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A small and insignificant source of commentaries on what's going on in the world today. By Jozef Purdes.
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The joys of customer service at Newegg
From the "Random Ramblings" department
From today's conversation with a "live customer representative" at Newegg today:

Jozef: I'm sorry to bother you with such a small thing, but for the past half an hour I've been trying to locate a regular power cable for my desktop on your site.
Darlene: I apologize, but I cannot assist you with that kind of information.
Darlene: I would love to help you with that question, but unfortunately Newegg employees such as myself aren't technically certified, and cannot offer such support. I definitely don't want to provide you with wrong information and cause any type of inconvenience.
Darlene: At this time, we are working on a solution to assist valued customers such as yourself, but for now I highly recommend speaking to the product manufacture, I am confident that they have specialists who are qualified to answer your questions.
Jozef: Thanks.

After fifteen more minutes I found a single power cord. I'm ashamed to admit that I did order it from Newegg, mainly because the other items I ordered and shipping were both cheaper than at Tigerdirect, which is much better at displaying what I'm looking for.
August 5, 2006 at 12:22 am GMT by Jozef [Link to article]

Why I don't shop at Home Depot
From the "Random Ramblings" department
I remember when I was still in school, and at an info session for Home Depot position I asked why the quality of their customer service decreased so much. I used the example of glass cutting, which is still available in Lowe's, but which has been removed at Home Depot. The short answer was that such services did not add value to the company's bottom line. Later, I was scolded for my question by my career advisor. I didn't have anything to lose: I decided not to apply for a position at Home Depot, hearing first-hand stories about the complete disregard for applicants from the company's HR department. Ultimatelly, a few of my friends joined the company, but even though they are very smart and responsible individuals, the company's culture of disregarding its own employees, applicants and customers will drown them. But that's not the reason why I stopped shopping at Home Depot. The real reason is the service I received.

About two years ago, I was housesitting a house where the owner ordered a new garage door from Home Depot. It took over three months of confusion, such as the door parts ariving at the owner's billing address and not shipping address, the shipping of the wrong door engine and other issues, until the door was installed. Granted, it was a Home Depot contractor who did most of the installation, but the material was delayed at Home Depot's end, and the contractor was endorsed by Home Depot.

Undeterred, the owner decided to keep doing business with Home Depot, and I agreed to help him. In May, he ordered and paid for four unassembled bookcases. Together, they cost over $1000 (about four times as much as I's pay for similar bookcases at Target). They were supposed to be delivered on June 17. The key word here is "supposed". After much delay and playing phone tag with the Home Depot store for several days, we finally settled on a new delivery date, the July 8. That accounts for nearly a month worth of delay. I came to the house to accept the package, as the owner was away. I was there on time, at 8AM, as I was told that the delivery would come between 8 and 10AM. The van finally showed up at 2.30PM. A single, very large box rolled out. I asked the delivery people whether all four bookcases were in the one box, and they assured me it was so.

The owner came back a week ago, and opened the box. Instead of four unassembled bookcases there was only one, fully assembled. Since then, the owner has been playing phone tag with Home Depot again, and most recently he was told he would have to fly down to Atlanta and come to the particular Home Depot store personally. If it wasn't so much money he'd swallow the cost and order bookcases from Lowe's, but as it is, he wants at least his money back.

A few weeks ago, Business Week has placed Home Depot among the four companies who suffered the most significant decline in market share due to poor customer service. Here's a good reason why.
August 3, 2006 at 5:15 pm GMT by Jozef [Link to article]

How not to catch the terrorists
From the "For Future Reference" department
The New York Times backlash is raging on, by people who obviously don’t know how risk calculations work. This just follows the same old pattern: find a liberal target, and when a few people start attacking, join them until a crowd is formed. This kind of herd mentality has been around as long as animals congregated in herds.

But consider two things. The first was already discussed on plenty of places, from Reason Magazine to the Jon Stewart Show. The New York Times disclosed the first surveillance program that’s actually legal and not controversial at all. This is the first program the administration shouldn’t be ashamed of admitting at all. The opponents will counter that it’s not the President’s image that counts, but the security of the nation. This is also a valid point. However, they fail to realize that any terrorist or criminal with half a brain would have expected the existence of this program a long time ago. By fuming about revealing the existence of the financial surveillance program, conservatives show how much they underestimate the terrorists. This has caused the loss of countless lives, and unless we start taking the terrorists seriously we’ll be losing countless more.

Underestimating the enemy leads to complacency. And thus, we are currently in a situation where we are able to intercept the communication of only those people who are innocent or too dumb to use even the simplest methods to evade surveillance. Just consider:

  • Phone wiretapping. Direct connection voice services have been around since Windows 3.1. You don’t use any voice or VoIP network; instead connect directly to the end user. You’d need to monitor all Internet traffic to capture these data streams. As an alternative, you can use phone services of instant messenger programs, and connect to the Internet through a proxy from a safe country. A terrorist in Iran could connect to a UK proxy, and call up his friend in the US. The surveillance software would give this call a very low priority level; that is, if the software was able to monitor these calls. It isn’t.
  • Internet monitoring. AOL does not monitor its traffic at all. Earthlink monitors a very small portion of its traffic. Sprint, the nation’s largest Tier I ISP, misses 40% of the most common Internet attacks; it does not monitor for non-malicious traffic. Those who monitor parts of the traffic record the data on high-capacity tapes and physically ship them for analysis. The only outlet that monitors and stores all Internet traffic going through its pipes is the Department of Defense. They collect around 500GB of data per day, but only for forensic purposes. That’s because running a simple query on the data can take up to two weeks. What I’m saying is that there is currently no monitoring of Internet communications. The only thing the security agencies can do is to monitor specific traffic from specific IP blocks, such as certain countries.
  • E-mail monitoring. Monitoring like this is feasible. Look for certain traffic from terrorism-friendly countries. As before, using instant messaging and IP anonymizers will do the trick.
  • Web-site monitoring. Security services love to spend their time looking for secret messages on known terrorist Web sites. If a terrorist is too paranoid, all it takes is to open an account on Flickr or similar service, and upload family pictures with encoded messages will be undetectable. In fact, this is so many steps ahead of current surveillance capabilities (at least those the government admits to) that the US won’t ever catch up to even the least computer savvy terrorists. To make the bad news even worse, the incremental inconvenience for using such system is minimal.
The US security services are clearly wasting their money on programs that are ineffective, and when they are leaked to the public, they try to shoot the messenger. They clearly show that they are underestimating the enemy, and they are willing to do so, as long as the money is flowing. Clearly, the government and its supporters don’t know the odds. This year, the average American had a 10% chance to have his identity stolen. In 2001, the year of the biggest attack on the US soil, the average American had a 0.001% chance to die in a terrorist attack. In other words, for every American dying in a terrorist attack there were 10,000 at risk of having their identity stolen. Having refused to own a credit card, I know how hard it is to live in the US without a credit history. I’m much more afraid of identity theft than the terrorists. And don’t get me even started at the odds of dying on the Atlanta roads…

Instead of tackling the identity theft issue, the authorities are as complacent as with the terrorists. They claim that everything has been fine with the stolen laptop with over 26 million identities because the data appears not to have been accessed. Here’s news for the authorities: many hard drive recovery methods, such as using the Knoppix Live CD, can access even password-protected portions of the disk and extract data, without triggering the flag that would identify the data as having been accessed.

What was I trying to say with this? That revealing the financial surveillance program is not news. That our opponents, whether terrorists or criminals are much more savvy than we give them credit. And that all these programs achieve is to keep us complacent until the next big one hits. And there’s nothing we can do about it, no matter how much the government spies on those people who have nothing to hide, while knowing fully well that it does not have the capability to spy on those who don’t want to be seen.
June 30, 2006 at 3:35 pm GMT by Jozef [Link to article]

The Erosion of Civil Liberties
From the "Propaganda'r'Us" department
With the newest SNAFU in the War on Terror(TM), the National Security Agency collection of all calls Americans placed, we are witnessing yet another step in the erosion of civil liberties, in particular the right to privacy in the US. I’m not about to complain about it or give my support; I’m merely interested in a few elements of this story.

First of all, let us look at the word "erosion". This word describes a long, gradual process. In fact, the word, in its most common usage, describes a process that can take millions of years, and which sees very small changes over time. In addition, there is no reversal to erosion: the only thing that can negate erosion is a very sudden, often cataclysmic change. When it comes to civil liberties, I don’t see a total reversal in people’s rights every time a government agency violates them. However, I don’t see such violations as harmless, either. Instead, they are just a small step in a long process towards changing us to obedient drones.

The government, as well as private corporations, knows that most people would get used to anything. After an initial (usually adverse) reaction to a change, people will get accustomed to the new situation. One of the most wondrous things about the human mind is how fast we can forget the past… Thus, in order to abolish civil liberties, one must proceed in small, measured steps. For example, after a sudden crisis, which justifies temporary limits to privacy, one may pass a law, which would expire in a few years. Let’s call this law The Patriot Act. Thanks to human forgetfulness, by the time the law is set to expire, most people won’t remember how life was before the Patriot Act, and the lawmakers won’t have too much trouble extending it.

Then, another attack on privacy takes place. It’s very limited, focusing only on phone calls to and from countries that are known for harboring terrorists. A few people protest, but they are soon silenced by the quiet majority. After that, we can take it a step further, and monitor very limited information on all phone calls. Again, people protest, but soon they won’t care anymore. In fact, the fact that about half of the people already support this kind of monitoring suggests that the government is actually very slow at eroding people’s privacy rights; people can handle faster change.

What will be next? Probably random recording of phone calls. Or outlawing/limiting voice over IP, which so far is not monitored. Not that it matters; there have been direct VOIP solutions for two or more parties for over a decade; people who would like to remain undetected will always be able to do so. In addition, this erosion of privacy will allow private companies to jump on the bandwagon. We can see this already happening with the movie industry monitoring (and presumably opening) packages sent through FedEx. Again, a few people will complain, but soon this will be the standard mode of business.

In addition to the bulk of people, the silent majority, there will be three smaller groups. The first one consists of the supporters of civil liberties erosion. They are usually very loud. They are not inherently evil; they simply suffer from what is called escalation of commitment. They supported some of the early changes, such as the Patriot Act, and now they subconsciously feel they must support the recent changes, as a way to justify their past actions. The second group, as vocal but perceived as having less credibility thanks to being ignored by most media, will protest every change, without any tangible result. Unlike the first two, the third group will be quiet. Large companies will feel pressured by rules and regulations (such as the SEC rules) to keep their inner workings secret, and so they will switch to alternative modes of communication, such as the already mentioned VOIP for phone calls and file transfer instead of FedEx. These companies will always be on the forefront of adoption of technology that would circumvent government and private spying.
May 15, 2006 at 3:00 pm GMT by Jozef [Link to article]

30
From the "Random Ramblings" department
Today.
April 23, 2006 at 10:24 pm GMT by Jozef [Link to article]

Land of the Hypocritical
From the "Propaganda'r'Us" department
James Hunter, in his lecture "To Change the World" talks about how cultural changes need the support of elites to become mainstream. Just like Jesus needed Emperor Constantin to spread Christianity and Martin Luther needed Frederick the Wise, almost every cultural change needs its inventor and its supporters. The inventor may be anybody (Hunter claims there have been only about two thousand of them throughout history), but the supporters must come from the elites.

We can observe one such change right now, as the Land of the Free is slowly transforming into the Land of the Hypocritical. As always, such a change begins with the elites, in this case all the way on the top. It doesn't matter whether hypocrisy becomes the official policy of the White house (hunt for leaked documents vs. intentional leaks) or the opposition, the sad truth is that this has become the norm.

Hypocrisy didn't remain in Washington D.C., though. Instead, it percolated down, to educators. Take, for example, the case of a North Kentucky University professor who destroyed a display of a group she didn't agree with. She claimed to have exercised her right to free speech by doing this. Or, as the new hypocrisy slogan goes, free speech means you can shut down others.

But why stop there? Cultural change is not complete until it invades the minds of our future politicians, business and community leaders, artists and workers: our students. Recently, Michelle Malkin has posted the contact information of several students who protested against military recruiting. This information was taken from the students' press release. In an effort to pressure Ms. Malkin to take the information down, the students have posted her personal information (previously not publicly available), including maps to her house on the internet. It seems the students have learned their teachers' lesson: fight fire with fire. Do exactly what you fight against; in this Land of Hypocrisy is may yield good results.
April 20, 2006 at 3:53 pm GMT by Jozef [Link to article]

The StarForce Mafia
From the "For Future Reference" department
A guy with two thugs walks into a small corner store and tells the owner: "You've got a nice small business running here. It would be a shame to see it destroyed, but if you pay me 5% of your sales every month, I make sure it ain't gonna hapen." The store owner catches the drift, and knows he'd better pay or the two thugs would trash the store, and break his legs in the process.

Another guy approaches a company and says: "You've got a nice product here. Too bad it will be copied by countless users and you'll never make a profit, unless you buy our technology to protect it." Most companies caught the drift. Some were even naive enough to think that this was a genuine offer to help. Unfortunately, as soon as one company refused to pay the protection money, the gig was off, and the Mafia thug was the first one to point out how to copy the product.

The pretense is now gone. What was once considered to be a company that was genuinely interested in fighting software piracy has now showed its true face. It is a group of thugs who will be very happy to encourage piracy if someone doesn't buy their product.
March 12, 2006 at 2:36 am GMT by Jozef [Link to article]

Selling used games is the most natural thing to do
From the "For Future Reference" department
The Guardian has recently published an article on the growing unease of the gaming industry with second-hand sales. The article has made its rounds on Slashdot and a few blogs. Basically, the video game industry is complaining that the resale of used games cuts into their profits. Instead of purchasing a shiny new game for $50, gamers wait a few days or weeks, and buy it second-hand from specialty stores or on-line. For full disclosure, I must admit that I’m one of the culprits: I am actively selling games I don’t want anymore through Amazon.com, and I’ve purchased most of my games in the same fashion.

The gaming industry is right to be worried about the second-hand sale of its products, just like any media content industry should be afraid of it. However, none of these industries has any right to prevent its customers from trading used content, at least not in the capitalist society such companies flourish the most. The market for a product is defined as the equilibrium between the demand and supply. There are folks who’d purchase a game for $50, but there are also those who wouldn’t pay more than $30. The amount of both groups and all people on the demand curve is what we call the elasticity of demand.

The elasticity of demand tells you how shoppers would react if the price changed in a certain fashion. For example, a perfectly inelastic demand for a product would yield no change in amounts sold, regardless of the price change. Basic staples or gas fit best into this category: no matter how expensive milk gets, on aggregate people would still purchase roughly the same quantities. On the other hand, highly elastic demand for product may actually work in favor of lowering prices, as every 1% drop in price would yield more than 1% growth in sales, thus increasing the overall revenues.

Elasticity of demand is a function of multiple factors. Considering video games, the most influential factors include the availability of substitutes, backward availability, portability and the product’s life span. There are plenty of substitutes for games; the most often mentioned ones are DVD movies. They cost on average $15, and in light of this number, especially if the content of the DVD is enhanced, people may perceive new games to be overly expensive. Thus, there may be fewer people willing to buy the game at its full price and more at a discount, flattening the demand curve.

The second factor, backward availability, is often underrated by industry observers. At a time when the vast majority of products are derivative works of an earlier product, such as sequels or remakes, the availability of the original works can undercut the sales of new products. For example, I have recently found out that my computer was not powerful enough to run the new Civilization IV. However, it is more than capable of running the original Civilization, and plenty of other games, thanks to specialized software. I have spent days replaying Settlers II, even though there have been several more modern versions of the game, and the same holds true with many other strategy, role-playing and action games. The fact that I can still play all these games and thus spread their cost over the years ($50 over 10 or more years becomes quite cheap), forces me to perceive their remakes as being too expensive at their current price.

The industry cannot do anything with either of those two factors. They are very well established in all industries dealing with any kind of demand curve, and they learned to live with it. However, the next two factors can be significantly affected in the industry’s favor, thanks to the digitization of data.

The first such factor is the portability of the product; in other words, the ability of the customer to resell the game. Various media industries deal with this issue in different ways, but always with the goal to limit or eliminate the portability altogether. For example, video companies want to legislate a so-called “broadcast flag”, which will prevent users from storing their recorded shows indefinitely or from allowing anybody else to watch certain shows. On-line music stores, on the other hand, use digital rights management software, which limits the number of copies a user can make, and usually doesn’t allow the user to resell the song to another user. Video game companies could also limit the portability of the games. In some cases, most notably with Valve’s Half Live II, they have already attempted to do so, by forcing the users to register on-line, and selling additional licenses if the user sold the game to another person. When this approach becomes commonplace is still an open question, as there is still a large market of people who aren’t connected to the Internet or are unwilling to have their usually better gaming computer connected to the Internet (I fall into this latter category).

The other factor the gaming industry can affect is the game’s life span. This is a delicate balancing act. In some cases, the replay value of games has been so large that all subsequent remakes suffered from their own old predecessors cannibalizing their sales. Such is the case of games like Civilization, Morrowind, Sid Meier’s Pirates! and more. On the other hand, very short life spans can have negative consequences for the given game. This is often the case of recent movie conversions and action games, which can be finished within a few hours. This not only creates negative word of mouth about the game, decreasing the number of people willing to pay the game’s full price, but also makes the game available much sooner on the secondary market. I am not a game designer, so I don’t know where the balance between the two extremes lies, or how to determine it, but I am sure there is one, as several highly successful series, such as Might and Magic, Wizardry and Warlords managed to attract significant demand with their subsequent titles.

All in all, I am not entirely sure how honest the industry is when it whines about second-hand sales of its products. As any other industry, it faces one of the most natural things in a market economy. However, this particular industry has the advantage that its content is digital, thus allowing for the creation of artificial barriers to second-hand trading. I believe that the industry executives work long and hard to find a viable solution, while putting on a sad public face, in order to gain some sympathy and justification for their efforts. Unfortunately for them, the worms have left the can, and the more they’ll try to suppress second-hand trading, the more will they face the problem of backward availability. With software already available to play older games on newer computers, putting any restriction on second-hand sales will just force a larger number of users to look for alternatives, and they’ll discover that they’d be able to play their already purchased older titles on their computers. As a result, even if gaming companies switch to the new paradigm, the number of additional customers they get may disappoint them a little.
January 24, 2006 at 2:28 am GMT by Jozef [Link to article]

Analyzing Cerner
From the "For Future Reference" department
A few days ago, Wall Street Journal has accused Cerner (CERN) of accounting irregularities. I’ve never heard of the company before, as it didn’t show up on my stock screener. However, the article, full of pointers to bad accounting practices has sparked my interest, so I conducted a quick and dirty analysis of the company. For that, I used only the company’s SEC filings, and yet a simple analysis has revealed so many red flags that I’d never end up investing in that company. This entry does not serve as a recommendation to purchase or sell the stock, only to show that such articles like the one in WSJ shouldn’t have to exist if the investors and investment analysts did their job properly and actually read annual reports.

For my analysis, I took the financial statements as reported for the past few years. I adjusted them by accounting only for recurring accounts, as they can be expected to grow in the future. I did so for the income statement, left the balance sheet unchanged and recalculated a new cash flow statement. The article mentioned possible creativity in creating the cash flows statement, which is why I recreated it myself.

In the next step, I looked at the company’s software capitalization methods. Cerner states in its annual reports that it expenses software after its technological feasibility is proven, and then it capitalizes it. While this is permissible under accounting standards, many companies, including Microsoft, never capitalize its software development costs (insert jokes about the technological feasibility of Microsoft’s software here). However, for an useful comparison for Cerner’s financial statements with other firms, I recalculated the company’s financial statements (in this case the income statement and balance sheet), as if it expensed all software.

Altogether, I found the following irregularities:

  • Software amortization period has been around 7.4 years over the past few years. The company claims an amortization period for software of 5 years, which by itself is longer than the industry standard, but in fact it amortizes only about 13.5% of its gross capitalized software cost every year. As a result, I expect a write-down of capitalized software soon, which will impact shareholders’ equity. To get in line with a 5 years amortization period, the company would have to write down a significant portion (I expect around $100 million) in capitalized software, which would result in a similar decrease in shareholders' equity.
  • The CFI profile of the company has significantly changed. Cash Flow to Income ratio is one of the best, yet much underused indicator for possible troubles in the analyzed company. Usually, one calculates it after adjusting the operating cash flow and income for non-recurring items, which is what I did, but I also used the numbers provided by the company. In both cases, the ratio has been below 1 until 2002; by 2003 it shot upwards significantly, and remained at roughly that level in 2004. This signifies that the company generates plenty of more operating cash flow than income. While this is quite possible, such a change comes gradually, not so suddenly. This has been achieved primarily by falling net income in 2003, the tightening in accounts receivable in 2003 and the loosening of accounts payable in 2004. Still, the level of change is highly disconcerting.
  • Free cash flow is negative. The first indication I got of this was when I ran a cash variance report, trying to see how much cash is being generated by the company’s growth. I found that discounting for changes in taxes payable and receivable, the company’s growth in 2004 has cost it $4,000. This is an immaterial amount, but stark in contract with the company’s $54.5 million reported free cash flow. Consequently, I recalculated FCF expensing all software and removing all non-recurring items.
  • The company is recognizing reimbursed travel expenses as revenue. Comparing older financial statements with new ones, I found that these show no gross margin at all. In other words, the same amount is included in sales and operating costs. This has only two effects: it inflates the company’s revenues and gross margins. While the increase in revenues is only 3.5%, I still took this amount out when recalculating the financial statements.
All things considered, I have recalculated the company’s net income, operating cash flow and all important financial ratios. I present my results in the two tables below. As you can see, the results are significantly worse, with the exception of the Return on Equity (ROE), which benefited from a lower equity numerator after taking away the capitalized software. I was not interested in this investment when I saw the reported ratios, and with the adjusted ones I will steer clear off Cerner.


Note: Per share ratios use Friday's share price and 2004 annual report financials, and are to be used only to illustrate the significance of differences between the reported and calculated financials.

That said, I do have a few positive things to report:

  • The company doesn’t seem to become too reckless in new customer acquisition. It has kept a growing allowance for doubtful accounts, both in absolute numbers and the percentage of sales. I always like to see that.
  • The company still looks healthy, just overpriced. In fact, adjusting the net income yielded positive income throughout the years, including 2001, when the company reported a net loss of $42 million, due to a non-recurring impairment of investments charge.
  • The company is very good at reporting. Despite the irregularities, I found the annual reports to be very informative, even fun to read. Cerner has been very diligent in reporting everything and went into such details as enumerating and dissecting all its acquisitions.
This article is serving only one purpose: to show what can be done with annual statements. I didn’t need any investment reports or news articles about the company; if it came up in my stock screener and I found it attractive enough, I would have done the same, hopefully with different conclusion. I would expect anybody who is willing to wager their own money in individual stocks and especially those who advise other investors to do the same.


December 18, 2005 at 9:22 pm GMT by Jozef [Link to article]

Katrina's blame game
From the "Propaganda'r'Us" department
Usually, I don't participate in blame games, and especially as they get old I tend to ignore them. Today, however, I came across an article where the author, a Michael Parenti blames free markets for the Katrina fiasco. This sounds like a pretty far-fetched thesis, and unfortunately the arguments aren't nowhere good enough to convince anybody. I've got the feeling that the author aimed the article at people who were already convinced and too blinded to see beyond the obvious lies he mentioned. Let me give you just a few examples:

They announced that everyone should evacuate. Everyone was expected to devise their own way out of the disaster area by private means, just like people do when disaster hits free-market Third World countries.

The city of New Orleans has an evacuation plan, which assumes the utilization of the city's busses. Instead of following the plan, however, roughly 550 of them remained parked and later flodded. It is not true that everybody was expected to leave the area by their own means.

The free market played a role in other ways. Bush’s agenda is to cut government services to the bone and make people rely on the private sector for the things they might need.

There is the federal budget, and the state budget. The federal budget is used for federal projects, financing federal institutions and pork barrel projects, while the state budgets should cover local project. At best, Louisiana representatives weren't too bright, at worst Louisiana spent the money for more useless projects. And anyway, why does the author wish that the Bush government was more involved in helping the needy, when he later professes his distrust of the government?

So he sliced $71.2 million from the budget of the New Orleans Corps of Engineers, a 44 percent reduction. Plans to fortify New Orleans levees and upgrade the system of pumping out water had to be shelved.

Louisiana Civil Corps is receiving an annual funding of $1.9 billion, more than any other state (California is second, with half a billion less). The corps wasted $748 million on building a useless canal lock, another $194 million for deepening a port that has been steadily losing traffic and deepening obscure canals, only to name them after the Congressmen who secured the money (such as the infamous J. Bennett Johnston Waterway).

In their campaign to starve out the public sector, the Bushite reactionaries also allowed developers to drain vast areas of wetlands.

Hmmm... I didn't know that President Bush was in power since 1930, when the wholesale draining of wetlands started. However, I'm quite aware of the fact that prior to Katrina, the Bush administration has asked Louisiana to devise a plan for restoring some portion of the wetlands, at a $2 billion budget.

As for the rescue operation, the free-marketeers like to say that relief to the more unfortunate among us should be left to private charity.
Wal*Mart, Home Depot and others certainly did a better job than FEMA. Maybe the author wanted more people to suffer, hoping for even lower ratings for President Bush. I hope that the author isn't one of those who would vaste hundreds of lives to further his political agenda...

Who was in charge of the rescue operation? Why so few helicopters and just a scattering of Coast Guard rescuers? Why did it take helicopters five hours to lift six people out of one hospital? When would the rescue operation gather some steam? Where were the feds? The state troopers? The National Guard? Where were the buses and trucks? the shelters and portable toilets? The medical supplies and water?

Ultimatelly, the governor of Louisiana. Because of new TSA rules. Ditto. Already did. Waiting for the governor to actually allow them into the state. Waiting for orders from the governor. Ditto. Flooded in New Orleans. Not in New Orleand, that's for certain; the emergency plans actually advised against using the Superdome as a shelter. At the shelters where the evacuees were supposed to go. The questions the author raised, as well as my answers, actually support the notion that free markets could do the job better. Because of conflicting authorities and governmental efficiencies, the rescue operation was botched, yet the author for some strange reason seems to want more of that.

I've never before heard of the Web site where the article was posted, neither about the author. As such, I will not pass a judgment on either. However, based on this single article, the author seems to be either confused, or having malicious intentions, which involve hundreds more dead, in order to advance is political agenda. That disgusts me. But what insults me is the fact that the author didn't bother to come up with arguments that would have at least a grain of truth in them, and instead tried to feed me childish lies. Shame on him.
September 25, 2005 at 5:13 am GMT by Jozef [Link to article]

Jim Crammer's Mad Money - A Scorecard
From the "For Future Reference" department
The other day, I was watching Mad Money on CNBC, when I noticed that Crammer has recommended Cypres Semiconductors. That company has been one of the most vocal opponents of options expensing, because the firm is a major culprit in abusing option compensation plans to inflate its earnings. Curious how other buy recommendations went, I checked their latest financial statements.

For my small experiment, I looked only at the recommendations from September 8, 2005. I only looked at the companies latest 10-Q, and there only at the financials, which is usually my first step when analyzing a company. I did not take into consideration the company stock price (and thus price-related ratios), nor did I look at the company's line of business. I was more interested in how transparent the company's financials were, and what was its liquidity position, two factors I consider very important for long-term investing. Here are my findings:

  • Lowe's - It's got very nice financials. Great liquidity, very low accounts receivable. Inventories are a little too high for comfort, but I still liked what I saw. Point for Crammer.
  • Hewlett-Packard - Receivables were a little too high, at roughly 1.5 months of sales. On the positive side, it has very low long term debt. Unfortunately, the company's net earnings fell recently, and on a pro forma basis HP actually posted a loss for the last quarter. Considering a dividend payout ratio of 142% (this includes stock repurchases), the company may need to cut out more repurchases if it doesn't improve its earnings. Crammer's enthusiasm is not justified, but it's not realy terrible, either.
  • Chesapeake Energy - The firm shows zero cash and equivalents, and relatively high long term debt. The former is a huge red flag for me; I would do a lot of extra research before deciding on this one. Point off for Crammer; back to zero.
  • Grey Wolf - Just turned profitable. Very good liquidity, despite relatively high receivables. This is deffinitelly an attractive company at first look. Crammer: +1.
  • Goodrich - Improving margins, but very high inventory levels and long term debt. Neutral.
  • Marvell Technology Group - Goodwill accounts for nearly half of the company's assets. Extremely high stock compensation causes the reported earnings to be cut nearly by half when restated pro forma. For me, this is a huge red flag. If I were to look at stock-related ratios, I'd adjust them accordingly; for example, I'd double the P/E ratio. Crammer: -1
  • Broadcom - Very nice liquidity position, with nearly no long term debt. However, very high stock-based compensation pushes the company into high pro forma losses, compared with slightly positive reported earnings. Yet another miss for Crammer; we're down to negative territory.
  • IntraLase - Very good liquidity, with strong cash position. However, the company also has strong stock-based compensation, but this doesn't seem to be reflected in pro forma statements. Deffinitelly a company that would require more time to research, when I run out of better picks.
  • International Paper - Net earnings are falling, and currently the company pays more in dividends than it records earnings per share. With telatively high long term debt and falling cash positions, I'd be afraid that the dividends could be cut soon. Crammer is at -2.
  • Sonic - Transparent financials, and a good financial position. Deffinitelly a company I'd research more; point for Crammer.
  • Wyeth - Transparent financials, good liquidity position, but high receivables. Still a company I'd look at. Crammer is back to zero.
  • BlueLinx Holdings
  • - Fast growing receivables, relatively high long term debt. Neutral.
  • Cypress Semiconductor - As I wrote before, this company is notorious for financing its revenues through stock options, which are not represented in reported net earnings. Pro forma earnings are always significantly lower than net earnings, which is even more unfortunate now, that the company began to record losses. Crammer: -1
  • Airgas - Very simple capital structure and transparent financials. Even though the company has relatively high long term debt, I'd still take a closer look at them, thanks to their simplicity in reporting. Crammer: 0
  • William Wrigley Jr - Relatively high long term debt, and the financials are not simple or attractive enough to care too much. Neutral.
All in all, Crammer's buy recommendations (with the exceptions of those that didn't file with the SEC) have left me neutral. Of course, a lot more care would have to be done before deciding whether the companies really represent attractive investments or not, but from my quick and dirty analysis I determined that Jim Crammer was completely harmless on September 8. If somebody invested in a portfolio of his recommendations, in a long run I'd expect them to break even.
September 13, 2005 at 3:46 am GMT by Jozef [Link to article]

In defence of Internet access
From the "Luddite's View" department
Once again, telecom companies are trying to convince the FCC that DSL service should be deregulated, and that they shouldn't be required to allow other DSL companies to use their lines. And once again, many people complain that with only one or two companies controlling Internet access to their homes, they could be prevented from viewing whatever they wanted. Those fears are no unfounded. After all, only a few days ago, the Canadian ISP Telus blocked over 700 Web sites it didn't like, including a breast cancer fundraising site.

However, I was never too concerned about these forms of corporate abuse. Once again, corporations ared behind the technological curve, and they don't realize that a few years from now wireline Internet will be obsolete, replaced by wireless. So it wouldn't matter anymore who controlled the last mile of data cables to people's homes. Unfortunately, some companies are catching up. Take Comcast, for example. It is pressuring the Boston Logan Airport to shut down a competing, cheaper WiFi service by Continental. As a Comcast customer, I must admit that so far I never had problems with their service (after I switched to a third-party DNS server), but this is a direct attempt at creating a local monopoly, in order to retain its higher prices. The only reason it's legal is that Comcast's wireless transmitter is on someone else's private property.

And this is where the next turf wars will take place. The power of wireless transmitters will be limited, so that competition cannot cover large areas. And with the criminalizing of using others' WiFi connections, soon we'll be limited once again to either the expensive Comcast of the barely working Bell South, at least in my area.
August 5, 2005 at 4:28 pm GMT by Jozef [Link to article]

Microsoft's pop-up blocker
From the "Luddite's View" department
For the past two months, I've been forced to use MSIE at work. It's not as bad as I feared; the last time I used it was years ago, when version 5.0 was quite new. The 6.0 version is surprisingly stable, even though it becomes quite the resource hog when a dozen or more windows are open, unlike Opera with its tabs.

One thing that drives me crazy, though, is the Microsoft pop-up blocker (with my current computer rights, I'm not able to disable it and install the Google Toolbar). Set at "Medium", the blocker is so dilligent that it even blocks everything from MS Sharepoint and MS Outlook Web Access, thus rendering other Microsoft services useless (in fact, due to these problems with Sharepoint, our office switched to Wiki). While I can disable the pop-up blocker for a certain Web page at the moment, doing so will reload the page, causing me to lose everything I've written. Microsoft did it once again - applied a concept already used by other companies, but implemented it so poorly that even its own products are suffering.
July 29, 2005 at 5:37 pm GMT by Jozef [Link to article]

Profit from deceit
From the "Hyde Park" department
Following the Grand Theft Auto saga, I came across the following statement from Congressman Fred Upton: "A company cannot be allowed to profit from deceit." At first, it struck me as incredibly ironic and hypocritical, to hear those words from a politician. Trying to dig out some dirt on Mr. Upton for the purpose of this entry, however, yielded nothing. The Congressman seems to have an exceptionally high work ethics, very consistent track record, and even a good record against government waste. While I may not agree with his record on voting against civil liberties whenever possible, at least he doesn't flip-flop, and stays his course. His only crime right now seems to be that he's in the same camp as Hillary Clinton, but that may be more a function of Mrs. Clinton being much more flexible when deciding what opinion she'd have on a given day. Still, the overall reaction stands: a member of Congress, no matter how ethical a person he is, should criticize companies for profiting from deceit. It's bad form not to show any professional courtesy.
July 26, 2005 at 6:09 pm GMT by Jozef [Link to article]

The incredible ESRB
From the "For Future Reference" department
in.cred.i.ble adj 1 too strange to be believed; unbelievable: an incredible idea/story/excuse -see also CREDIBLE
(Longman Dictionary of American English, 1983. P. 351)

Not that the ESRB had too much credibility to begin with, but today it lost all what remained. The video game rating agency has decided to re-rate Grand Theft Auto: San Andreas from "Mature" to "Adults Only". For those who didn't follow the story, this is what happened: A hack for the game, called Hot Coffee was released by an anonymous gamer. This hack, when installed, allowed people playing the game to have sex with their girlfriend (a movie of the action is available here). All politicians act enraged, and pressure the ESRB to change its rating of the game. ESRB does so, and says that Considering the existence of the undisclosed and highly pertinent content on the final discs, compounded by the broad distribution of the third party modification, the credibility and utility of the initial ESRB rating has been seriously undermined."

Now let's back up for a second. The Grand Theft Auto series started a trend of ultra-violent video games, where you play a street-level gang member. The game allowed to kill people, including prostitutes that the player didn't want to pay, and cops. Drug dealing and trafficking, robberies and carjackings were even more common. While some people blamed the game for real-life killings, the ESRB (and the majority of politicians) did nothing. However, as soon as a little skin is shown and the player engages in consensual sex with his girlfriend, quite possibly the only display of love in this violent series, everybody runs amok. It's good to know where people's priorities are...
July 21, 2005 at 3:48 am GMT by Jozef [Link to article]

On SORBS and e-mail blacklisting
From the "Luddite's View" department
When I was working in my old job, I was getting up to 200 spams per day. Being in no contact with clients, I was able to whitelist my employer's domain and block everything else, reducing the number of spams to nearly nothing. I was a great supporter of the strictest possible blacklists then, as smap was driving me crazy.

Now I find myself on the receiving end of my own wishes. I found that I got onto the SORBS blacklist, and I've been there for nearly a year prior to getting an Internet connection. My crime? Having a dynamic IP address.

No problem for me. People who use a blacklist that blocks me don't deserve to receive my mail. Unless it's an institution that has me as a client, and whom I pay for good customer service. Such as Tatra Banka, one of the largest banks in Slovakia, where I have a business account. Today, after a series of bounced mails, I gave them a choice: their mail server is not big enough for the two of us. Either me or SORBS will go...
July 19, 2005 at 3:12 pm GMT by Jozef [Link to article]

Sysiphus
From the "Random Ramblings" department

At that subtle moment when man glances backward over his life, Sisyphus returning toward his rock, in that slight pivoting he contemplates that series of unrelated actions which become his fate, created by him, combined under his memory's eye and soon sealed by his death. Thus, convinced of the wholly human origin of all that is human, a blind man eager to see who knows that the night has no end, he is still on the go. The rock is still rolling. I leave Sisyphus at the foot of the mountain! One always finds one's burden again. But Sisyphus teaches the higher fidelity that negates the gods and raises rocks. He too concludes that all is well. This universe henceforth without a master seems to him neither sterile nor futile. Each atom of that stone, each mineral flake of that night filled mountain, in itself forms a world. The struggle itself toward the heights is enough to fill a man's heart. One must imagine Sisyphus happy.

Albert Camus, The Myth of Sysiphus
July 8, 2005 at 3:47 pm GMT by Jozef [Link to article]

The box office and the lawyers
From the "Random Ramblings" department
Copyfight has an article on the sad state of movie box office sales this year. The article mentions some of the reasons, which I consider to be very valid: the comparably strong year last year, and fewer movies released this year.

Copyfight is not alone noticing this problem the movie studios are struggling with. Business Week, in a recent cartoon, blamed the box office slump on the number of sequels, remakes or new twists of old themes, which the movie theaters seem to be choke full of (speaking of new twists, the one that starts today - War of the Worlds - seem to be one of the weirdest ones I remember). However, the cartoon does not address why we have so many sequels and derivative movies.

The next person who blames the lack of creativity in Hollywood gets smacked in the head. Over the years, Hollywood has proven to have highly creative people, and that's not anything that can change from day to day. True, the innovative spirit may be a little weaker than it used to be, but not as bad as the recent movies seem to indicate. The real problem are the Hollywood lawyers. IP protection has been abused by them for so long, that not even their own employers, Hollywood studios are safe from them anymore.

Not so long ago, movie studios could steal an entire movie, without consequences. That's no longer true, though, and even non-intentional infringments on copyright (and thanks to J. D. Lasica's Darknet we know now that even tiny excerpts or coincidental resemblance of existing movies now fall into this category) can spark a lawsuit. As a result, movie studios are scared of producing original movies, out of fear that someone else may have already had the same idea. As a result, we see largely movies that are based on the studio's existing intellectual property (sequels, remakes), are based on narrowly defined IP of a person/company who grants the movie rights (comic-based movies), or are based on IP that's in public domain (War of the Worlds). While the last category can produce some great results (I personally still wait for somebody to take on Gustave Flaubert's Salammbo), the vast majority of new movies falls into the previous two categories.

So in the end, Hollywood is suffering by their own weapons. Too bad that it will continue blaming movie piracy, and thus further priming the gun that keeps shooting in its foot.
June 29, 2005 at 5:34 pm GMT by Jozef [Link to article]

Losing my patience
From the "Random Ramblings" department
So my editorial on how game companies are trying to rip you off has finally made it from the print version to the Web.
March 25, 2005 at 10:22 pm GMT by Jozef [Link to article]

Hacking iTunes
From the "Luddite's View" department
DVD Jon is at it again, this time possibly as the front-end of an effort to hack iTunes, so that Linux users can legally purchase music from iTunes. Even though this hack removes the DRM copy prevention from the files, the fact that the hack cannot be exploited to get free music plays in favor of Jon's software.

I do believe, however, that unlike DeCSS, the PyMusique is a very misguided effors.

The difference between DVDs and iTunes is that the former operates on the basis of local monopolies, while the latter is merely a distributor. The DRM and region codin of DVDs is implemented at the publisher's end, not by the distributor. As a result, there is no alternative legal source to acquire the DVD of a particular movie; instead, cracking the DVD scrambler was the only solution. One may claim (and I personally share this opinion) that if you are unwilling to abide by the publisher's rules, you shouldn't purchase the DVD, but Jon and others have a strong argument claiming that few DVDs mention the required operating system to run.

iTunes, on the other hand, is only a distributor. You can get the same songs from other sites as well, and these sites seem to be competing not only on price, but also on licensing. Napster, for example, lets you only rent the music. Microsoft claims that its music service would allow the songs to be played on all mp3 players. The iTunes site states that it would work only with certain versions of Windows and Mac OS, and thus Linux fans can't claim ignorance. Instead of breaking the code, they should simply look for another site, which allows them to download music. And trust me: there are sites that legally do so.

The only valid argument in favor of cracking iTunes is that the songs would only play on Aople's mp3 players; a fact that is not readily available on the iTunes web site. However, this is a matter for the courts, not for vigilante hackers.
March 24, 2005 at 8:01 pm GMT by Jozef [Link to article]

© Jozef Purdes, 2003