine, they may think of Alibaba, and they think of a dysfunctional board. They think of yesterday's Yahoo, which is nothing like today's company.

    Thus, some name changes might be in order. AOL calls its main content sites The Brand Group. That might make a good name for the company as a whole. Wouldn't you read stories about a growing company called The Brand Group -- the ticker symbol TBG is available on the New York Stock Exchange.

    Yahoo should drop the 1990s references entirely. It could just go by Y. Y means young, y means yay. How about Y! - with an exclamation point. Why not?

    If you have been busy hating on AOL since the start of 2013 because you don't like the name you've missed a gain of 34%. If you have been doing the same with Yahoo you have missed a gain of 120%, although I'll admit most of that came as a result of the Alibaba stake.

    Both of these companies are real Internet companies with real Internet revenues and real Internet niches - AOL in video, Yahoo in mobile. Both are worth your consideration, but unless I miss my guess you still won't read this story because you just hate the names.

    But if I push The Brand Group and Y! maybe you will at least read the pitch, and maybe then you will make some money.

    Tags: AOL, YHOO, long-ideas
    May 08 12:33 PM | Link | 3 Comments
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