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  • Nine Reasons This Recession Is Welcome  [View article]
    This article has some excellent points around the benefits of the business cycle - it does wring out excess and re-bases the playing field. It is a known cycle and we know many of the signs - sometimes they are hard to see when you are "swimming in the pool" vs. being on the deck.

    Per a number of comments, I too have some issues with how our political representatives have handled some of the issues - both sides (repub and dem) contributed to our bailout economy.

    Personally, I have each of my Senators and my House representatives (Federal & State) contact info close at hand. Their web sites are bookmarked in my favorites (for a quick email) and their contact numbers are readily accessible. Most people don't call or write (a snail mail letter is even more powerful). If you do contact them, you begin to separate yourself from the pack of people that like to complain, but don't do anything.

    For example, the CDS issue needs to be taken care of - we can't have opacity and convolution. The bank (among others) bonuses need to be reined in given that taxpayers are subsidizing their incompetence. We need to watch the FHA loans - ensure there is a strong track record of payments in terms of the borrower.

    Overall, we should not incentivize failure and poor decision making and expect good things to grow. If we are truly investing in X (e.g., banks, auto companies, homeowners, etc.), we should be able to state a clear path to getting some return (on our investment) - including the timing, magnitude, and risk of the cash flows. This triad is the basis of capital budgeting decisions - whether it's a household, a business, or a government. The basic fundamentals don't change. Crash diets don't work.
    Dec 28, 2008. 10:44 AM | 1 Like Like |Link to Comment
  • Tough Times for Card Companies - Barron's  [View article]
    If I recollect from another SA piece, BAC and JPM had over 20% of their revenue come from the CC business, which is definitely material. The revenue streams of many of the banks is in jeopardy in the near to medium term. CC fees are almost pure margin and the charge-offs have been manageable ... I don't see job growth increasing at a fast rate even with a job works program, which will take some time to spool up. Also, the wage delta between the jobs lost and new jobs is likely to be significant - add-in the a higher savings rate and deleveraging and consumer spending should be down by $500B to $1T, if not more. All said, without strong jobs and wage growth, I see the CC issue only becoming worse and bank earnings under serious pressure.
    Dec 28, 2008. 10:08 AM | 2 Likes Like |Link to Comment
  • What Shape Will Recession Take?  [View article]
    I see an L or lazy W type recovery. I believe that consumption patterns will be muted and that there will be more savings. Most people remember the immediate past - it's more available and accessible to them cognitively (see behavioral finance literature). I'm thinking that for the next few years, many people will take on less leverage and save a bit more. As inflation starts to show its face, the economy will need to be slowed a bit and a "V" like trajectory will be at a lesser slope. After a few years, all bets are off in terms of moving to the apex of another bubble. Hopefully, we will have learned some lessons around leverage, risk, and unintended consequences.
    Dec 27, 2008. 10:41 AM | 2 Likes Like |Link to Comment
  • Still Waiting for a Real Bottom  [View article]
    This piece has a lot of good points. We do need to re-base, but I don't hold out a lot of hope that we will somehow learn from this bubble or series of mistakes and avoid one the next time. We often move from bubble to bubble as we hit the apex of the business cycle ... the pedulum swings and over-corrects. I think '09 will be a tough road with credit card debt, option ARM's, overall de-leveraging, employment challenges, and a global recession that will hurt exports. A government/taxpayer injection will help, but it's not going to rightsize the structure or excesses that will need to change and be unwound. Today's solutions are tomorrow's problems.
    Dec 26, 2008. 03:36 PM | Likes Like |Link to Comment
  • Banking's Ins and Outs: $188 Billion from Bailout, $1.6 Billion to Execs  [View article]
    I believe in capitalism and the implied pay for performance contract, but I have trouble with the bank execs receiving this kind of $ when they are being subsidized by the taxpayer because they took undue risk. Why don't we look at a clawback provision whereby we take back $ that was ill-gotten via reckless leverage and risk. Unfortunately, the seeds of failure were planted a number of years ago and we are now cleaning up the mess. Why do we reward malfeasance? Why do we subsidize recklessness? Why do we pay for incompetence?
    Dec 23, 2008. 05:50 PM | 2 Likes Like |Link to Comment
  • Bank of America: Optimism Is Unwarranted  [View article]
    I like this piece as I've been looking at BAC for months now ... the difference between this piece and others is that the author has some basis for his recommendation and opinion - and the basis can be verfied and is objective. Given the risk-adjusted value of their recent acquisitions, it appears that BAC paid too much for Countrywide and ML. The amount of Level 3 assets - mark to model assets - are troubling. When times are tough, most banks go down to their tangible book value. For BAC, that's around 10. However, given the Level 3 asset exposure, you could discount the book by 20 to 30%. They are probably a great buy - with a year or two time horizon - at 8 or so. In the long term, I think they will do well and go back to the 20's, 30's, and beyond. The up-sell and cross-sell potential is signficant - if they can figure how to have a single view of the customer, BAC will be dangerous. The biggest issues for them going forward - in the near term - are capping their exposures and learning to integrate and execute against the assets and entities they've acquired. I'd be watching customer retention, products per customer (wallet share), and exposures.
    Dec 23, 2008. 03:12 PM | 1 Like Like |Link to Comment
  • Sector Overview: SaaS  [View article]
    This is a good overview. The SaaS space has a lot of positive aspects and I believe - as I've written elsewhere on SA - that there will be some consolidation in '09. The potential for a SaaS player on an Oracle-like scale is coming ... a massive cloud in the sky that can exploit their distributed computing power and secure data centers will gain some economies and efficiencies. Many of the security concerns and uptime issues have been remedied - as bandwidth expands globally, the issue around speed and concurrent users should improve. The challenge with SaaS is also one of its advantages - it's easy to propagate new versions and functionality, but it can hard to get the uptake and adoption on all the new functionality - coming at a quarterly clip. As a lesson from Siebel Systems, the SaaS players need to be careful at not getting into a functionality race with themselves and hurting some of their key benefits -turn-key implementations, easy to use and understand, solid adoption. As each of the major players gain more enterprise customers, they will have better lock-in (more integration) and more stable annuity streams. Watch the customer lists/names.
    Dec 17, 2008. 08:40 PM | Likes Like |Link to Comment
  • Oracle: Technology Bellwether Prepares to Report  [View article]
    This is a good piece. I clearly think that ORCL will be muted in its guidance comments. Better to surprise on the upside down the road - too much uncertainty right now. I do think we need to watch operating margins given the broadening portfolio and the need for more SG&A around overlays and product specialists. Oracle is good at executing, but it will depend on how they tweak the comp plan and ramp-up support - both could be costly down the road. Additionally, the incremental improvement on the upgrades is not without question + the maintenance stream challenges. With SaaS and cloud players penetrating the enterprise space, there can be a credible client pushback around the margin-rich maintenance stream. Oracle has significant lock-in, but they also want to push the X-sell and Up-sell potential and may negotiate a "give" on maintenance.
    Dec 17, 2008. 09:44 AM | 2 Likes Like |Link to Comment
  • Salesforce.com Unlikely to Sustain Its Current High Multiple  [View article]
    I agree that SFDC is priced a little rich. The SG&A drag is considerable on earnings and the cloud model is a little different than the normal license model in terms of revenue recognition and upside surprises. SFDC is trying to gain more lock-in via AppExchange partner integration, Internet/Intranet resources, and back-end linkages. For a large, complex org that links SFDC to it's back-end systems (e.g., SAP, BI Apps, etc.), it is not easy to "rip" it out - they have some pretty good lock-in with their larger customers. Per my previous posts, I would expect SFDC to acquire some other SaaS players to broaden their footprint and better spread out their cloud costs. I think it's a good stock at the right price - per the article, I would look more closely under 15 or so.
    Dec 11, 2008. 08:22 AM | 1 Like Like |Link to Comment
  • Is It Time to Buy? What History Shows  [View article]
    I think we are in a bear rally personally ... it's not a "free" market at this point ... it has a major governmental overhang that is changing the dynamics, which is why it's hard to play. One reason the market was up after the 533K job loss figure is that everyone thought it was bad enough for the government to step up the auto bailout and the fill-in-the-blank bailout. The credit card shoe will fall in the next few months, along with numerous other credit lines ... the government can create jobs, but it will take some time before the major corporations start hiring again - also, look at the wage delta between jobs lost and jobs created ... financial services jobs pay at the top of the scale - public works jobs do not. Add-in the delevering piece and I think we will challenge previous lows.
    Dec 10, 2008. 10:49 AM | 2 Likes Like |Link to Comment
  • Ken Lewis on Bank Accounting: Sensible Talk from a Surprising Source  [View article]
    Per other comments that Lewis has made, he often seems to be blaming things external to his firm and himself for BAC's issues. I'm not sure I find this comforting (cf. the language of Buffett in his annual reports). Bottom line, the mark to market is an issue because he bought highly risky assets that the firm didn't understand, with high levels of correlated risk. The reserve piece is not so atypical for a firm that is significantly impacted by the business cycle. The issue is to assume we will have "fat tails" and a black swan will happen. All reserves should have a contingency for those improbable events. Also, statements at one point in time are meaningless - let's look at the behavior and trail of statements to understand the real theme and message. A more holistic perspective and evidentiary base is needed.
    Dec 5, 2008. 11:09 AM | 1 Like Like |Link to Comment
  • Three Financial Stocks Worth Holding  [View article]
    You can't just look at straight book value ... need to look at tangible book and discount it accordingly. BAC is potentially a good value under 10, depending on how you discount their book - there is still some opacity in their numbers. I do think Wells and JPM will turn out to be strong - both still have issues, but with C and BAC looking more risky, I think there will be - has been - a flight to quality. Nothing new there.
    Nov 30, 2008. 01:42 PM | Likes Like |Link to Comment
  • Why Can't Bank Executives See in the Mirror?  [View article]
    This piece is spot-on ... it's not like Todd is bashing all banks or financial services. Wells and JPM did not take the risks that BAC and C did ... not taking responsibility for poor DD or risk management is a classic external locus of control - thinking of BAC and C, who are confusing cause and effect ... the reason they are short seller magnets is because of their lack of transparency, risk exposure, and poor acquisitions. They caused the attraction, not the other way around. Mature executives take responsibility for their actions - they don't blame others.
    Nov 24, 2008. 07:31 PM | 1 Like Like |Link to Comment
  • Salesforce.com: Recession-Resistant, or Just Late to the Pain?  [View article]
    SFDC is paying a lot of SG&A and costs for a $1 of revenue. I think they will need to acquire and grow their footprint (see their new web tools, cloud linkages) to really achieve some economies for their cloud. Similar to Amazon, their whole cloud infrastructure costs need to spread over more and more people. Like Siebel, a former employer, they will need to - and they are starting - to cover the full footprint of the business - a front-to-back office in the cloud ... I would expect to see SaaS consolidation in the near to medium term - Workday, SuccessFactors, etc. etc. Benioff is a great salesman, but he will need to carefully manage market expectations or we will see some choppy movements going forward.
    Nov 22, 2008. 02:30 PM | Likes Like |Link to Comment
  • SaaS Stocks Down 50% in 2008: Why I Remain Upbeat  [View article]
    The SaaS model is different from the normal on-premise SW company and yet their valuations have often been on par. The SaaS model should provide a less lumpy revenue stream, but the SG&A and blazing the path is taking a chunk out of gross margins, which are similar to on-premise providers. Similar to Amazon, I think the economies and efficiencies should come out of the Cloud at a few billion dollar top line. The operating cost of the revenue should continue to be watched ...
    Nov 16, 2008. 04:01 PM | Likes Like |Link to Comment