Stepping out

I had the opportunity to attend the 15th annual Ira Sohn Investment Research conference the other day. The conference, in NY, brought together many leading lights in the hedge fund segment of the private equity business; an area of the world where venture seldom treads. What attracted me was the combination of a great cause (proceeds for pediatric cancer research) and a line-up of all-star speakers including David Einhorn (known as the courageous guy who took on Lehman), Sam Zell, Steve Rattner, and David Tepper.

Unlike the venture business, where you often don't know if you placed the right bet for a few years, the hedge arena gives more immediate verification of your thesis and execution. Trades have two sides, and one is often, but not always wrong. This industry is full of colorful and polemic figures. I will concentrate the points shared below, along the lines of the extremists (which were roughly 2:1 over the rationalists). This does not make their views any more correct, but certainly makes for more interesting reading.

Here's the highlights:

Jonathan Jacobson of Highfields Capital Management

Expressed that the current Obama administration is "anti-business", therefore, he is factoring in adverse legislative risk into each of his investments. He reaches his conclusion about the administration when looking at the 'interference' in the Automotive industry, followed by the Health plan, into statements affecting the Energy and Cable markets. Not even Soft drinks are immune from the opening salvos in an escalating 'class warfare mentality'.

Sam Zell, legendary investor and Chair of Equity Group Investments feels the president was elected under a change mandate and is executing such a strategy. He feels the changes being put into motion are 'huge and extreme' and we are entering a time of great volatility due to it.

Daniel Arbess of Perella Weinberg sees an upcoming debt crisis predicated by massive government overspending and now duress in the credit markets. His opinion is that investors should short weak currencies (just about all Western currencies are weak) and go long on China. His thesis is that we are seeing a rebalancing of the world's economy between west and east. Consumption is increasing in the west, while productivity is declining. An activist and heavy handed government, referred to as "Government comes to a market near you" is interfering with market forces and we will see great negative ramifications when built up market forces overwhelm this interference. He noted that 70% of Wal-Mart's inventory is comes from China; he wants to invest in companies that sell things made by emerging market economies and sold to the west. To those long-time readers, another example of permacheap.

David Tepper of Appaloosa Management contrasted the previous comments with a perspective that people and markets do adjust to change. He's not prone to extremist perspectives, as evidenced by the successful investments he's made in distressed companies that have adopted and prospered.

David Einhorn of Greenlight Capital gave a wonderful presentation entitled "Good News for the Grandchildren". For full disclosure, I think he's a courageous investor whose a great, and sometimes highly contrarian investor (here's a copy of his Q4 '09 letter to investors). But, back to the presentation.

He is disappointed that the Administration has 'socialized' losses in the housing market. Now, there's an expectation that if many people live to excess, they will be bailed out by the government and this action was a bright line to cross. He really sees little political restraint or incentive for government to operate in a rational way. For example, last year studies by the Pew Institute noted that government salary scales, for the first time, exceeded that of comparable workers in the private sector. Despite enhanced job security and great benefits, the pay is higher. It only makes sense to him in an environment where, for example, one-time and shovel ready stimulus spending went towards preserving government jobs, while adding little to the private sector.

He sees the US Civil Service arrangement as galloping at a rapid pace towards that of Greece, where workers are paid 14 months salary for 12 months of work. The open question is 'how long will the credit markets fund this'..... insanity? The rating agencies have proven themselves to be both behind real-time events, conflicted, and guilty of shoddy research. Government numbers also can't be trusted. He cited the way the Government calculates inflation as a point to ponder. This calculation has changed numerous times in the past two decades, always to the advantage of the current administration who is able to boast of high(er) GNP. low inflation rates, and a rising stock market predicated on suspect numbers.

Today, we seem to have passed the worst of the financial crisis, but the Fed is holding interest at close to zero rates as a political, not an economic decision. Another market distortion; another moral hazard. All strangely similar to past failures of the government to intervene around LTCM,the S&L crisis,the '07 equity crunch and onward. The Government is now in the habit of saving people from their foibles (except for Lehman), and this distortion only encourages bad bets and irrational behavior.

We may reach the point by saving the Sovereign nations that are 'too weak to fail', we may be setting up the economies that are thought of as 'too strong to bail' as needing rescue, but by whom?

Apple just may be right on this one...Adobe Elements

I have spent the last few evenings preparing a photo montage for a family event and have been using my trusty Adobe Elements 7 program. It's a user friendly photo editing/storage program that is lighter than Photoshop and more featured than many web based programs. However, much to my surprise, it comes with a huge, customer unfriendly feature.

Let me digress a moment. Over the past decade, many software/web companies have pursued a 'freemium' business model, whereas a user receives some crippled functionality, in a 'try and buy' mode, towards a hoped for later conversion to a paying customer. Adobe has pursued a similar strategy, preferring a limited time free offer, then charging $79-$99 for this program. They also offer a companion program, referred to as a companion program for video editing called Adobe Essentials. Essentials adds tools for enhanced photographic effects, enlargements, etc.

What Adobe does NOT tell you is that if you happen to prepare a slide montage in Elements, you can only output it to a CD, and only in the .wmv format. Outputting to a DVD is a crippled feature that requires a purchase of Essentials. I can see how this decision was a classic product management debate where one side said something to the effect of 'gee,we can get all this upgrade revenue by hooking the customer with all their data, giving them a crippled output facility that will force an upgrade. Oh, and let's be 'careful' about messaging it in the product as the focus groups didn't like it.

The other side of the argument would have highlighted how this will probably attract more revenue but is totally customer hostile. Customers expect real value for the incremental purchase price and this feature is such a no-brainer that we will only upset our customers and present a really bad picture to the press.

Adding to my frustration, and that of many of my peers is that when you try to download Premiere you are caught in an Adobe/Akamai endless loop of problems. Why Adobe decided to put someone between themselves and their customer who only adds to the problem is beyond me. In fact, it gives great justification, from a users perspective, why Steve Jobs is loathe to do the same with Flash.

Too bad the wrong guys won these product battles at Adobe....probably the same folk who decided not to support the Mac 5 years ago.

Any suggestions on the best way to wean me from my Elements addiction? Household moving to Mac's shortly....

Home, home on the page

During a bout with insomnia, invoked by the foolhardy move of beginning to play with my iPad around midnight, I came to a realization that after hitting nearly 15 sites, I had yet to encounter a 'real' homepage. Instead, I was surfing between installed applications, or going from social induced link to link.

As an investor in PlumWillow, I was looking at various commerce affiliates who sell or promote apparel from brands. When on their sites, you search for an item of interest and are most often sent to the brand site to complete the purchase. As I was in browsing/learning mode, this just kicked off another round of browsing and hitting various promotions which sent me to 'personalized' inducements to buy various products.

With my eyes wide open, it was time for news surfing. I now usually do this via applications installed on my device which offer a customized (David Rosenblatt ex-Doubleclick called it a 'curated') experience. On a PC I tend to go from homepage to homepage, but on Apple mobile devices, I go from personalized application to application. It's a different, and for me, a much better experience.

With eyes reddening, I turned to the social 'link' sites, Facebook and Twitter for a more micro perspective of what's happening and to whom. This brought to mind a statistic that I have not verified but will repeat. Supposedly, the head of commerce at Walmart said that 30% of his traffic never sees his home page. I believe that, and think that this number will only rise as sites optimize/personalize to give their visitors a better experience...and themselves more revenue/time.