Will Have to Suffice

I don't know about you, but when it comes to cleaning commodes, a free MP3 download is the paramount consideration. One can just imagine the marketing strategy discussions for this toilet-bowl cleaner: sure, killing bacteria and sudsing action are nice, but what will really close the sale is the Free Song from unmistakablyclean.com.

Well, the strategy worked with me. After the purchase, I went to the music website even before I scrubbed the toilet (twist my arm!) but was discouraged by all the registration information that had to be typed in.

Feel free to use the typed-in code for yourself, dear reader, I'm not using it.

So this will be another decision I may regret: I turned down a free song from country music star Jo Dee Messina. 2000 flushes will have to suffice.

Barron's: Making Another Call, But We'll Pass

In last week's cover story Barron's proclaimed that Facebook shares, which had closed that Friday at $22.86, were worth "perhaps only $15". FB shares promptly fell on Monday. (They did recover nearly all their losses later in the week when Facebook announced a new Gifts-to-friends product, which was not part of the Barron's piece.)

On 9/28 Facebook closed at $21.66, down 5.25% from the previous Friday.

Emboldened by last week's success, Barron's makes another call--this time bullish--on another widely followed company [bold added]:

Based on the likely outlook for capital-markets activity and Goldman [Sach]'s ability to continue growing its book value, it is easy to conclude that the shares could rise at least 25% within a year.

From Friday's close of $113.68, Barron's foresees GS popping to about $142. That target doesn't seem particularly aggressive in that it is well short of Goldman Sachs' peak in 2011:

Barron's does make a persuasive argument. Goldman's conservative market cap (90% of tangible book value), its deleveraging since the 2008 financial crisis, and the 1.6% dividend yield indicate a stock with little downside and much upside, given its leadership position in currently moribund global capital markets.

Goldman Sachs has long been on our watch list but we have never pulled the trigger. The financial sector is one of politics' favorite whipping boys, and Goldman is its most prominent player.

Barron's is probably right about the 25%, but we're just as likely to get that return in tech, commodities, and hard assets without as much headline risk. Pass, for now. © 2012 Stephen Yuen

Stuck in Stockton

Braden celebrates the perfect game with his grandmother.

Oakland Athletics pitcher Dallas Braden, best known for pitching a perfect game on Mother's Day two years ago, has finally had enough of the crime plaguing his bankrupt hometown, Stockton, California.

“Arm yourself or get out,” he told CBS Sacramento. “It’s the wild west. The boys in blue, they’re outgunned.”

Despite Stockton’s lack of glamor, Braden has long lived and commuted to Oakland from his home there. But in recent weeks, the city’s infamous crime problem forced Braden to reconsider. He says his grandmother was robbed and he himself was nearly carjacked by a man who tried to forcibly pull him out of his vehicle. Braden was livid during and after the [anti-violence] meeting, stopping to vent more of his frustration with the media in the video clip above.

The situation is so bad that Stockton’s famous son has decided that he can’t stay there any longer.

“I’m out of here because I’ve been lied to my entire life here, and I hate to see these people get lied to like this,” Braden said. “I’ve already put my home on the market. I’m out.”

Most people who live in Stockton aren't millionaires like Dallas Braden and cannot up and leave. (The inability to move from bad neighborhoods is one of the causes of poverty, argues Megan McArdle.)

Stockton City Manager Bob Deis pleas for understanding. Unlike businesses, Stockton doesn't have the option to liquidate.

Simply dissolving the city and selling all assets to pay creditors isn't an option, since we have to continue providing services to residents. [snip]

We are the 10th-most violent city in America. Rates of violence are increasing by double digits, with our murder rate on track to surpass last year's record of 58 murders. We have the second-lowest police staffing levels in the country for a large city, and often Stockton Police can respond only to "in-progress" crimes. Oakland, a nearby city with similar crime challenges, has 44% more police officers per capita. With high poverty rates and gang activity, we cannot turn our back on public safety due to creditor pressure.

Stockton will require extraordinary leadership to get back on a sound financial footing and still provide basic services to its 300,000 residents. With the flight of prominent residents like Dallas Braden, the task is nigh impossible. © 2012 Stephen Yuen

Moon River

His Christmas specials and most popular song, Moon River, are the headline citations in remembrances of Andy Williams, who died on Tuesday.

Like Andy Griffith, Andy Williams is the second long-lived celebrity named "Andy" to leave the scene in recent months. Although both remained in the spotlight into the 21st century, their signature moments were from the black-and-white era.

The passing of Andy Williams has given us another occasion to celebrate the Sixties--not just the decade of social turmoil, war, and assassinations--but also the pre-1964 cool of JFK's Camelot-on-the-Potomac, the Rat Pack, and Mad Men.

Breakfast at Tiffany's, the 1961 movie for which Moon River was composed, had a profound influence on American fashion and catapulted Audrey Hepburn to the top rank of Hollywood stardom. Interestingly, though Moon River became identified with Andy Williams, the version that won the Academy Award was sung by the untrained voice of Audrey Hepburn.

Personal note: the Ted Sax radio show played Moon River as its introduction, so I heard it nearly every day long before I saw the movie with which it is associated. In the 1960's Ted Sax had the second most popular radio show in Hawaii, behind J. Akuhead Pupule. Ted Sax died in 2000; his son, Larry Beil, is a sports anchor on ABC7 in San Francisco.

The version of Moon River that Ted Sax used is sung by the Henry Mancini chorus:

© 2012 Stephen Yuen

No Imagination

The Economist's recent Intelligent Life special issue examined the familiar question, What's the Worst That Can Happen? Positing the worst outcome often helps us make important individual decisions, such as whether to take a new job, buy a house, get married, or have children.

But here the Economist is taking the big picture, i.e., what is the worst that can happen from humanity's point of view? Six writers answered the challenge with essays on

Famine

War Between U.S. and China

Erosion (of values and connection with the real world)

Fear

Africa Unfulfilled, and

Imagining the Worst (a cheap meta-answer, in my humble opinion).

The above scenarios lack imagination in that "worse" events can indeed happen. In none of these is humanity's very existence threatened (although life would be far more miserable).

Personally, I am worried about and would have listed an extinction-level event such as a collision between Earth and a large asteroid. At this time in history we would be defenseless, even if we had months of advance warning. There is no nuclear-missile shield, nor do we have the capability of launching enough escape vehicles into space to ensure mankind's survival.

Where Fellowship Thrives

Elisabeth, UCC-Belmont, slices the roast.

As we did in March and May, volunteers from four congregations gathered to lend a hand to three Peninsula families in need of food and shelter.

Home and Hope, now in its eleventh year, is a group of 31 churches and synagogues who have banded together to help displaced families, who are housed for two-week periods at churches with sleeping accommodations. Guests spend the day at work, school, or Home and Hope's office-and-day-care facility in Burlingame. A van provides transportation for those who don't have cars or who are unable to take the bus.

I always try to volunteer on the same night that Diane brings a dish. Tonight she had slow-roasted a pork tenderloin, and its fragrance was wonderful as I entered the kitchen. I dropped off the dessert and left reluctantly. Normally I would stay for dinner, but this time I was recovering from a virus and didn't want to risk passing it on (though the doctor said yesterday I was no longer infectious).

At dinner the point of view is that of people sharing a meal together, not of one group serving food to another group. Fellowship, as we used to call it, is a term that has fallen into disuse. At Home and Hope fellowship still thrives. © 2012 Stephen Yuen

Not Feeling the Burn

Science continues to answer the important questions: an Illinois physicist explains why tomatoes in chicken soup burn the tongue, while other vegetables* do not:

Tomato chunks have a thick outer wall of plant material around a watery interior....the tomato insulates its interior water, keeping it hot. It's a tiny edible thermos.

But wait, that's not all. When bitten, the tomato's liquid bursts through all at once, magnifying the sensation of heat.

Most vegetables are inefficient heat-delivery systems. They're mostly solid all the way through, which means you have to mash them up to spread that inner heat around your mouth. But a tomato's liquid interior doesn't need slow chewing and mashing. As soon as a tooth punctures it, it explodes its insides all over the interior of your mouth, flame-thrower style.

Ready in 30 min with a pressure cooker.

I like tomatoes, but not in chicken soup.

(*Tomatoes are technically fruits, and there's something fundamentally wrong about putting fruits in soup.)

My favorite recipe calls for leeks, onions, carrots, celery, salt, and, of course, chicken. A big pot of soup provides a nutritious, low-calorie meal for two or more days Accompanied by pasta, rice, or bread, chicken soup sans tamates is plenty filling.

And you don't have to worry about burning your tongue.

In Time for Christmas

If Congress and the President are unable to reach agreement by December 31st, automatic spending cuts and tax increases for 2013 will kick in and likely send a weakened economy off the "fiscal cliff." Such an outcome is still disbelieved by commentators under the assumption that politicians may be partisan but not suicidal.

We're not as sure about the wisdom of politicians and their crafting of a last-minute compromise. One consolation of this sorry situation is that cash-rich companies can't assume that compromise will be reached either.

Goldman Sachs foresees a wave of special dividends before year-end.

Goldman cites a well-capitalized corporate America that’s flush with cash, with gross non-financial cash rising by 55% since 2007. The looming expiration of tax cuts implies that dividends will be taxed as ordinary income, meaning at a rate of up to 43.4% from today’s 15% level. With the rates set to rise, Goldman says it sees increased potential for liquidity events [i.e, special payouts to shareholders] ahead of the change.

This makes sense. Most companies do try to act in the best interests of their shareholders, which include the decision-makers in boardrooms and executives suites. If you're fortunate enough to hold some dividend-paying stocks, count on some extra cash in time for Christmas. © 2012 Stephen Yuen

Lowered Outlook

We were skeptical of Facebook's valuation last February. We knew that the $38 per-share IPO price was too high.

However, at some lower price we would get in because of Mark Zuckerberg. As we wrote in May,

If Mark Zuckerberg has just a fraction of Jobs-like genius--which I think he does possess--then Facebook is cooking up a few (pleasant) surprises that no one outside the company is expecting. If the price falls to $25 I'll be interested, and at $20 I'm definitely a buyer.

But I didn't buy FB, even when it dropped to $17.55. I've had to adjust my sights downward because of a lowered growth outlook, caused specifically by FB's inability to glean advertising dollars from consumers' shift to mobile. Barron's said today that Facebook shares are worth $15:

At its current quote [$22.86 at Friday's close], Facebook trades at 47 times projected 2012 profit of 48 cents a share and 36 times estimated 2013 earnings of 63 cents. Compare that with Google and Apple, two proven technology growth stories, which both trade for about 16 times estimated 2012 earnings. Facebook is valued at $61 billion, or $53 billion excluding its estimated $8 billion in cash. That's more than 10 times estimated 2012 revenue of $5 billion. Google trades for half that valuation.

What are the shares worth? Perhaps only $15. That would be roughly 24 times projected 2013 profit and six times estimated 2013 revenue of $6 billion, still no bargain price. Wall Street's consensus estimate for 2013 shows earnings rising 31%, to 63 cents a share.

If the above explanation is confusing, just focus on the two numbers circled in the "Current Year" column:

Earnings per share are expected to grow from 43 cents in 2011 to 49 cents in 2012. The six-cent increase represents a 14% growth rate. A good rule of thumb is never to pay a price-earnings multiple that is more than two times the growth rate (in other words, the so-called PEG ratio should be two or less). $0.49 [2012 EPS estimate] x 28 P/E = $13.72. In that light Barron's $15 is defensible.

If one believes that the projected 2013 EPS of 63 cents is reasonably solid, then one should probably buy Facebook even at Friday's $22.86. Paying 36 times earnings ($22.86/$.63) for a company growing at 31% is a value proposition. The price should settle in the mid- to high-30's, and the fact that it's not that high shows that most people don't believe the projections either. © 2012 Stephen Yuen

Farewell Flyover

Foster City at 10:40 a.m.

Joining thousands of other Bay Area residents this morning, I spent a few moments gazing upward. The Shuttle Endeavour circled over the Golden Gate and headed south on its final voyage to the LA Science Center.

Like other farewell tours, the flyover was a tribute to past glory, not the promise of future greatness. What we said about the passing of Neil Armstrong last month applies equally to the cessation of American manned space travel:

The accomplishments of Neal Armstrong and the other Apollo astronauts grow more astonishing as their deeds fade in time, and sometimes I wonder what happened to the civilization that produced them. R.I.P.

Chronicle photo

Left by the Side of the Road

Hard to miss a turn with Apple's Maps

Apple's new-product releases introduce technologies that become industry standards. Nearly as significant are the technologies that Apple stops supporting along the way. Apple was one of the first to discontinue built-in floppy disk drives, then optical drives, on its computers. Steve Jobs provoked a furor when he explained "why we do not allow [the widely used Adobe] Flash on iPhones, iPods and iPads."

The iPhone 5, set to be released on September 21st, has at least two "left behind" features amidst all the cutting-edge hoopla. The iPhone 5 has a new connector that doesn't work with ancillary equipment built for the iPod, iPad, and old iPhone. Some Apple customers have to spend thousands of dollars upgrading or adapting their equipment.

Google Maps has more detail.

But the most criticism seems to have been reserved for the abandonment of Google Maps in favor of Apple's own Maps application.

The criticism poured in world-wide as users of the new maps found misplaced labels for businesses and landmarks, cities with missing roads and erroneous features like a fractured river in Ann Arbor, Mich. A search for the Golden Gate Bridge yielded a marker roughly four miles away in San Francisco.

Apple has a history of gauging just how much inconvenience its customers are willing to tolerate without jeopardizing sales of its latest offering. I suspect this controversy will blow over as well, especially as Apple Maps is improved in later versions of the operating system.

Note: Google Maps is far from perfect either. Yesterday a colleague had a meeting at NVIDIA headquarters in Santa Clara. He typed in the address, 2701 San Tomas Parkway, Santa Clara, and Google Maps sent him to a location north of Highway 101.

If he had just typed "NVIDIA," Google Maps would have steered him straight. He would have exited south from Hwy 101 and gotten to the meeting on time.

© 2012 Stephen Yuen

Trip-trapping Across Their Bridge

While crossing the Golden Gate Bridge several years ago, I was in the wrong lane. I couldn't get to the booths on the far right to pay the $6 cash toll, nor did my car have a FasTrak device that would pay the toll electronically.

I went through the FasTrak lane and circled back to the Bridge administrative office. They wouldn't take my money, and I had to write several letters to pay the toll and expunge the $30 fine.

It will soon get even more confusing for the infrequent bridge-crosser. In five months there will be no way to pay the toll with cash:

Come February, the only options for drivers will be signing up for FasTrak, opening a pay-as-you-go license plate account, or making a one-time payment before the transit district mails a bill. [snip]

All-electronic tolling was approved in 2011 as a way to help close a projected $89 million five-year shortfall, a number that [spokeswoman Mary] Currie said Tuesday had been reduced to $66 million after changes were made to workers' pension and health care plans.

Implementation of the program will cost $3.2 million and is expected to save the district $19 million over an eight-year-period by eliminating toll workers, Currie said.

I'm all for government operating more efficiently, even if that means some jobs will be lost. In this case, however, efficiency means a significantly degraded service, a service which everyone must use because there are no feasible alternatives. Drivers who don't wish to open an account, prepay a toll, or mail in a check have no choice. It's the bureaucrats' bridge, not ours. © 2012 Stephen Yuen

What Does It Mean to be Poor?

Business writer Megan McArdle reflects on the question by examining whether poverty is measured by consumption or by income [bold added].

When you look at what people are consuming, you don't see the gross material deprivation that really used to characterize being poor, like lack of hot water, regularly having no food in the house, shivering yourself to sleep in the cold, or wearing patched (or worse, unpatched) clothes. Younger poor people quite frequently have things that older non-poor people consider nonessential luxuries, like cable or satellite television, expensive sneakers, and high-end cellular phones.

Every middle-class person knows someone who is technically "poor" as measured by income, but who drives a better car, wears nicer clothes, or has a more exciting night life than one's own. It's tempting to subscribe to the viewpoint that success or failure in life is their own fault:

...poor people are not so much lacking in money, as lacking in the self-discipline to spend their money wisely. This view is reinforced by the fact that a lot of immigrants do arrive here with even less than the native poor, often don't qualify for supplemental benefits that cushion the deprivation of the native poor, and nonetheless after a generation or two end up quite prosperous.

And yet we also know hard-working individuals of character who have fallen on hard times through no "fault" of their own. The catalyst that began the descent could be a divorce, the loss of a job, caring for a sick parent, the death of a breadwinner, or poor health. It seems impossible to craft a wise poverty program that will address each of the "eight million stories in the naked city".

Megan McArdle thinks that people often remain poor because they are trapped in bad neighborhoods:

People with impulse control problems, mental illness, drug and alcohol addictions, are very, very disproportionately likely to end up poor.....So even though these people remain a minority in poor neighborhoods, poor neighborhoods nonetheless have a lot more of them than more affluent communities...

More importantly, poor people have to put up with it, because they have a limited number of other neighborhoods to choose from, most of which have the same constellation of problems. If a gang moves into a middle class neighborhood and starts terrorizing the residents, either the cops take care of it, or the middle class people move. If it happens in a poor neighborhood, well, where are you going to go?

It's hard to see how we will ever have enough resources to make most bad neighborhoods safe, especially given local government budget constraints.

One more thought: poverty is more about the future than the present. When I was going to graduate school, debts exceeded my assets, and I had no income. Yet no one then would have thought to call me poor. Roll that same financial profile forward 40 years however, when productive years are largely in the past, and that would be a snapshot of an impoverished person by anyone's definition.

So here's what we're left with. Poverty is more about personal behavior, secure neighborhoods, values, and probable futures. If those all are aligned, money will take care of itself. © 2012 Stephen Yuen

Why Your Internet is Slow

Aging Routers

A big part of the problem, experts and industry executives say, is that most Americans have older routers whose maximum theoretical speed is 54 mbps. Those provide "real world" speeds far below the fastest wired broadband speeds offered.

Too Many Users

Jim Waddle, a 47-year-old molecular biologist in Dallas, ran into trouble with his AT&T Internet once his family—including a wife and three kids—grew to have five computers, five iPhones, three iPads, an Apple TV and two high-definition TVs.

On a typical evening, he could be engaged in remote sessions from his labs while his wife accessed medical records, his son did online gaming, and his other two children watched iTunes shows off the Apple TV or clips off YouTube. "The connection was dropped all the time; it was driving me crazy," Mr. Waddle said. He fixed the problem by buying about $400 of Apple Inc. devices that enhance the in-home wireless connection.

Photo from Slugyard

Nesting Birds

The same [cellphone] towers Sprint is rigging with high-speed wireless technology to compete with Verizon Wireless and AT&T Inc. are a favorite nesting spot for ospreys. The big fish-eating raptors favor high perches with a clear approach—exactly what network engineers look for when putting up cellular sites.

Construction at 700 Sprint sites has been delayed. The birds are protected under the Migratory Bird Treaty Act of 1918. It's surprising that Internet companies didn't do a better job of lobbying Woodrow Wilson....

A Journalist With Integrity

ABC's Jake Tapper is one of those rare reporters whose political leanings are a mystery to even long-time viewers. In today's This Week he reveals how he removes the temptation to take positions, much less promulgate them.

Question: Who are you going to vote for?

Jake Tapper: The truth is, I don't vote in races I cover. After I became a reporter, I found that, after I voted absentee ballot on a race I covered, it felt like I made an investment, and it was an uncomfortable feeling. So while I believe an active voting public to be vital to our Republic and I revere voting, I don't feel as though I can do the best job I can bringing you fair and impartial coverage of politicians if I feel in any way invested in those politicians.

Now, other reporters feel differently, and I in no way judge that. I'm not trying to be holier-than-thou. This is just my personal view.

Flashback to a post from four years ago, comparing the professions of accountancy and journalism:

Keeping their distance and independence is a must for CPA’s if they are to maintain trust and a reputation for integrity. Some accountants violated that trust during the go-go tech boom and Enron / Worldcom scandals. In order to save the profession, accountants had to reassert the guiding principles of independence and integrity. You don’t see auditors standing up and cheering at shareholders meetings.

In my idealistic youth I thought about a career in journalism. Woodward and Bernstein (of Watergate fame) were my heroes. They pursued a story that brought down an administration. Yet they didn’t make up facts; if information could not be verified, they left it out.

Today the profession of news journalism has lost its way. Opinion has leaked beyond the editorial pages to the rest of the newspaper. “Newsmen” publish unconfirmed rumors that support their stances and ignore inconvenient facts that don’t. Outside the office, they openly display their political preferences; there’s no attempt to maintain even the appearance of objectivity.

We may or may not be better off than we were four years ago. There's no question that the state of journalism, however one measures it, is worse. © 2012 Stephen Yuen