Why I Will Never Buy Google Stock (Again)

I think Google is a pretty good company.  At least for the time being, they seem to be able to capitalize on their current strengths (search) as well as have an eye on future growth opportunities (Android).  I think that they are currently fairly valued at about $600 per share.  Last summer, when they dropped below $500 per share over fears about an aging business model, I thought they were undervalued and I bought.  The stock went back up to $600 and I sold.  This spring, the stock dropped below $500 again (same old fears, no new evidence) and I thought: "I should buy."  But I didn't for one simple reason, and I subsequently missed out on the rise back to $600 that the stock experienced when it released its earnings.  And I am not the least bit upset about not grabbing that opportunity.

The reason is that while I think Google's business model is sound, I don't trust the Justice Department to leave it alone.  Google is the new Microsoft, meaning that one day or another, the government will see it as an unstoppable behemoth (tell that to Mark Zuckerberg) worth of an antitrust suit.  The more successful Google's business becomes, the more likely this outcome.  The writing is already on the wall.  This is what antitrust does to strategy and investing.  If the government decides that Google controls too much of search, their goes their revenue stream and shareholders take a haircut.  Frankly, I just don't think it's worth the risk.

It is important to note, I think, that since antitrust came on the scene, most prosecutions are not instigated by the government, they are instigated by competitors complaining that the companies out-competing them in the marketplace are being "anti-competitive" by competing too well.  This is what laws like antitrust do to competition.  Firms succeed based on their ability to lobby the Justice Department and the FTC, not on their ability to provide superior value.  Ironically, most of the antitrust threats against Google are coming from Microsoft.  Now tell me, faced with an environment like this, why would a person of integrity ever want to go into business?  They'd get eaten alive.

Two Perspectives on Job Creation

Hi Everybody.  My comprehensive exams are over (I passed), and now I can devote some time to blogging without feeling guilty.  Today, I want to talk about "job creation" since that term has been batted around so much lately.  I won't pull out any of Fearless Leader's quotes on the matter.  I think everyone can predict my opinion of those.  Instead, I want to contrast the statements of two high-profile business leaders.

The first comes from an article that appeared today on Investors.com, written by capitalist He-Man John Allison.  For information on Allison, see some of my earlier posts.  His article has several observations you would expect from an Objectivist.  I won't get into all of them, but here's a choice sample:

Jobs are created so businesses can develop new products and services — and improve existing ones — and expand into new markets — and increase the quantities produced, and the efficiency of that production.

Sounds good, right?  Jobs are not created as an end in themselves, but rather as the means to make more money.  Contrast Allison's take on jobs with a recent article describing General Electric CEO (and Obama crony) Jeff Immelt's speech before the U.S. Chamber of Commerce:

At a conference where many of the comments were focused on government barriers to hiring, GE (GE, Fortune 500) Chairman and CEO Jeffrey Immelt acknowledged there needed to be some policy changes by Congress and the Obama administration. But he said that the responsibility for hiring lay with businesses.

"The people who are part of the business sector, the people in this room, have got to stop complaining about government and get some action underway," he told the group. "There's no excuse today for lack of leadership. The truth is we all need to be part of the solution."

Platitudes notwithstanding, what exactly does Immelt propose as action?  What is the solution?  Hire more.  Don't worry about those pesky profits.  Just hire more people, and stop complaining about how the government is making it impossible to hire more people.  Just do it!

Okay, Orren.  I mean, I understand that Immelt is basically working for Obama at this point, but does he have to be so transparent about it?  Where's the finesse?  Luckily, the rest of the Chamber didn't quite see things Immelt's way.

The Chamber also released a poll of small businesses that showed only 19% of businesses plan to add jobs in the next year, little changed from the 18% that increased their payrolls in the last year. Nearly 40% of those surveyed cited either worries about what the government will do next, the requirements of the new healthcare bill or too much regulation as the number one obstacle to hiring.

The comments also made me fell a little better:

JeddMcHead, 07/13/2011 11:40 AM

OMG, this tool needs to be put in the shed. Permanently.

Couldn't have said it better, myself.

More About Unions

Unions just seem to be topic of the week.  Right here in good, old Indiana, the Democratic legislators have taken a cue from the whack jobs in Wisconsin and gone on vacation.  This issue here is a little trickier than in Wisconsin, which is just a bunch of whining.  The fight is over a "right-to-work" legislation that Republicans want to push through.  Democrats don't like it because it hurts unions.  Ok, so far no surprises.  The question for me is what this proposed law actually says.  I'll show you what I mean.  Here's how the Wall Street Journal wrote it:

At issue in Indiana is a so-called right-to-work bill that would give members of private-sector unions the right to opt out of unions and not pay dues.

The right to opt out of unions?  I like rights.  That sounds good.  Did they not have that right before?  Who denied them that right?  On the surface this looks like a good thing.  Then I read this from both the Indianapolis Star and that bastion of quality journalism, USA Today:

[The legislation] bars a union and company from negotiating a contract that requires non-union members to pay fees for representation.

Barring?  I don't like barring.  That sounds bad.  It seems to me that the Republicans are engaging in a major PR cover-up here, masquerading their strictly anti-union bill as an expansion of liberty.  Of course, the Democrats aren't any better, because they're just throwing a little hissy fit because the bill hurts unions.

I'm not the biggest fan of unions, but there's nothing inherently wrong with them, as long as they play by the same rules as everybody else.  If a business wants to (or has to out of necessity) contract with a union agreeing it won't hire non-union folks, so be it.  I think it's a stupid idea, but sometimes that's what you need to do in business.  Barring certain kinds of contracts is not the way to make the state more competitive economically.

Shabbos Banker

Here's an interesting little story I noticed some time ago in the Economist. Apparently this gentleman, Adnan Yousif, has great ambitions for his particular brand of financial innovation. He is trying to rock the Arab financial world with what is currently only a niche industry. "People never thought big here, never thought globally," he says. Sounds good, right? Guess what this innovative service is...

Islamic Finance.

Now, you may be asking, as I did, what makes finance Islamic? According to the article:

Mr Yousif’s ambitions date to the founding of modern Islamic finance. During the 1970s oil boom the Gulf’s Muslim elite needed to put their new-found wealth somewhere, and American government bonds seemed the safest option. Yet Islam prohibits the charging of interest. So some sheikhs bought bonds but let their Western banks keep the interest, in the casual manner of a customer leaving change on a restaurant table. To Mr Yousif, then a young banker at American Express in his native Bahrain, this made no sense. At a time when Muslim countries had imposed an oil embargo over America’s support for Israel why, he wondered, refuse the Americans oil but give them billions of dollars?

So, nominally Islamic finance is about handling money without interest. Really, it's answering the question "How do we stick it to the Americans more efficiently?"

This concept of Islamic Finance--which seems to be simply replacing evil, unholy interest with "fees" and other equally silly price mechanism substitutions--reminds me of the Jewish concept of the Shabbos Goy.

For those of you unacquainted with the endearing habits of the Children of Israel, and please remember I am not making this up, "goy" is Yiddish slang for a gentile. Shabbos is the sabbath. In Jewish law, you are not allowed to do any work on the sabbath, including, but not limited to, turning on lights, starting a car, and even ripping paper (Yes, that includes wiping your ass, unless you have pre-ripped your sheets.

This poses a great problem for modern observant Jews. While, back in the good ol' second century b.c., one could easily avoid turning on lights or ripping toilet paper, such actions have become, to say the least, ubiquitous today. So what's a poor Jew to do? Why, hire a goy to do it for you, of course. Hence the term "Shabbos goy," a gentile who you hire to do all your sinful car starting for you on the sabbath. (Of course, you must pay the goy during the week, because handling money is also forbidden.

Returning to Islamic Finance, then, I find the practice funny--and sad--as it is simply a way for the faithful to pretend they're obeying God's ridiculous edicts, while still getting everything they want. They missed the whole point of being religious, which is the ample amount of suffering God wants you to endure.

In all, this is probably a good development, as the more integrated backwards religions get with civilized life, the more people decide, "you know what? This is stupid," and just junk the whole process. That's what happened to me when I attempted to keep kosher when I was young and naive. I thank God I grew out of that. If it weren't for him, I might never have turned atheist.

Financial Innovators

Gordon Crovitz had a decent column on financial innovators in the WSJ on Monday. He compares financial innovators to other, more physical innovators, who have provided incalculable value to civilization. I particularly like this passage:

The innovators who thought up the elevator, the cotton gin and space travel didn't intend to kill or injure people as they perfected the technologies. Likewise, today's financial engineers never imagined their miscalculations could result in a global recession.

Now, as any thinking person understands, their miscalculations resulted in a global recession because they assumed a normal level of risk in the system, as opposed to a government-subsidized, fucktardedly high level of risk. Regardless, the appreciation for innovators is welcome. Crovitz discusses how sometimes failure is necessary to learn how to do something right. A good lesson, and I think there's a Thomas Edison quote to that effect that I'm sure I've mentioned before.

On the other hand, Crovitz goes on to quote Robert Murton, a famous Harvard economist who's screwed up quite a few times. He produced this gem back in '94: "any virtue can become a vice if taken to extreme, and just so with the application of mathematical models in finance practice."

No, Bob, if your virtue becomes a vice when taken to extreme, YOU'RE DOING IT WRONG! Still, the article is worth a read.

Drucker

Today's Profile in Contradiction comes to you from the foremost guru of management, Peter Drucker. Since I'm going to be joining the ranks of the management academe, I felt I should educate myself as to the musings of the great Drucker. And so, perusing his Concept of the Corporation, I came across this excerpt:

Though we have largely abandoned it in legal and political practice, the old crude fiction still lingers on which regards the corporation as nothing but the sum of the property rights of the individual shareholders. Thus, for instance, the president of a company will report to the shareholders on the state of "their" company. In this conventional formula the corporation is seen as transitory and as existing only by virtue of a legal fiction while the shareholder is regarded as permanent and actual. In the social reality of today, however, shareholders are but one of several groups of people who stand in a special relationship to the corporation. The corporation is permanent, the shareholder is transitory. It might even be said without much exaggeration that the corporation is really socially and politically a priori whereas the shareholder's position is derivative and exists only in contemplation of law.

He doesn't ever really say what makes the shareholder view "crude," but then who ever does? This "stakeholder" theory of business is old news today, and is typically paid lip service in any business ethics context. Thankfully, most of business academia is still focused on maximizing shareholder value. Which is good, because how exactly does a business exist without owners? Providing capital and getting return on investment is an indispensable element of capitalism.

Now, Drucker's not perfect, but he understands a few basic points. For one thing, he isn't exactly a stakeholder theorist in the way many closet Marxists are. He's more of a corporation theorist, basically holding that the corporation is an end in itself and all effort should be directed toward the betterment of the firm. (Incidentally, one wonders what this means if not maximizing shareholder value.) So, I feel I should present a more present quote of his from the preceding page:

Survival as an organization is the first law of the corporation as of any institution; and ability to performs its own purpose, to produce goods with the maximum economic return, is its first yardstick of achievement.

Sounds like maximizing shareholder value to me, but hell, what do I know?

I Can't Decide How I Feel About This Quote

I ran across this beauty while reluctantly reading my management text:

The things that make a good leader are being open-minded, having a willingness to really ask for and accept advice, showing a sense of humility, and putting the right people in the right seats. -Hank Paulson, CEO, Goldman Sachs (Prior to his stint as Treasury Secretary)

I'm not really sure what to think about this. Either he followed his own advice and failed anyway, which is funny, or he ignored his own advice and failed, which is funny too. All we can be sure of is that he failed. Some of this advice is valid, I think, especially the part about putting the right people in the right seats, which Paulson definitely didn't do. The part about humility is, well, you know. Businesspeople tend to use the word humility to refer to rationality and honesty in the face of unpleasant reality. If he's using it that way, he definitely didn't follow his own advice on that one.

The point of this is that Paulson is a douche, in case that wasn't apparent already.

How Short Our Memories Are

Scanning the Fox Business website (I don't know what I was thinking, either) I stumbled across what I consider to be one of the more evil and pernicious pieces of writing I have seen in a while. The author, one Al Lewis (not to be confused with Grandpa from the Munsters), describes the farce that was the Congressional testimony of major bank chiefs this week, and proceeds to flat-out deny their claim that they were forced to take bailout money. In addition to spreading abject falsehoods, Lewis' article reads like a romantic tribute to the efforts of selfless, crusading politicians. A few excerpts for your reading displeasure:

The story goes like this: One dark October day, the U.S. Treasury Secretary pulled CEOs of nine major banks into a room and forced them to accept billions and billions of dollars from the federal government.

Many of these bankers didn't want the money. Didn't think they needed the money. And didn't care to shock their shareholders by taking the money.

The spend-happy Bush administration, as if eager to introduce a virulent new form of socialism, simply rammed all these freshly minted dollars right up their big, fat pneumatic tubes....

Some bankers actually tried to maintain this bizarre myth in their testimony before the House Financial Services Committee on Wednesday.

"At the urging of the U.S. government, Bank of America accepted ... TARP money," CEO Kenneth Lewis told the committee, his eyes bulging like those of a man at a 12-step meeting recounting his helplessness in the face of horrendous abuse....

Barney Frank, the Massachusetts Democrat who chairs the House committee, put a swift end to these absurdities with a generous offer.

"If you want to give back the money, we will take it," he said. "And if there are any obstacles to your giving it back, legally, we will undo those obstacles."

Somehow, nobody volunteered.

What Lewis fails to mention is that a clause in the bailout contract forbids banks from paying back the money until they have raised extra private capital to replace the federal funds. Bah, details! This article is an absolute insult to journalism, flagrantly mocking bankers for telling the truth, as it was documented at the time in the WSJ, the New York Times, and this excellent letter to the editor written by a very conscientious citizen. CEOs of healthy banks were, in fact, forced to take TARP money under threat of arbitrary regulatory vigilance. What is even more depressing about this article than its factual inaccuracy is the facts it does present, namely the statements from bank CEOs. Businessmen today reject the moral foundation of capitalism, their own rational self-interest, and embrace a sort of mealy mouthed altruistic justification:

For Wells Fargo & Co. CEO John Stumpf, it was his patriotic duty to accept this money.

"We're Americans first, and we're bankers second," he told the committee. "So we see this taxpayer investment, first and foremost, as an investment in the future economic growth of our country. We're proud to be an engine of that growth."

Needless to say, this justification does not support an argument for individual rights, and so this happens:

Alabama Republican Rep. Spencer Bachus then asked Stumpf if Wells Fargo was indeed forced to take the money, as earlier reported.

"We've clarified our statements," Stumpf awkwardly replied. "We're happy to have the money."

In adopting an altruist stance on the survival of his bank, Stumpf is forced to deny even real, provable facts that occurred. Without a proper philosophical grounding, these gentlemen are powerless against the ludicrous accusations of Congress. When two sides agree not to think rationally, the most irrational will win.

I encourage everyone to read the article I referenced. It should make clear just how corrupt elements of our society are.

The Curious Case of Warren Buffett

Warren Buffett is, as the title of this post states, a curious case. (Much more so than Benjamin Button, in my opinion) On the one hand, he is one of the greatest investors of our time, generating many billions of dollars in wealth for himself, his employees, and countless others. On the other hand, he sees no virtue in his wealth creation. He views it as something he does to make a living, and believes that real virtue lies in giving all that wealth away.

Buffett represents far too many businesspeople today; people who show up at work and approach their tasks with a rational pursuit of their own self-interest, and then go home and feel guilty about what they have produced. Theirs is a contradiction of the worst kind, that of confusing virtue for sin, with all the guilty feelings that accompany it. Periodically on this post, I will post two quotes from well-known, financially successful businessmen and -women. One will be an encouraging quote about the individual's rational approach to business, and the other will be a contradicting quote emphasizing that individual's irrational approach to the rest of his life. Unfortunately, there is no shortage of quotes to form such a juxtoposition.

Here is Buffett:

"As far as I am concerned, the stock market doesn't exist. It is there only as a reference to see if anybody is offering to do anything foolish. When we invest in stocks, we invest in businesses. You simply have to behave according to what is rational rather than according to what is fashionable." -Quoted in One up on Wall Street, by Peter Lynch

"But to the extent we did amass wealth, we were totally in sync about what to do with it - and that was to give it back to society.

In that, we agreed with Andrew Carnegie, who said that huge fortunes that flow in large part from society should in large part be returned to society. In my case, the ability to allocate capital would have had little utility unless I lived in a rich, populous country in which enormous quantities of marketable securities were traded and were sometimes ridiculously mispriced. And fortunately for me, that describes the U.S. in the second half of the last century." Quoted in Forbes

Talk about your self-esteem issues.