For the Week of August 18, 2003
I love markets for many reasons. The most important reason is that, in the long run, they don't lie.
It is certainly possible to spin within markets, and nearly everyone involved in any market is engaged in non-stop spinning. Sellers spin the idea of scarcity, buyers spin the idea of plenty. Market mavens spin the idea that this sector or company is about to hit a jackpot or a dry hole. Then the spinners ignore their misses and trumpet their hits, so even coin-flippers look like sages.
But in the long run numbers get serious and leave their marks everywhere. The Administration tried to spin second-quarter growth as positive , but nearly all of it came from spending on the Iraq War, and a negative jobs report promptly sent prices skidding. . This was spun by Republicans as a "pause that refreshes," since markets are up 25% this year...their march will resume when more evidence of growth comes in.
But that too is spin. The fact is that, at 1,700, the NASDAQ is down 67% from its high. The cliff is equivalent to what Japan experienced from 1987-1989, and even a dead cat will bounce a bit if dropped from a tall-enough building. At a little over 9,000 the Dow is off only 20% from its high, but the Dow has always been a phony average, with companies dropping off and jumping on as their fortunes change. The Dow, in other words, is also an exercise in spin.
NASDAQ, while a broader measure of economic health, does have its weaknesses. It's a market-weighted index, so the small price gyrations in the 100 biggest NASDAQ companies have a huge impact on the average. The best market index may be the S&P 500, traded as the SPDR. Since early 2001 it's down about 30%. .
Markets don't lie. A 30% loss is a bear market, and if that includes an 11% gain over seven months it's even worse. The fact is most people don't do as well as the indexes. Even professionals are constantly moving in-and-out among hot sectors, and are as likely to buy high and sell low as any amateur. When outright theft is added to the equation (as in this market) the damage is even more extensive. Gains will be strictly limited until people are convinced that the casino is being run fairly. You don't use a poll to measure this. You look at how quickly people pull out after realizing a small profit. Right now they're pulling out very quickly.
The hardest thing to do is separate spin from truth, but the market itself does an amazing job of that. All kinds of markets have proven accurate spin-free predictors - whether they're markets in politicians or rich Hollywood stars. That's why John Poindexter wanted to put together a "market" in potential disasters , although he might be smarter to just move to England and build a betting pool in that area. (Betting pools are older market-making activities than stock markets - Lloyd's of London was originally a coffee-shop betting pool on the fate of ships at sea.)
The market has a perverse logic. When everyone says buy is when you need to sell. When everyone says sell it's time to buy. When Republicans are in power the markets fall, when Democrats are in power the markets rise.
What is best for rich people has the same perverse logic. Give a rich man a dollar and he might buy a polo pony with it. Give him a good stock tip and he will make enough to buy his own pony. The money your money can earn is more meaningful than the rate at which it is taxed. Some of the best years of our economy's life came in the 1950s, when the top tax rate was a confiscatory 92%. The very best years for investors came after President Clinton raised the top rate, in his 1993 tax bill, in order to reduce deficits. (He also continued a Bush policy of clamping a lid on domestic spending.) As the government got out of the debt markets interest rates fell and there was an explosion in equity values. In retrospect the smart economic move then would have been another tax hike, but politically that proved impossible to even propose.
All this is prelude to another discussion of the technology market.
The key to growth for the general economy is the success of small technology companies, whose boom-bust cycle makes that of "Paint Your Wagon" seem tame. Even big tech companies are limited in their ability to respond to change, and their function in your portfolio is mainly to even-out performance over time. The real action, the real future, is in venture capital, in start-ups, and in IPOs. The best measure of our success in the tech market is the relative strength of these two sectors.
The U.S. market is presently starting to breath after a long sleep, although it's bolstered by a growing number of non-tech issues, even movies. What is the best IPO market today? It's Singapore , although many of the issues floated there are non-techs, sewage treatment outfits and the like.
How about venture capital? U.S. funds raised $1.6 billion in the second quarter . This was spun as a sign of "stability," with much of this money still sitting on the sidelines. In general there are still too many deals chasing too few bankers. . The Malaysian venture market, on the other hand, is booming .
Getting the truth out of a market can be difficult, with so many salesmen and politicians spinning constantly. But numbers do not lie, much. When you get to the bottom of the numbers you get to truth. And it's the truth that shall make you free. Even if it still leaves me (and you, too) unemployed.
SSP (Shameless Self-Promotion)
I currently work as a business analyst with Progressive Strategies , a New York research firm that has the ear of the world's top technology companies.
My last book, "The Blankenhorn Effect" won the Computer/Internet category in the 2003 Independent Publisher (IPPY) awards .
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Takes on the News
Spin, Rinse, Repeat
Power has gained the ability to control its own perception. That's how liberals explain the President's high poll numbers. But it's the only explanation I can find for current stories about AOL.
AOL is continuing to lose subscribers. It has been unable to gain the premium it needs to have a chance in the broadband universe - mainly because phone and cable operators already collect a premium and don't feel a need to share. As a result its value to advertisers is declining, markedly. As rising subscriptions were a virtuous cycle, so declining subscriber counts represent a vicious one.
Yet you wouldn't know that to read the media. The recent decision by Monster.Com to dump AOL (as well as MSN) is a perfect example.
Instead of running the story straight, Jupiter
, News.Com and MSNBC
went instead with various versions of AOL's spin. It was AOL that dropped Monster. AOL signed a "multi-million dollar deal" with the newspaper industry's Careerbuilder. (MSNBC joined in the lie because it was dropped by Monster as well.)
The Careerbuilder.com deal is valued at "up to" $115 million over four-years, based on performance-based elements and guaranteed payments, AOL said in a statement. I put quotes around the key phrase - up to. It's not worth $29/million per year, it's not even close. This figure is a fig-leaf - it is pure spin.
Monster.Com's previous four-year $100 million deal was all-cash , so it was said, although you must remember that AOL's accounting scandals involved its booking revenue from advertising years before the ads ran, and booking advertising trade-outs as cash.
None of this background was mentioned in the Careerbuilder stories listed in the second paragraph of this piece, none. No one bothered to look-up the previous Monster.Com deal or even point out the meaning of "up to," let alone "performance-based elements." Do you know how long it took me to Google all that information? Less than three minutes.
The media is complicit in covering-up AOL's crimes and its slick misrepresentations about its future. The media's failing, in other words, is not just a political story.
Making Money From Content
The Guardian recently offered an upbeat, but ultimately unsatisfying, look at blog business models.
You've got BlogAds and Google AdSense , you've got some people willing to pay for valuable content, there's a new micro-payment outfit called BitPass ( ) (linked to eBay's PayPal) and CafePress will let you turn your blog into a book.
Not to rain too much on the parade, but BlogAds is making hardly any money, AdSense only makes sense if you have a lot of traffic, BitPass is in beta while every similar offering has failed, and CafePress books will cost $13 each to produce (then there's marketing). In other words, if it's profit you're looking for you might want to stick to re-selling Howard Dean yard signs, for which there is proven demand. Plus, you will notice if you surf blogs even a little bit, that few are taking advantage of these opportunities. Most are still using begging bowls and Amazon affiliations.
But there is a bigger problem. A real business consists of three elements -- someone to organize it, someone to market it, and someone to produce whatever it is that is being sold. All a blogger offers is the last. That's all I offer. If I spent the necessary time organizing this as a business, and marketing this as a business, there would be no time to provide you the kind of content I deliver.
If you want to do what you do, find an entrepreneur who believes in you, and let them bring in a marketing maven who can use these tools to turn a profit for all of you. But remember that the hurdle now is three times higher than it was, and that you as the content creator are at the end of the line.
RSS: An Evhead In The Way
RSS is one of the great unsung heroes of our age. As Dave Winer notes , it's a billion-dollar format. A ton of content is flowing through it and, like Apple, it can't be stopped.
But Apple does not dominate the PC market. The best news aggregator, Google News , is not based on RSS at all, and doesn't link to blogs but newspapers. The problem is, RSS is still part of the open source movement, its buzz bigger than its market bite.
Do you use an RSS newsreader? Doc Searls is right, they are TiVo for blogs . But what percentage of homes have TiVo?
All this fussing and fighting, from dusk to dawn may be business as usual, but it's not bringing RSS (and thus blogs) any closer to the mass market. You can do a lot of cool things with RSS , but the market problem remains the same. This is CP/M, and the market's IBM PC has yet to appear.
That's why the continuing political wrangling matters. Blogger co-founder Evan Williams, with his support of an incompatible spec called RSS 2.0, is keeping Google (his current employer) from delivering an effective blog reader. A truly effective reader would have what Google News has (in terms of format). It would not be something you had to load on your server or your client - it would be simply be something you go to.
In my opinion, Ev has become an obstacle to Google doing for blogging what it promises to do everywhere - provide valuable Internet services. . It is time for him to go so RSS can start to perform the miracles it was designed to perform.
Clued-in i(finally) is IBM for taking the market threat of SCO's campaign of lawsuit and intimidation seriously. If there were such a thing as real justice, in my opinion, SCO head Darl McBride (http://lwn.net/Articles/35212/) would end this adventure behind bars, with the other corporate crooks.
Clueless is NASA , which decided to resume Space Shuttle flights before fixing problems with the program. One more disaster and not only is the program dead, but so is any replacement. Yet another example of short-term values at work.
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