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It was more than a little different from other movies I’ve seen recently. For one thing, there were only two showings that night—unlike “The DaVinci Code,” which seemed to be playing on half the screens in the cinema complex, with new showings every seven minutes. Second, theater wasn’t at all crowded. Most of the crowd was, of course, next door, watching either “The DaVinci Code” or whatever new Vince Vaughn movie had come out last week. Third, the movie itself—“United 93”—started on time, because there wasn’t a half hour’s worth of trailers showcasing whatever new Vince Vaughn movie is coming to a theater near us every week until the end of time. Fourth and most unusually, the movie itself was not about making a political statement or making us feel better: it was about what happened to ordinary people on an ordinary day on the eastern seaboard of the United States of America. “United 93” is not a movie you necessarily want to go see: you already know what happened, you already know how it ends, and you don’t particularly feel like recalling that day, especially not through the eyes of passengers preparing to die. Furthermore, its playing time of two hours and one minute seems like a long stretch to tell a simple story: how a plane—the last of four doomed flights—came down in a field outside Shanksville, Pennsylvania at 10:03 a.m. on September 11, 2001. But all that leaves your mind as you watch four young men speaking a foreign language arriving at Newark airport and going through security; and as you see air traffic controllers in dark rooms going about their jobs monitoring blinking coded flights on the screens before them; and as you follow flight attendants walking onto a United Airlines jet talking about the most mundane facts of their lives; and as you watch the co-pilot walking around the outside of the plane doing a visual inspection of his jet while passengers board and settle in their seats, with not a thought of what would happen to them that day going through the minds of any one of them…excepting those four young men, nervous and impatient, also taking their seats, knowing exactly what they are about to do, and what will happen to them. This is a movie that just tells its story. It does not pander. There are no stereotypes here (except perhaps that the man who urges his fellow passengers not to fight back but to cooperate with the hijackers has a Scandinavian or Eastern European accent): there is no plucky fight attendant who bravely confronts the hijackers or sagely comforts the passengers—the attendants are as shocked and cowed by the hijacker’s quick and sudden violence as the passengers. There is no gallant struggle by the noble Captain—his throat is cut from behind as quickly and ignominiously as a deer. And there is no obvious hero among the men on the plane who decide to do something after they realize they are passengers on a bomb—no Nicholas Cage or Harrison Ford going to take out the four hijackers, grab the controls and wrestle the crippled beast to a three-point landing on a highway in the Heartland of America. When the passengers finally decide to do something, they are not resolving inner conflicts or making up for years of bad living, as in a standard Hollywood flick. In fact, before the terror begins we know almost nothing about them except their age, the way they are dressed, and how they settle in for the flight—some by opening laptops and settling into work, others going to sleep, or asking for water, or doing the crossword puzzle in the New York Times. After the terrorists make their move by grabbing a flight attendant and holding a knife to her throat, and by senselessly stabbing a male passenger while the plane suddenly dives as the pilots are killed and the controls are taken over, we do learn something of their lives from the snatches of whispered, desperate calls on the in-flight phones to wives, office-mates, voicemail, and, in the case of the flight attendant, to a mechanic who is the only person she can reach at a United Airlines number. But we learn nothing else about them. Consequently, there is no one to root for, no one to cheer. These are people like any other people who get on a plane flying from Newark to San Francisco, who have settled into a routine flight and are suddenly stunned by a shockingly violent killing and the sight of a young man with a bomb strapped to his waist and holding the wires above his head, screaming unintelligible words. And as they make calls and reach friends and relatives who tell them about the planes that have hit the World Trade Towers and crashed into the Pentagon, they realize that are not going to land somewhere and get out of this. There is no good ending, and so they must try something. You will probably recognize yourself, or your parents or your daughter, on that plane. And it will make you wonder how you, and they, would react. Would you huddle in your seat and weep as you said good-bye to your wife? Would your daughter, travelling alone and terrified, call your cell phone and, getting only your voicemail, cry and tell you “I love you and goodbye”? Would you piece together what was happening in a way that nobody else comprehended—planes hitting the World Trade Towers, a plane hitting the Pentagon—and see that there was nothing to do but try to take control of this plane before it hits another target? In the end, two hours and one minute doesn’t seem like enough. As the screen goes black with United Flight 93 about to hit the ground, you want more. You want to see how these people’s families got on with their lives; how the air traffic controllers who watched four “heavies” drop from their screens amidst total chaos recovered from their shock and brought the other thousands of planes in the skies to land that day; how the scrambled jets of the National Guard, which could do nothing to stop the four flights from doom, patrolled empty skies in the days to come, while rumors of new attacks swept the country. Whatever you think of the U.S. response to that day; whatever you think about Iraq, or Saddam, or WMD or anything else since 9/11—put that all away and see this movie while it is still in theaters. It won’t change anything at all about what you think, but it will make you remember what happened that day in a way nothing else will. Jeff Matthews I Am Not Making This Up © 2006 Jeff Matthews The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

We interrupt the 2010 Pilgrimage to Omaha series to bring you a NotMakingThisUp “Least Helpful Call of the Day.” The Least Helpful Call you will receive today—and we are fairly certain there has been no less helpful call provided by Wall Street’s Finest this morning—is brought to you by J.P. Morgan Cazenove, whose analysts took it upon themselves to downgrade…the Greek banks. We are not making this up. As of this morning, to be specific, shares of the National Bank of Greece no longer merit an “Overweight” rating from the folks at JPMC. The shares, currently quoted in ADR form at $2.47, within two pennies of their 52-week low, are now officially branded “Underweight” at JPMC. As always, a tip of the cap from we here at NotMakingThisUp, and on behalf of investors everywhere who may have been holding on for dear life in this one, a hearty “Thanks guys!” Jeff Matthews I Am Not Making This Up © 2010 NotMakingThisUp, LLC The content contained in this blog represents only the opinions of Mr. Matthews, who also acts as an advisor: clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.

Today, I signed the American Recovery and Reinvestment Act into law. So begins an email we recently received from our new, internet-savvy President. Now, what exactly is going to “Recover” thanks to the $787 billion combination of Fed spending and tax cuts, which our previous posting on this topic details, remains to be seen. And as for the “Reinvestment” part, we likewise note that the money is going not so much for the kind of “bold” programs the President has been talking up. Rather, a good $300 billion is earmarked to be bulldozed into existing, failing, government money pits. Quibbles with the Act’s title aside, the money has been approved, and therefore it will be spent. And the email message from the President tries to be reassuring on this point: It’s a bold plan to address a huge problem, and it will require my vigilance and yours to make sure it’s done right. I’ve assigned a team of managers to oversee the implementation of the recovery act. We are committed to making sure no dollar is wasted. Forgive our cynicism if we happen to think most of the dollars will in fact be wasted. After all, that’s what government does. Still, the “No Dollar Wasted” promise can be dismissed as a rhetorical flourish along the lines of the previous White House occupant’s “Mission Accomplished.” More intriguing is the concrete promise that some sort of committee—“a team of managers”—will oversee the Fiscal Katrina about to hit our government institutions. Unless, however, that “team of managers” consists of two people, Berkshire Hathaway Chairman Warren Buffett and his equally penurious Vice Chairman, Charlie Munger, well, good luck with that, as they say. For all his two years in the U.S. Senate, Mr. Obama never apparently learned how this stuff actually works. Here’s how it works: the money gets appropriated by the appropriations committee, and the agency that receives the money spends it. Period, end of story. In fact we recently had dinner in Washington with a friend who works for a consulting firm that has been hired by just such a cash-flooded agency. This agency had received a mandate to conduct certain things that will probably never see the light of day—not because those things are top secret, but because the goals were established under the previous administration. No matter: the money was approved and allocated, and the cash is flooding in so fast the agency doesn’t know how to spend it. So the agency did what many agencies do in the same circumstance: they hired a consulting firm to help spend the money. Several hundred million dollars’ worth. [Note to jobless MBA students: go to Washington; interview with consulting firms; get job]. The good news about the so-called “Recovery and Reinvestment Act,” economy-wise, is that a half-trillion of our money and our children’s money is going to be spent in the next couple of years. And that’s also the bad news, for it will be wasted in ways that make TARP, and TALF, and anything else we’ve seen since the housing boom burst, look positively rational. Jeff Matthews I Am Not Making This Up © 2008 NotMakingThisUp, LLC The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.

Globalization hasn’t had a significant impact on reducing inflation in the U.S. and may have raised it, Federal Reserve Chairman Ben Bernanke said. —Wall Street Journal During the market swoon early last summer I defended the new Fed Chairman while he was being roundly blamed by frustrated investors for everything wrong with the world, short of global warming (see “Shooting the Messenger,” June 6). Things settled down shortly thereafter, and until recently Mr. Bernanke was looking pretty good, what with the relentless melt-up in global equity markets and the evaporation of risk premium in the global credit markets. But a recent speech—quoted above—makes me wonder if Mr. Bernanke has spent too much time reading his press clippings lately and too little time listening to earnings calls from American corporations. Is there a CEO in America who believes the following? Mr. Bernanke… said increased trade with China has reduced U.S. inflation, now running at about 2%, by only about 0.1 percentage point. And he noted that while these emerging economies have added to the global supply of manufactured goods, they are also adding to the demand for oil and other commodities. “There seems to be little basis for concluding that globalization overall has significantly reduced inflation in the U.S. in recent years; indeed, the opposite may be true,” he said. If you quoted those words to my friend who runs a supplier of office products to Wal-Mart and other Big Box retailers, he’d probably spit out his coffee all over his Wa-Mart invoices. Those invoices, at least on a per-unit basis, did done nothing but go down for the last decade, after Wal-Mart abandoned its “Made in America” campaign and began to enforce a constant price squeeze on its vendors, aided and abetted by the opening up of dirt-cheap manufacturing capacity in China. That virtuous circle of Big Box retailers pushing down consumer prices and taking greater market share, thereby acquiring even greater pricing clout and greater market share, was the single biggest driver of disinflation ever witnessed in our lifetime. Wal-Mart executives even make presentations to analysts showing how they’ve helped force down prices of everyday, humdrum products such as vacuum-cleaners and microwave ovens by as much as half over time. How Mr. Bernanke could dismiss it out of hand is beyond me. In any event, this is all, unfortunately for our own consumer price index, ancient history. The Chinese labor arbitrage began coming to an end two years ago, and most companies are reporting higher, not lower costs out of that country now. Which means yesterday’s eye-popping 6.6% unit labor cost increase here in the U.S. might not have been simply a fourth quarter investment banking bonus one-off. Still, if I were an Economics 101 professor I’d give Mr. Bernanke a D- for this thesis on inflation, or the lack thereof. Jeff Matthews I Am Not Making This Up © 2007 Jeff Matthews The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

It took a few days of contemplation and a three hour, post-Thanksgiving dinner session of Risk, The Game of World Domination, but I think I’ve figured out Starbucks’ problem. What could Risk, The Game of World Domination, have to do with Starbucks’ problem? Very little, actually. It’s just that a few hours spent on nothing but the task of accumulating armies, defending the wonderfully hard-to-attack Australia against all comers, and contemplating how best to destroy brothers-in-laws before they destroy you leaves one’s mind clear to resolving bigger issues, such as what is wrong with Starbucks. And what is wrong with Starbucks has nothing to do with the taste of the coffee, the rising price of milk or the fact that there are so many Starbucks around the country that Wall Street’s Finest are muttering the word “saturation.” (I think the last word on this topic came from The Onion, which once carried the banner headline: New Starbucks Opens In Rest Room Of Existing Starbucks). No, the problem with Starbucks is Paul McCartney. At least, I’ve come to believe Sir Paul is driving customers away. This is because I’ve been trapped beneath a speaker for the last couple of hours at our local Starbucks during which time Sir Paul’s latest album, “Memory Almost Full of Lousy Songs,” which Starbucks released under its own music label, has been playing and re-playing to the point that I am ready to pay them to turn it off. Well I was found in the transit lounge Of a dirty airport town What was I doing on the road to ruin Well my mama laid me down My mama laid me down Those are actual lyrics, and I am not making them up. Whatever happened to “Blackbird singing in the dead of night/take these broken wings and learn to fly” or “Penny Lane there is a barber showing photographs/of every head he’s had the pleasure to have known”? Put these new, dreadful lyrics together with old, familiar riffs ranging from the worst of Wings, which was pretty bad, to his “Your Mother Should Know” period with The Beatles, which was awful, and it’s not a stretch to believe that Dave Barry was right: some time during the decade after the Beatles broke up Sir Paul must have been taken over by a Pod Person. How else to explain lyrics that sound like they were copied from a Hallmark card for the recently widowed? At the end of the end It’s the start of a journey To a much better place And this wasn’t bad So a much better place Would have to be special Hey, why not just put on a double album of Yoko Ono imitating cattle being prodded in a shopping mall on Black Friday, and really drive away the coffee-drinkers? Come to think of it, perhaps I could have defended Australia in our epic battle of Risk, The Game of World Domination had I been humming a little post-Beatles McCartney, which surely would have driven my brothers-in-laws quite mad. More likely, though, it would have invited even more aggressive attacks than I suffered, possibly involving blunt objects, just to get me out of the room. The only thing worse than standing in line for five minutes at a Starbucks must be standing behind the counter mixing coffee drinks for five hours while Sir Paul sings: Only mama knows why she laid me down In this God-forsaken town Only mama knows not only why he wrote not only those God-forsaken lyrics, but then decided to record them, and why Starbucks management decided to cut a deal with Sir Paul that requires them to actually play “Memory Almost Full of Lousy Songs” in a room full of people looking anxiously at the exits. Starbucks baristas unite! Rip out the speakers! Help turn around Starbucks today! Jeff Matthews I Am Not Making This Up © 2007 NotMakingThisUp, LLC The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, nor is it a solicitation of business in any way. It is intended solely for the entertainment of the reader, and the author.

It’s not often Wall Street Research breaks new ground or gets a leg up on investigative reporters, but hitting my email this morning is a Merrill Lynch report that appears to do just that—and I am not, as longtime readers might suspect, being sarcastic. For the record, I started my career at “Mother Merrill,” and it’s not easy doing timely, groundbreaking, stock-moving research at a vast shop whose constituents include bankers, bond guys, big institutions, small institutions, hedge funds, traders and brokers—not to mention the vast retail account system that feeds the Merrill beast. It’s hard enough keeping those constituents happy and up to speed, let alone finding something new to say about whatever group of stocks you happen to cover. But the Merrill technology folks today put out a piece examining stock option grant patterns among their companies (“Options Pricing—Hindsight is 20/20”) that adds more fuel to the rapidly spreading fire that the Wall Street Journal, to its eternal credit, sparked some months ago, when it reported that certain company executives had been awarded option grants that had been so timely and profitable that it was extremely unlikely that such grants could have been made without backdating the actual grant date. In the wake of the Journal’s truly groundbreaking report, at least one CEO has been fired, several executives have quit, and even the SEC (mon dieu!) has stirred into action against several companies. Being a Merrill client and having plenty else to do, I will not paraphrase the Merrill options analysis or its conclusions here. However, if you are a Merrill client, I’d advise you to get your hands on it ASAP. If not, I suspect you’ll be reading about it soon enough. Wall Street’s Finest come through! Jeff Matthews I Am Not Making This Up © 2006 Jeff Matthews The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

Editor’s Note: Given the current state of government oversight over our public capital markets, in which attorneys working for the SEC issue subpoenas for phone records of investigative journalists who dare investigate publicly traded corporations—as opposed to those attorneys going after the phone records, for example, of message board stock manipulators or corporate executive stock manipulators—the writer of this blog is no longer willing to speak his unadulterated mind. The following reflects the New, Always-Upbeat World of Free Speech which seems to be preferred by the same SEC that regularly shuts down hedge funds after the principals have absconded with the cash and which was unable to detect and prevent the collapse of numerous Bubble-Era companies, including Enron, whose former Chairman and former Chief Operating Officer are now on trial for allegedly hiding that collapse from public investors whom the SEC was supposed to protect, following the Hovnanian conference call yesterday. “We are projecting margins to be lower than we have had for the last few years,” a very savvy member of the top-flight home-builder Hovnanian’s management team said on yesterday’s superb and highly upbeat conference call. “Although it’s too early for a formal EPS projection for fiscal ’07,” the superlative management executive continued, “we expect to see a similar trend to what we are projecting this year—further reductions in gross margins offset by further gains in deliveries and revenues, resulting in an increased EPS.” I have no doubt that this strategy—of homebuilders seeking to make up in volume what they are losing in price—will have the most salutary and beneficial impact on the current housing situation in the United States, which, in the New, Always-Upbeat World of Free Speech, I should describe as not a bubble but more a nice warm bath. Jeff Matthews I Am Not Making This Up © 2005 Jeff Matthews The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.

This one needs no commentary, other than to note that the country being described below is commonly regarded by legislators in America as a role model in considering how to restructure our own highly flawed health care system: Waits for Canadian Health Care Shorten a Bit By ELENA CHERNEY Staff Reporter of THE WALL STREET JOURNAL October 19, 2005; Page A11 TORONTO — After a dozen years of lengthening durations, Canadians awaiting medical care got access to treatment a little faster in 2005 than in the prior year, according to a survey of medical specialists by a conservative think tank. The study by the Fraser Institute, which supports introducing more private-sector health care in Canada, comes as provinces grapple with potential fallout from a Supreme Court of Canada ruling last summer. In a decision on a Quebec case that could open the door to more private health care across Canada, the court found that long waits under the current public system violate Quebecers’ rights by preventing them from paying for private care. Each of the 10 provinces runs its own health-care system, funded partly by federal payments. Canadians waited an average of 17.7 weeks for treatment after their first visit to a general practitioner during the first three months of 2005, compared with 17.9 weeks in the same period last year, the study by the Vancouver, British Columbia-based Fraser Institute found. One reason for the incremental improvement was that Saskatchewan improved its performance by 7.8 weeks to 25.5 weeks. The study looked at 12 kinds of treatment, including cardiovascular surgery, cancer care and plastic surgery. What this means is that if you or I were diagnosed with a cardiovascular problem or cancer which required treatment today, we would be admitted to the hospital along around February 5th. Quite a role model indeed. Jeff Matthews I Am Not Making This Up © 2005 Jeff Matthews The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.

The following paragraphs contrast the excellent Wall Street Journal reporting on the recent Dubai Ports World’s aborted effort to acquire certain U.S. ports with the also-recent acquisition of a toll road in Chicago by the Australian investment bank, Macquarie Bank. I have not added, changed, or modified a single word. Dubai Ports World’s offer to delay exerting corporate control over operations at five U.S. ports did little to calm the political firestorm in Congress as several key lawmakers dismissed the step and continued to demand that President Bush reopen a federal review of the deal. —Wall Street Journal, 2/25/06 Last year, the city of Chicago was in a bind. It faced a $220 million budget deficit and its credit rating was under review for a possible downgrade. Voters feared a jump in property taxes. Then help came from a surprising place: Australia. Macquarie Bank, Australia’s biggest homegrown investment bank, organized a deal to take over Chicago’s historic Skyway toll road under a 99-year lease for $1.8 billion — hundreds of millions of dollars more than some Chicago officials thought it would fetch. —Wall Street Journal, 12/6/05 Officials at the government-owned Dubai management company said they plan to complete the $6.8 billion purchase next week of London-based Peninsular $ Oriental Steam Navigation Co, but to freeze all operations as they are at the five U.S. ports where P&O now manages terminals — New York/New Jersey, Baltimore, New Orleans, Miami and Philadelphia. Australia’s emergence as Chicago’s white knight illustrates a surprising development in the world economy. On a given day, Macquarie Bank has a dozen bankers roaming the U.S. in search of deals. But Sen. Charles Schumer (D., N.Y.), who has led the charge against the transaction, shot back that “the cooling off period isn’t going to work.” He and other Senate critics insisted that Congress needed more than just additional briefings by the White House and DP World officials, and should begin a full 45-day investigation of the security implications of the deal. In San Diego, one of its funds is building a 12-mile-long toll road. In Virginia, a Macquarie fund invested more than $600 million to take control of the Dulles Greenway, a 14-mile toll road outside of Washington. Macquarie operates the tunnel that connects Detroit to Windsor, Ontario, and just bought, with other investors, Icon Parking Systems, one of the biggest parking-lot operators in New York City. In another sign that the uproar hasn’t subsided, Sen. Hillary Rodham Clinton, (D., N.Y.) plans to introduce legislation barring all foreigners from managing U.S. ports, despite the fact that the vast majority are now run by foreign companies and that U.S. companies are minor players in the industry. “We cannot cede sovereignty over critical infrastructure like our ports. This is a job that America has to do,” Ms. Clinton told a gathering in Miami. Macquarie funds also hold stakes in the airports of Brussels, Copenhagen and Kilimanjaro, Tanzania. Macquarie funds own stakes in a major port in China, a Japanese turnpike and one of England’s biggest toll roads. This year, Macquarie said it was weighing a bid to buy the London Stock Exchange, though it is unclear whether that deal will be completed. Mr. Chertoff [Homeland Security Secretary] denied that DP World was being held to different standards than other prospective foreign investors, but said that because the company was the first foreign terminal operator to be vetted by the secret Committee for Foreign Investment in the United States, the safeguards could serve as a template for future deals. “I would certainly anticipate that if another country had a company taking over a port [terminal] we would do the same thing,” he said. Chicago is certainly glad the firm came knocking. Opened amid great fanfare in the late 1950s, the Skyway was supposed to be a critical leg in a stretch of toll roads extending to New York City. The Skyway turned into an epic white elephant. The toll road failed to generate enough traffic. In the 1970s, Chicago defaulted on its Skyway debt. [DP World] said they played by long-established rules that control the government’s review of foreign investments. “We just complied with what was required,” said Ted Bilkey, DP World’s chief operating officer. Mr. Bilkey said the company began working last October to get the administration comfortable with the deal, and he personally met with senior officials in early December. “We felt we’ve done everything correctly, and all of a sudden there’s this furor,” he said. Executives at Macquarie say U.S. drivers can expect to see more of them in the future. Says Nicholas Moore, the head of Macquarie’s investment-banking division: “It’s a firm bet that all of the roads that are being talked about in America, we’ll be looking at.” If the political outcry against unfamiliar and dark-skinned foreigners from one side of the world owning ports in the United States, when contrasted with the red-carpet treatment given a more familiar brand of white-skinned foreigners from another side of the world, isn’t ignorance at best and racism at worst—then what is it? Jeff Matthews I Am Not Making This Up © 2005 Jeff Matthews The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.

The second easiest trade in the world might just be keeping a few investors around the world up at night. I say second easiest, because there is one other macro trade that seems to be more popular than being short the U.S. Dollar. But if there ever was a way to make a guaranteed profit, it would appear to be shorting the Dollar. After all, the U.S. is, as we all know—putting it in precise macroeconomic terms, based on our horrible trade deficit, bloated budget deficit, broken Social Security system, not to mention our decrepit Medicare/Medicaid/Health Care funding system—totally screwed. And hasn’t the Oracle of Omaha—Warren Buffett—shorted twenty billion Dollars for his own account? Even Bill Gates, who probably never shorted anything in his life, except maybe Lotus and Netscape and Borland and Novell and Quarterdeck and Software Publishing and…well, he’s probably never shorted a currency before, but even Bill Gates is short the Dollar. So, if Bill Gates and Warren Buffett—two of the smartest men in the world, let alone the smartest guys in a particular room—are both short the Dollar, how could a big, swinging London-based currency trader lose by putting on that trade? Well, one way he could lose is this: what if everything the smartest guys in the world already know about the Dollar is priced into it? And what if the Euro—the alternative currency of choice—is overvalued? And what if that imbalance starts to correct itself? I mean, it’s not as if Europe is rip-roaring along, adding value to the world’s economic well-being. Germany is stuck in no-growth-land, Italy is officially in recession, and France is a basket case. Half a dozen U.S. companies have missed numbers in recent weeks, and blamed Europe. Drug companies are removing research and development from Germany, and IBM is shutting down high-cost operations all over the continent. I’m no currency guru, and I don’t particularly admire the fiscal policies of the United States. But what’s so great about Europe? And why does everybody want to own its currency? I know what some of you are thinking: buy gold. But I’m not a gold bug. My friends who actually are gold bugs tend to be nervous, excitable people who think Alan Greenspan ranks right up there with funeral directors and variable annuity salesmen. They refer darkly to “The Powers That Be” and watch every tick in Federal money flows as proof of a vast conspiracy to manipulate the price of Amazon.com’s stock price in order to benefit Alan Greenspan’s personal account. I’m not making that up, by the way—I know people who think Greenspan times his various pronouncements to affect the market, for his own benefit. Last year a guy complained Greenspan had made negative comments about the economy just before option-expiration Friday. He was long Lucent call options, and they expired worthless. He blamed Alan Greenspan. I don’t particulary care who runs the Fed, and as far as I can tell gold and silver just sit there and impart no particular value except what other investors ascribe to the desirability of owning gold and silver at any given moment. So call me an agnostic when it comes to the world’s monetary plight. But I’d be willing to bet the ranks of the Dollar atheists far outweigh the Dollar believers right now. As I said, it’s probably been the second easiest trade in the world, up until now. The easiest? Oh, that would be the “market-neutral” convertible arb trade. Which, as we now know, is blowing up all around us. Just today, The Times of London is reporting some ugly data from the London hedge fund world: GLG in recent weeks had demands for more than $500m (£270m) from investors wanting to pull out of its $4 billion market-neutral fund…Cheyne is thought to be down by at least 10% in its credit fund after the downgrading of debt at General Motors and Ford. Ferox, another of London’s most successful funds, is thought to be down nearly 20%. Bailey Coates, Polygon, Rubicon, Vega, Moore Capital and Brevan Howard are all nursing heavy losses of about 5% each in April. Makes you wonder, if that stuff was the easiest trade in the world, how the second-easiest trade is going to work out. Jeff Matthews I Am Not Making This Up The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.

A few months back, the Goldman Sachs so-called research department upped their oil price forecast from a $28 a barrel number to a headline-grabbing “super-spike” range of “$50 to $105 per barrel.” I wrote about it—see “The Goldman Gurus: Two Years Too Late” from April 1—in my “rambling and sarcastic” way, and my point was this: for one thing, Goldman was coming very late to the energy shortage party that had been more accurately and more profitably predicted by Marc Faber in the pages of Baron’s; and for another, the price range itself was ridiculous—being large enough to drive a Hummer through. Naturally enough, oil prices spiked to $58 on the Goldman excitement and reversed the next day—and the reversal did not stop for seven weeks before bottoming at $47. But you can’t keep a good raw material in shortage down, and oil is back above the Goldman-giddy levels. And will likely go higher over the next year or two or three, if the spending plans of the major oil companies are any indicator. I have pointed out before how the U.S. majors, including Exxon Mobil Corp, remain cautious about the long term price of oil—because they do not want to get caught up in another boom-bust cycle. So they are returning much of their cash flow to shareholders rather than to the drilling companies. Exxon Mobil, for example, generated $40 billion in cash flow last year, and spent $12 billion drilling—but paid $7 billion in dividends and spent $10 billion on share repurchases. Now, over the July 4th weekend, comes a report from the British press that the two largest foreign oil companies, British Petroleum and Royal Dutch Shell, will “hand back $60 billion” to shareholders over the next two years in the form of share buybacks and dividends. This amount is, according to the reports, “equivalent to Bulgaria’s gross domestic product,” which, while interesting, is a less-than-meaningful way of thinking about the money. The meaningful way to think about that $60 billion is that it represents 6 to 12 billion barrels of crude oil that will not be found over the next two years by BP and Royal Dutch. And that is because oil exploration costs as much as $5 to $10 a barrel of reserves in large (usually deepwater) fields. 6 to 12 billion barrels of new oil that could (assuming the exploration is successful) be added to the world’s supply in a two year period are nothing to sneeze at when you consider that every two years the world consumes 60 billion barrels of oil. Meanwhile, it’s summer here in Rhode Island and the driving is heavy. The big headline in today’s Providence Journal reads: Gas prices hit record high in R.I. The sub-heading reads: But soaring prices so far have failed to reduce demand. Seems that a gallon of regular unleaded hit $2.289 a gallon yesterday, beating the previous record set in May—just after that Goldman Sachs report and its $50 to $105 a barrel “super-spike” forecast. The Providence Journal reports that $2.289 is not so horrible in relation to years past: adjusted for inflation, that same regular unleaded went for $2.89 a gallon 25 years ago. Which, the paper notes, explains the strong demand in the face of rising prices. After all, the Journal says, quoting a Hofstra professor, gasoline demand is “inelastic” and requires a more sustained and dramatic price increase to influence demand. But so long as British Petroleum and Royal Dutch, not to mention Exxon Mobil and the rest of the world’s major oil exploration companies, prefer to give surplus cash flow back to shareholders rather than spend it in the ground, we may just see oil at $100 after all. And then we’ll see how “inelastic” the demand for gasoline becomes. Jeff Matthews I Am Not Making This Up The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.

You know a fad is getting out of hand when everybody tries to replicate it. And you know this iPod thing is really getting out of hand when a food company tries to compare itself to Apple. This really happened. Irwin Simon, the hard-selling CEO of Hain Celestial Group, which owns a slew of natural foods brands ranging from Walnut Acre salsa to Celestial Seasoning teas, recently told Wall Street on a conference call: “We really have–which I call the next iPod of products coming out.” (I’m not making this up.) “That’s been my challenge…what’s the next iPod for Hain?” Funny thing is, Hain is finally unwinding the remnants of the ‘carb’ craze products they introduced last year, right as that fad was peaking. So for Apple’s sake, let’s hope Hain doesn’t introduce a music player any time soon.