My Favorite Conference Presentation

The Sam Adams Awaits!

 I have been attending the Barclays "Back to School" conference for the past couple of days.

Every year the analysts at Barclays invite some of the leading consumer products companies to Boston to give presentations and updates on their business.  I have had the chance to hear from executives from Colgate; Procter & Gamble; and Kraft, among others.

However, one of my favorite talks occurred at the end of yesterday's session.  Boston Beer founder Jim Koch (pronounced "cook") gave a talk about the company he started 30 years. 

You may have even tasted his flagship product:  Sam Adams beer.

The craft beer industry has been booming for the past few years.  According to Koch, almost 24% of the beer sold in the United States is craft beer brewed mostly by small brewers.  Only 26% of beer sales in the U.S. are the so-called mass marketed brands such as Budweiser and Miller High Life.  The rest of the beer sales in the U.S. are light beers.

I remember when Koch started the company in 1984. His father and grandfather had both been master brewers. He started his career with the Boston Consulting Group, but soon saw an opportunity in manufacturing a more flavorful ale in the European tradition.  He originally brewed his beer in Pittsburgh, but eventually moved operations back to New England.

Koch went from bar to bar in the Boston area, trying to convince owners to carry his product.  One of his biggest challenges, as you might expect, was avoiding becoming inebriated, and not gaining weight. 

The rest, as they say, is history.  Sam Adams is the largest craft beer in its category, even though it only has a 1% market share of the U.S. beer market.

Yesterday was not the first time that I have seen Koch's presentation, but I always enjoy hearing his updates.

There are several things that make Koch's discussion stand out from most of the other conference presenters.  Most notable, however, is that he starts out his talk by pouring a beer, and toasting the audience.  As he said, "I am glad to see such a large crowd - I hate to drink alone!"

But don't believe for a minute that he is not one smart businessman.  He may stand at the podium sipping a beer and sounding like he is holding court at the local bar, but his stock (and his personal fortune) have been home runs:



It is estimated that Koch's share is now worth in excess of $500 million - not bad for a small brewery.

After Koch made his comments, attendees were invited to go to the back of the room and sample a Sam Adams.  Judging from the crowd in the room, and the happy tenor of the "after party", Koch (and Sam Adams) was a big hit.

Friday Reading: Ted Weschler of Berkshire Hathaway

My wife and I are heading to Charlottesville, Virginia this weekend to visit our daughter Caroline.

Caroline is a first year at the University of Virginia, and is enjoying college life tremendously. We are looking forward to seeing her!


We have some friends who live in the Charlottesville area.

One of their neighbors is a fellow named Ted Weschler.  Ted used to have his own investment shop in Charlottesville, but more recently is working with an insurance outfit in Omaha, Nebraska named Berkshire Hathaway, run by Warren Buffett.

Our friends report that Ted is a very unassuming, friendly neighbor, but seems to be constantly reading - a trait he shares with Buffett. Both men will spend days, if not years, understanding a company before committing capital (Buffett said that he read IBM's annual reports for 50 years before buying 5% of the company earlier this year).

Bloomberg ran a great piece earlier this week about Ted Weschler earlier this week which I thought was very interesting.  Here's an excerpt:

Like Buffett, Weschler sought an edge by studying company filings and dozens of other publications. The former hedge-fund manager once told David that he didn’t make an investment unless he had spent 500 hours studying the idea. 

“He’d go on vacation and take 10-Ks and 10-Qs with him,” said David, referring to the annual and quarterly reports publicly traded companies file to the U.S. Securities and Exchange Commission. “He still does.” 

http://www.bloomberg.com/news/2012-10-22/weschler-rise-from-grace-leads-to-role-advising-buffett.html

Barton Biggs and the Art of Writing About Investing

 “As investors, we also always have to be aware of our innate and very human tendency to be fighting the last war. We forget that Mr. Market is an ingenious sadist, and that he delights in torturing us in different ways.”

Barton Biggs,  from 2012 note entitled “It’s Never Easy,” via Doug Kass

Legendary investor Barton Biggs died last weekend at age 79.  Biggs was widely known and followed in the financial world, and he will be missed.

Here's an excerpt from one tribute to Biggs that appeared on the Wall Street Journal's Market Pulse blog:

Barton Biggs’s death marks the passing not just of a man but of an entire profession: the market guru.

For years at the end of the 20th century, Mr. Biggs typified a class of Wall Street investment strategists who seemed smarter, wittier and more creative than anyone else in the room.

He won renown as an investment strategist for Morgan Stanley and after retiring from that firm founded and ran a $1.5 billion hedge fund called Traxis Partners. He died on July 14, Morgan Stanley announced....

Mr. Biggs’s pronouncements, and those of highly paid contemporaries such as Abby Joseph Cohen, Byron Wien, Elaine Garzarelli and Edward Kerschner, moved markets and electrified faithful investors, who waited eagerly for their weekly commentaries in the 1980s and 1990s. Their essays were printed in booklets and mailed throughout the nation in the days before email became commonplace.

http://stream.wsj.com/story/markets/SS-2-5/SS-2-33457/

Biggs was not only a great investor, but he was a terrific writer as well.

Writing about finance - and making it interesting - is a difficult task.

Too many financial articles that I read these days are notable for the fact that they all sound alike.

The same complaints, the same dire forecasts, and the exasperated tone of the authors who can't understand why the world is not bending to their point of view makes them all but unreadable.

Not so with Barton Biggs.

Biggs had a writing style that seemed effortless, and almost conversational in tone.  I always looked forward to his weekly research comments when he was chief investment strategist for Morgan Stanley, and almost always came away with an insight or two that proved helpful in my investing activities.

Not every piece Biggs wrote was strictly about the markets.  Biggs was an avid outdoorsman, and occasionally he would use his weekly piece to talk about a trip he had taken.

For example, one summer Biggs had gone hiking in Sun Valley. He talked about the hot summer walks through the mountain passes, and the welcome ache in his legs at the end of a great day on the trails.  Later, after supper had ended, he and his friends sat on a covered porch at night drinking cold beer watching the lightning bolts over the mountains.  I carried this article in my briefcase for months.

Biggs and other investors of his generation were not always negative or bearish, as so many strategists are today.  He recognized that while markets could occasionally get overvalued (as he famously warned in 1999), more often there was opportunities to be had to investors that were willing to look beyond the obvious and focus on what could go right.

Here's a brief summary of some of his market thoughts, courtesy of Bloomberg:
 

The New York native predicted the bull market in U.S. stocks that began in 1982 and warned investors away from Japanese shares in 1989 before they collapsed. He sealed his fame telling investors to sell technology companies as they soared in the late 1990s, a judgment dismissed by the press and other investors until the dot-com bubble burst....

After retiring from Morgan Stanley in 2003 at age 70, Biggs started Traxis Partners, a hedge fund, with two other Morgan Stanley (MS) alumni. While he was blindsided by the credit crisis that sent the Standard & Poor’s 500 Index in 2008 to its biggest annual decline since 1937, he correctly called the bottom in U.S. stocks in March 2009, and Traxis’s flagship fund returned three times the industry average in 2009. 

http://www.bloomberg.com/news/2012-07-16/traxis-partners-founder-barton-biggs-dies-at-age-79.html

A Salve for the Facebook IPO Debacle

Yesterday I wrote about my dismay with how the recent IPO for Facebook was handled.

It's not only that the stock is off by almost one-third since May 18, when Facebook first came public.

After all, despite yesterday's strong rally, the stock market has been struggling in recent weeks. 

No, in my opinion, the real problem is that the public has apparently been played for a sap.

The big institutions were quietly warned by company management about some disquieting news in Facebook's mobile search advertising, so they backed away from buying shares.

Senior management at Facebook and most of its original investors took advantage of the hype to sell even more shares that they had originally indicated, thus creating the image (fairly or not) that they knew that Facebook was overvalued at the initial offering price.

The only group not informed about the company's apparent slowdown in advertising revenue was the general public, which eagerly snapped up whatever shares were available and now feel abused.

Lawsuits are now flying around, as would be expected.  Nasdaq announced this morning that it is setting aside $40 million to cover the operational issues that arose during the day of the Facebook IPO.  There are also indications that the underwriters will be facing their own legal issues, not to mention senior management.

I don't have any issue with company founders realizing some profits.  Facebook has obviously been a fabulous success, and potentially could be an internet powerhouse for years to come.

It would be naive to not expect that largest shareholders of Facebook not look to monetize at least a portion of their private holdings at the best possible price.  Moreover, no one had to buy shares of the company - investors were hoping to make a large profit, which in this case has not happened so far at least.

But still: It would be nice if some of the people that reaped hundreds of millions - if not billions, in the case of Mark Zuckerberg - gave at least some signal that they felt that the recent drop in stock price was not warranted.

Just think:  if senior management of Facebook announced that they were taking some of their personal funds to buy shares in the open market, imagine the signal that would send.

Unlikely? You bet.  But there is some precedent.

Here's a story that comes from Robert Cringely's book written in 1996 called Accident Empires: How the Boys of Silicon Valley Make Their Millions, Battle Foreign Competition, and Still Can't Get A Date.

As you can tell from the title, Cringely's book is an amusing yet terrifically insightful book about the tech industry in the 1980's.  Public Television also did a mini-series based on his book titled "Triumph of the Nerds".

In any event, Cringely tells a story about Steve Ballmer, who in the late 1980's was a senior executive behind Bill Gates at Microsoft (Ballmer has since ascended to the CEO spot).   Here's an excerpt:

The Age of Microsoft dates, I believe, from a moment in 1989, when executive vice-president Steve Ballmer borrowed some money.  Prior to that moment, Microsoft had all the elements necessary for global digital dominance except the will to make it happen.  Ballmer's mortgage signified that there was finally a will to go with the way...

{Based on what he was seeing}, Ballmer took a chance.  He borrowed everything he could against his Microsoft stock, stock options, and his every other possession.  In all, Ballmer was able to borrow $50 million and he used every cent to buy more Microsoft shares...

There's something about betting every penny you have in the world that helps with focus, and Microsoft has been very focused during the 1990's.  As a result, Steve Ballmer is now Microsoft's third billionaire, joining Bill Gates and Paul Allen.  His shares have increased in value by twenty times since 1989.

I love Ballmer's story from two aspects.

First, it is rare to find anyone that believes enough in his company and its future to borrow everything to buy more shares as Ballmer did.  I have often wondered whether I would have done the same if I had been at Microsoft in the late 1980's - I doubt it.

And second, it sent a very powerful message to the stock market, which is why I think that Facebook should at least consider doing the same today.

Gatsby: The Movie

The Great Gatsby is probably my favorite book of all time.

I must have read Gatsby at least half-dozen times.  More recently, over the past five years, it has become a summer ritual for me to listen to actor Tim Robbins read Gatsby on my iPod.

(OK, I know that sounds a little weird, but there it is).

I don't know what it is about Gatsby that fascinates me.  The characters are all basically nihilists - no one seems to truly believe in any values or principles beyond basic desires. Gatsby's pursuit of Daisy is obsessive, almost to the point of unbelievability.

Even narrator Nick Caraway - who describes himself as "the most honest person he knows" - seems to have no problem setting up Gatsby's clandestine meetings with Daisy, or having an affair with Jordan Baker while still having a relationship with another woman in the Midwest.

This morning's London Telegraph had a good article written by Guy Stagg about Gatsby. Mr. Stagg may have put his finger on one of the reasons I and many others like reading Gatsby so much:

The Great Gatsby is all about imagination. The characters create enchanted, deluded visions of one another. And so does the reader. F Scott Fitzgerald gives us a few memorable symbols, like the green light at the end of Daisy’s garden, and a few striking personal details, such as Gatsby’s gorgeous smile, and the reader imagines the rest. In our minds the characters become far more vivid than anything on the page.

http://blogs.telegraph.co.uk/culture/guystagg/100063515/despite-the-great-gatsbys-incredible-trailer-baz-luhrmann-is-attempting-the-impossible/

Hollywood has always had a difficult time capturing the magic of F. Scott Fitzgerald's books on the big screen - the 1974 Great Gatsby movie starring Robert Redford and Mia Farrow was a disappointment both to watch and at the box office.

This Christmas there is another, more modern version of Gatsby coming to a theater near year.  The trailer posted above suggests that the story will be told in a much different fashion than either the book or the Redford film.

I am doubtful the new film will be as effective as the book, but I am looking forward to seeing it.

Dr. Gupta At Michigan

I always thought that Steve Jobs's 2005 Stanford commencement speech was one of the best I ever heard.

However, Sanjay Gupta - a doctor by training who often reports on medical issues  on CNN - gave the 2012 commencement address at the University of Michigan (my alma mater) last weekend, and I thought it was just great.

Take a look when you get a minute:



Valerie Stauss of the Washington Post wrote about Dr. Gupta's talk earlier this week. Here's an excerpt from what she said:

“Simply being here,” he said at the beginning, “is incredibly personal for me. You see, not only was the foundation for most of my life conceived in this town. I myself was likely conceived in this town. Best bet is the 17th floor of the University Towers though no one is talking still even after 43 years.”

Then he proceeded to tell an amazing story about how his mother, a new immigrant to the United States, was driving through Ann Arbor when her car broke down. Knowing no one, she went to a phone booth (yes, they had them in the mid-1960s), took the telephone book inside and found an Indian name starting with the letter ‘A.
’
The person who lived at the phone number she dialed wasn’t home, but the young man who did answer wound up becoming her husband and Gupta’s father. It was sheer luck that he liked fixing cars.

http://www.washingtonpost.com/blogs/answer-sheet/post/sanjay-guptas-great-speech-at-u-michigan-commencement/2012/04/29/gIQA3kdcqT_blog.html

Listening to the Silence

A few weeks ago I wrote a piece about the backlash against emails, instant messaging and mobile phones.

Intel, for example, is experimenting with a "no email" Friday for its engineers, where no one is allowed to email anyone else in the company.  Face-to-face meetings, or even an old-fashioned phone call, has been reinstituted as the communication vehicle of choice at this leading technology company.

The experiment has gone so well that Intel is considering making emails obsolete for the entire company on Friday.

Over the weekend the New York Times carried an article about how more families are looking for ways to disconnect the internet, at least for a short while.  Here's an excerpt from the piece entitled "The Joy of Quiet":

In barely one generation we’ve moved from exulting in the time-saving devices that have so expanded our lives to trying to get away from them — often in order to make more time. The more ways we have to connect, the more many of us seem desperate to unplug. Like teenagers, we appear to have gone from knowing nothing about the world to knowing too much all but overnight. 

http://www.nytimes.com/2012/01/01/opinion/sunday/the-joy-of-quiet.html?_r=1&src=me&ref=general

Roger Cohen writing in this morning's New York Times also comments on the increasing demands that workers be allowed to disengage from instant communications, even for a short while.  Here's an excerpt from his editorial:

Let’s hear it for Volkswagen at the start of 2012. The German automaker has responded to demands from its works council by agreeing to stop the e-mail server to its BlackBerry-using employees a half-hour after their shift ends, only restoring it 30 minutes before work begins the next day. 

...The Volkswagen decision reflects growing evidence of stress-related burnout tied to employees’ inability to separate their working and private lives now that developed societies live in a 24/7 paroxysm of connection. 

 phttp://www.nytimes.com/2012/01/03/opinion/cohen-a-time-to-tune-out.html?hp

I can personally attest to how pleasant life can be without instant messaging.

Last week my family and I traveled to Montreal for a few days of vacation.

We had a great time - none of us had ever been to the city, and despite the cold we had the chance to explore many of the museums, restaurants and other attractions that Montreal offers.

One of the reasons the trip was was so pleasant was the fact that none of us could use our iPhones or iPads to connect with friends and family back home.

It was actually a little humorous at first.  We arrived at our hotel, and all four of pulled out our Apple products to try to connect to the internet.

However, since we were in Canada, and our American service contracts did not allow for international service, no one was able to connect, despite our almost desperate attempts.

So what happened?  We reconnected with each other.  As we walked through the  Montreal, we found ourselves looking up, not down at our iPhone.  Forgotten arts like conversations were rediscovered, and we were reminded about how special family times can be.

And when we returned home - and the iPhones were up and running - we also discovered that we really hadn't missed a thing..

Happy New Year!

Europe, Email, and Other Pressing Questions

Here's what passes for "good news" in Europe these days:

Banks in Europe have been under a severe liquidity crunch over the past few weeks as lenders across the world - especially in the United States - have pulled back their credit exposure.

A couple of weeks ago the Federal Reserve made hundreds of billions of dollars available to the European financial community who were starved for dollar funding, but this was still not sufficient liquidity.

Enter the European Central Bank (ECB), which also opened the borrowing window to banks with few alternatives available. And here's what happened, according to the New York Times this morning:

In its role as lender of last resort to banks, the E.C.B. allocated 489.2 billion euros, or $644 billion, to 523 institutions, through what are known as long-term repurchasing operations. That was well above the roughly €300 billion average estimate of analysts polled by Reuters and Bloomberg News, though estimates had been widely divergent.

The injection of three-year funds was one of the new measures announced by the E.C.B. on Dec. 8 to calm European credit markets, which have become increasingly frothy as the euro zone crisis wears on. It was the first time that the E.C.B. has extended such loans for longer than about a year. Banks will pay the benchmark interest rate, currently 1 percent.

http://www.nytimes.com/2011/12/22/business/global/demand-for-ecb-loans-surpasses-expectations.html?_r=1&hp

Initially European markets soared - the ECB to the rescue!

Then the sobering reality hit: borrowing from the "lender of last resort" (i.e., the ECB) can hardly be taken as an all-clear signal.

All it really means is that the ECB has postponed the Day of Reckoning for a few months.

But the market took it as good news anyway.

-------------------------------

That's not what I really want to talk about today, though.

Like millions of other people, I am an active user of email. The days of ringing phones and huge mail volumes have long gone. If you were in my office on most days, the most frequent sound you would hear would be the clicking of my keyboard as I respond to clients and analysts.

While I appreciate the efficiency of email, I must confess there are days that I wish the volumes would decline. On a typical day I probably get 150 to 200 emails a day, and nearly all seem to require varying degrees of attention.

I have been reading more articles recently about how companies and people are trying to minimize their email involvement. Interesting, the companies at the forefront of the movement seem to be technology companies, which were the pioneers in email a couple of decades ago.

There was an article in yesterday's Financial Times describing the backlash against email. Entitled "The end of email"?", the piece discussed actions that people are taking to either avoid email messaging or are turning to other social media communications to discuss routine matters with colleagues.

Here's an excerpt:

However, for many companies, it is simply that email is seen as inefficient. "We believe email is fundamentally unproductive, you need to sift through too many documents and things get lost, " says Leerom Segal, president and chief executive of Klick, a Canadian digital marketing company. "It has no prioritisation, no workflow, and assumes that the most important item is the one at the top.

http://www.ft.com/intl/cms/s/0/5207b5d6-21cf-11e1-8b93-00144feabdc0.html#axzz1hBJ49JOw

The article goes on to discuss how some companies like Intel are experimenting with "no-email Fridays", encouraging engineers to solve problems by phone or face-to-face instead.

It may be that the problems in Europe are more important than email overload, but I suspect the latter will be easier to solve in the long run.

My Education at Parents Weekend

My wife and I traveled to Wesleyan University this past weekend to visit our son Michael, who is a junior at Wes, for Parents Weekend.

We had a great time - the weather was very pleasant for this time of year, with temperatures reaching the mid-50's by mid-afternoon while were in Middletown.

The campus, too, was in surprisingly good shape considering the fact that much of the town was without power for most of last week in the aftermath of the snow storm.

We attended a number of different lectures given by Wesleyan professors, which gave us a glimpse of what a terrific education Michael is getting. We had time to walk around campus, and also attended a football game.

In short, we got the full higher education education experience in just a couple of days.

One of the things that struck me, however, was the dearth of any passionate protest movements on campus. True, there was the usual signs protesting pollution, or conditions in rural India, but most seemed fairly perfunctory. Perhaps this is a good thing, but maybe it also reflects a student body more interested in jobs and the economy than global concerns.

I don't think this is confined to Wesleyan. According to an article in this past weekend's Financial Times titled "Harvard rebels snub Bush aide's economic class", one of the hot protest topics on campus at Harvard revolves around what is being taught in introductory Economics:

On Wednesday, about 70 students walked out of Economics 10, the introductory class Professor {former Bush economic advisor Greg} Mankiw teaches, to protest at what they called a bias towards a destructive brand of free-market economics.

"We found a course that espouses a specific - and limited - view of economics that we believe perpetuates problematic and inefficient systems of economic inequality in our society today, {said the students}. There is no justification for presenting Adam Smith's economic theories as more fundamental or basic than, for example, Keynesian theory."

http://www.ft.com/intl/cms/s/0/5aae33bc-069b-11e1-8a16-00144feabdc0.html#axzz1d24r3L8e

Given my experience as an undergraduate at the University of Michigan - where the hot topics were areas like Vietnam or legalization of marijuana - the "hot buttons" on campus have changed considerably in a generation!

Steve Jobs' 2005 Stanford Commencement Address

After reading a number of articles about Steve Jobs and Apple, I remembered this terrific commencement speech he gave at Stanford a few years ago.

There are lots of lessons to be learned from his talk, and I encourage you to watch the entire video, but here's an excerpt that has stuck with me:

Your time is limited, so don't waste it living someone else's life. Don't be trapped by dogma - which is living with the results of other people's thinking. Don't let the noise of others' opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.

IBM Rolls On

One of the most remarkable stories in American business, in my opinion, has been the evolution of IBM over its 100 year history.

We're all pretty familiar with the story: started by Tom Watson to sell adding machines, the company was on the forefront of computer technology research. By the late 1960's, IBM was so dominant that the US government brought a monopoly suit against it in an effort to break up the company.

However, as is almost always the case in technology, new and more aggressive rivals sprang up, and IBM slowly began to slide towards what appeared to oblivion. The old way of selling "big iron" to corporate American through an army of men dressed in blue suits began losing badly to more nimble start-ups.

Enter Lou Gerstner. Named as IBM's CEO in 1993, Gerstner brought a whole new mind-set to the company that changed not only the course of IBM but also the way that many other large technology companies operate today.

Gerstner's insight was simple: most CEO's are less interested in technology than they are in simply using technology to deliver products and services.

For example, Gerstner recalled that when he was head of American Express he was really only interested in having customers use his company's service. Technology enabled Amex to deliver a service, but their main product was credit cards, not technology.

Gerstner wrote an excellent book about his time as head of IBM named Who Says Elephants Can't Dance.

I can truthfully say that Gerstner's book is one of the few business books that I have read twice, and think about often in my daily business life.

The idea of looking at one's business from the customer's point-of-view, rather than the other way around, should be central to every company, yet too often the customer is forgotten in strategy discussions.

Here's a quote about Gerstner from Widipedia:

{Gerster} describes his arrival at the company in April 1993, when an active plan was in place to dis-aggregate the company. The prevailing wisdom of the time held that IBM's core mainframe business was headed for obsolescence... Gerstner reversed this plan, realizing from his previous experiences at RJR and American Express that there remained a vital need for a broad-based information technology integrator. His decision to keep the company together was the defining decision of his tenure, as these gave IBM the capabilities to deliver complete IT solutions to customers...

Today a number of companies - including Oracle and Hewlett-Packard - often cite IBM as their role model for how they are trying to structure their companies.

I thought of IBM's history, and how far it is come, when I read the company's most recent earnings release. Big Blue continues to produce strong results:

IBM, which turned 100 last month, delivered better-than-expected quarterly results Monday that showed the old company had a lot of life in it.

The company got a lift from robust sales of new models of mainframes — I.B.M.’s heritage — while its biggest current businesses, software and services, generated healthy growth as well.

The company reported an 8 percent increase in net income, to $3.7 billion. Its operating profits per share rose 18 percent, to $3.09 a share, reflecting fewer shares outstanding because of I.B.M. stock buyback programs. Bolstered by the strong performance, I.B.M. raised its guidance for earnings for the full year, to “at least $13.25 a share” from the previous level of “at least $13.15 a share.”

I.B.M. Beats Analysts’ Forecasts - NYTimes.com

Gauging the (Pessimistic) National Mood

Over the last few years there has been a considerable debate in economics circles as to the best way to measure a country's economic health.

The conventional way, of course, is the method that we all learned in Economics 101*:

GDP = C+I+G+X

Put another way: the economic health of a nation can be defined by what it produces and consumes.

And yet some economists are arguing that this textbook definition of economic well-being misses the very important measure of the emotional state of a nation.

It is axiomatic in my business, for example, that money does not buy happiness, yet our various measures of our economy have no way of being able to answer the very simple question of whether we are happy or not.

By many measures, the United States economy has clearly improved from 2008. True, the recovery has been a tepid one, with unemployment rates still unacceptably high and real wages stagnant, yet the official data would suggest a clear rebound from the recession.

Meanwhile, the stock market has nearly doubled from the lows in mid-2009, suggesting that investors at least feel much cheerier.

At the same time, many observers believe that the national mood is in a deep funk. Several polls suggest that many of our citizens see the country headed in the wrong direction. A large percentage of us seem to believe that the best days our country are behind us - a view, by the way, encouraged by numerous politicians hoping to score political points.

There was an article discussing this phenomena in last Sunday's London Telegraph. Entitled "Down on the Fourth of July: The United States of Gloom", the author wrote in part:

Frank Luntz, perhaps America’s pre-eminent pollster, argues that his countrymen are much more downbeat now than in 1980. “The assumption with the Carter years was that it was a failure of the elites, not the system. We thought the people in charge screwed up. We didn’t blame ourselves.” Remarkably, many Americans think things will only get worse and the good times will never return.

A recent New York Times/CBS poll found that 39 per cent think that “the current economic downturn is part of a long-term permanent decline and the economy will never fully recover”. That was up from 28 per cent last October. Last month, a CNN poll found that 48 per cent of Americans believe another Great Depression is somewhat or very likely.

Luntz has found that 44 per cent of Americans believe their country’s best days are in the past, 57 per cent that their children will not achieve the same quality of life, and 53 per cent that they are less free than five years ago. So what is going on? How did the land of the free, the home of the brave, and a country that less than three years ago elected a young, untested black man as president on a platform of hope and change, get into this funk?

Down on the Fourth of July: the United States of gloom – Telegraph Blogs

I don't know if I agree with this pessimistic view - after all, the late 1970's were hardly periods of hilarity in the U.S. - but it is an interesting point.

And perhaps it helps to explain why investors think that investing in 2-year Treasury notes yielding 0.41% is better than any other alternative.

*In case you've forgotten: GDP = Consumption + Investment + Government Spending + Net Exports

Goodbye Kindle, Hello iPad

A couple of years ago I bought a Kindle from Amazon.

I love the Kindle - it's simple to use, lightweight, and is easy to read, even in direct sunlight.

While I was initially hesitant to buy the Kindle - after all, buying a book is just as easy as carrying a Kindle - I have spent the last two years telling anyone who would listen that they, too, should join the ebook revolution.

So why is my Kindle now on my bookshelf at home?

Well, I took the plunge this past weekend, and bought an iPad from Apple.

Like my Kindle purchase a couple of years ago, I was initially reluctant to buy an iPad. It's not cheap - the lower end models go for around $500 - and most people get a monthly service plan to get 3G access from either AT&T or Verizon. The iPad is also a little bulkier than the Kindle, and the glass front makes it less harder to read in bright light.

But the functionality of the iPad is hugely greater than the Kindle. The iPad can seemingly do everything, and like all Apple products is so beautifully designed that even the least computer literate can figure out how to use it. The graphics are also astonishingly good

If you haven't done so already, you owe it to yourself to take a look at an iPad (and, no, I don't work for Apple). Even if you don't wind up buying one, I think you will wind up agreeing with me that the potential applications for tablets like the iPad are enormous.

For example, this morning's New York Times carried an article (which I read on my iPad, by the way) describing how pilots are now using the iPads instead of bulky paper manuals:

..a growing number of pilots are carrying a 1.5 pound iPad.

The Federal Aviation Administration has authorized a handful of commercial and charter carriers to use the tablet computer as a so-called electronic flight bag. Private pilots, too, are now carrying iPads, which support hundreds of general aviation apps that simplify preflight planning and assist with in-flight operations.

“The iPad allows pilots to quickly and nimbly access information,” said Jim Freeman, a pilot and director of flight standards at Alaska Airlines, which has given iPads to all its pilots. “When you need to a make a decision in the cockpit, three to four minutes fumbling with paper is an eternity.”

iPads Replacing Pilots’ Paper Manuals - NYTimes.com

The article goes on:

"I don’t remember a time when one product seemed to get so much buzz and acceptance,” said Ian Twombly, spokesman for the Aircraft Owners and Pilots Association. “Many pilots approach new toys with skepticism, and the iPad seems to be almost universally appreciated as a cockpit device.”

There are now more than 250 aviation apps for the iPad, and one called ForeFlight is among the top grossing apps listed on iTunes. Its closest competitors are WingX, Jeppesen Mobile TC and Garmin My-Cast.

It may very well be that in two years time I will be writing about another electronic device that will outshine even the iPad.

For example, research analyst Toni Sacconaghi of Sanford Bernstein wrote a piece this morning suggesting that ultralite laptops like the Macbook Air could offer even more applications than the iPad in a couple of years.

But for now, I'm going to enjoy my new purchase.

Do You Need Longevity Insurance?

Most of us probably pay too much for insurance.

This is not as startling a statement as it might appear. The huge financial fortunes that have created companies such as Prudential; Metropolitan Life; and Berkshire Hathaway have been based on the idea that most of us are willing to pay to protect ourselves against events that either have a low probability of occurring or may never happen.

We all have homeowners' insurance, for example, even though statistically the odds of a house burning down any particular year is extremely remote. The prospect of losing everything in a fire is, for most people, too devastating to take a chance.

When it comes to insuring against events in our old age, however, both we and the industry are still evolving. For example, long term care insurance was really not needed a generation or two ago since most people simply didn't live long enough to need it.

Another idea whose time might be coming is longevity insurance.

The idea here is pretty simple, according to an article written by Tara Siegel Bernard in Tuesday's New York Times:

You can agree to begin collecting the insurance at a much later date in the future, like your 85th birthday. So if you live past your life expectancy, you’re covered. And since most people don’t know when they’re going to die, this allows you to spend down your retirement savings more liberally because you know your payments will kick in later. The big risk, of course, is that you won’t see a dime because you die before you can collect.

http://bucks.blogs.nytimes.com/2011/06/28/longevity-insurance-buying-down-the-risks-of-living-too-long/?emc=eta1

Ms. Bernard goes through some numbers later in the article, based on a new policy offered by New York Life. I need to spend more time on the math, but on the surface the idea makes some sense.

I do have a couple of concerns, however. First, this is still a fairly new product, which means that the industry is still not clear on how to price longevity insurance. And, second, it is also possible than an individual might be be better off by simply taking the premiums that they would have paid the life insurer and invest in the market themselves.

Still, a worthwhile read.

The Rise and Fall of Fannie Mae

About 20 years ago, while I was employed at the investment firm Scudder, Stevens & Clark, I developed and marketed several mortgage-backed securities funds targeted at Japanese institutional investors.

This was a terrific experience for me. The funds were a success, and performance was very good. In addition, for a period of about 8 years or so, I had the chance to go to Japan two or three times a year to meet with investors.

Two of the funds I marketed were sponsored by Fannie Mae. Fannie was an important part of our marketing story, since most international investors knew Fannie.

Foreign investors assumed that Fannie Mae carried the implicit backing of our government. And, of course, this proved to be the case a couple of years ago, when the U.S. government bailed out both Fannie and Freddie Mac.

I was very impressed with the people I worked with from Fannie. They were very smart, and worked long hours. In addition, investors in Fannie Mae enjoyed terrific returns, since the stock was one of the best performers in the 1990's.

The head of Fannnie Mae during those years was David Maxwell. Mr. Maxwell embodied all of the qualities that I admired about Fannie Mae: smart, driven, and very skeptical of Wall Street.

Here's what author Jim Collins wrote about Maxwell in 2003 in Fortune Magazine's profile of the 10 Greatest CEO's:

No. 7 David Maxwell turned a turnaround into art

Fannie Mae was losing $1 million a day when he arrived--"an opportunity to make [it] into a great company."

In 1981, as the stock of Chrysler hit an all-time low, America was beginning its enthrallment with the man hired to save it. Lee Iacocca would soon be a national icon--bestselling author, star of more than 80 commercials, and everyone's image of a turnaround artist.

That same year, as the stock of Fannie Mae hit an all-time low, a different executive was hired to save the deeply troubled mortgage lender. David Maxwell would not become a national icon--nor even a recognizable name. Yet by the time both men retired in the early 1990s, Maxwell's Fannie Mae had beat the stock market at a rate more than twice that attained by Chrysler under Iacocca.

More inspired than inspiring, more diligent than dazzling, Maxwell took a burning house and not only saved it but built it into a cathedral. Some steps, such as selling off $10 billion in unprofitable mortgages, were classic fireman stuff. But his deepest genius was to frame the rebuilding around a mission: strengthening America's social fabric by democratizing home ownership. If Fannie Mae did its job well, people traditionally excluded from owning homes --minorities, immigrants, single-parent families--could more easily claim their part of the American dream. If turnaround is an art, Maxwell was its Michelangelo.

http://money.cnn.com/magazines/fortune/fortune_archive/2003/07/21/346095/index.htm

Unfortunately, when David Maxwell retired in 1991, he was succeeded by James Johnson, formerly head of Lehman Brothers.

In my opinion, Johnson was everything that Maxwell was not. He epitomized what Main Street thinks of Wall Street: very political, slick, and wildly overcompensated for his efforts.

We all know what happened. Fannie Mae transformed from one of the most successful government programs ever to a massive government headache requiring hundreds of billions of bailout money from the government.

David Brooks had a column in the New York Times this morning titled "Who is James Johnson?" He discusses Mr. Johnson's role in what has turned out to be one of the largest financial debacle's in our country's history. Here's an excerpt:

The Fannie Mae scandal has gotten relatively little media attention because many of the participants are still powerful, admired and well connected. But Gretchen Morgenson, a Times colleague, and the financial analyst Joshua Rosner have rectified that, writing “Reckless Endangerment,” a brave book that exposes the affair in clear and gripping form.

The story centers around James Johnson, a Democratic sage with a raft of prestigious connections. Appointed as chief executive of Fannie Mae in 1991, Johnson started an aggressive effort to expand homeownership.

Back then, Fannie Mae could raise money at low interest rates because the federal government implicitly guaranteed its debt. In 1995, according to the Congressional Budget Office, this implied guarantee netted the agency $7 billion. Instead of using that money to help buyers, Johnson and other executives kept $2.1 billion for themselves and their shareholders. They used it to further the cause — expanding their clout, their salaries and their bonuses. They did the things that every special-interest group does to advance its interests.

Who Is James Johnson? - NYTimes.com

I wasn't going to buy "Reckless Endangerment", since I feel like I have already relived the last decade enough.

But I think I might now, if only to read about how a company that I deeply admired was perverted and ultimately destroyed by a group of insiders.

General Stanley McChrystal

It's not often that I get the chance to have a casual conversation with a four-star general, but it happened to me last night.

I have been attending the Global Transportation Conference here in Boston put together by Merrill Lynch's excellent transportation analyst Ken Hoexter for the last couple of days.

The conference featured presentations by a number of leading transportation (railroad, air freight, etc.) companies. It's a great way for me to get the chance to hear a number of leading companies in a fairly efficient fashion.

As part of the conference, Merrill hosted a dinner last night that featured General Stanley McChrystal as the after-dinner speaker.

You might remember General McChrystal: he was head of the U.S. Armed Forces in Afghanistan until about a year ago.

Then, last April, he made some ill-considered remarks about several senior people in the Obama administration in a magazine article. In the ensuing uproar, the General was recalled to Washington and then tendered his resignation.

It was a fairly inglorious end to a spectacular career in the military. General McChrystal played a lead role in numerous military conflicts over the past three decades, and also was an important part of the fight against terrorism. By all accounts, he is a very smart man.

Since he left the military he has been teaching a course at Yale. He also has started a consulting company featuring other retired military commanders which works with businesses large and small in addressing management issues.

He also is on the board of several corporations, including the airline jetBlue, which is why he was at the conference last night.

Now to my brush with fame.

Before the dinner started Merrill had a small cocktail hour for the participants at the conference. I really didn't know too many other people, so I was introducing myself to another attendee when I turned around and found myself face-to-face with General McChrystal.

Contrary to his reputation, the General could not have been nicer and more gracious. Since he had just arrived, I had the chance to talk to him for a few minutes.

(To say that others were envious would be an understatement.)

One of the most interesting comments he made concerned the types of meetings he had when he was head of US operations in Afghanistan.

Unlike what I imagined, the General said the meetings were very open, and no one felt constrained to offer their opinion even to the point of being argumentative.

Oh, really, I said? Even to a four-star General?

With a smile, General McChrystal said "Especially to a general!"

He went on to explain.

Today's US military is made of professional soldiers. Not only have they been involved in numerous deployments in the Middle East and Afghanistan, but they also have spent a good part of their adult lives learning and training about how to battle the enemy throughout the world.

Moreover, unlike in previous generations, most of our military are older, and many have families in the United States. It's one thing, the General explained, to order an 18 year-old recruit to execute an order to attack. It's another to tell a 38 year-old soldier who might have a family stateside to put themselves in harm's way just because an officer thinks it's good idea.

General McChrystal cited the recent incredible raid by Navy SEALS to finally execute Bin Laden.

"I'll bet you anything," the General said, "that every one of those SEALS helped plan that raid. It was too risky, and they're too highly trained, not to get those men involved. And given that the success of the mission depended on their execution, you have to know that they were involved almost from the beginning."

I came away from our discussion not only impressed with General McChrystal but also with a much greater awareness of how much changes in society have influenced virtually every part of American society, including the military.

As he noted, General Eisenhower could simply tell his subordinates to execute his orders, and get on with his day. Today's military commanders have to constantly work at communication, and in making sure that everyone in his command is "on board" with the decisions that are being made.

I should add that his after-dinner remarks were excellent, and well worth a listen.