Hello Martin

“I don’t make movies to make money — I make money to make movies.”

- Walt Disney

Is the Delta/Northwest merger good?

“One of the sites i love to follow is FareCompare.com” - Ali Veshi

You couldn’t make this s*it up
WSJ profile of the American Apparel founder:

Mr. Charney’s penchant for outspokenness could also prove risky. In an interview March 20, Mr. Charney said his current chief financial officer, Ken Cieply, “has no credibility” in the retail apparel industry and is a “complete loser.”

Yeah that’s healthy when you are the CEO of a public company…

He’s not done yet…

By the middle of 2006, Mr. Charney began looking for ways to boost his finance staff. He offered an $800-a-week internship to Adrian Kowalewski, a recent University of Chicago business-school graduate who had briefly spoken with Mr. Charney about an academic paper the month before. Mr. Kowalewski’s task: to devise a plan to save the company’s deteriorating finances.

I’m all for offering young people chances to…

Mr. Charney found himself at the center of four lawsuits from former employees, all alleging sexual harassment. One was dismissed and two others were settled out of court.

Yeah that surely adds some excitement for stockholders, my god man your rich and live in LA, how hard can it be to pick someone up…

American Apparel’s March 17 filing contains 15 pages of risk factors

Yeah that’s definitely more than your average public company….

Can’t wait to see what’s next
(Inspiration of post from Marc Andressen)

So this week proved to be rather hard on US Airlines. Aloha Airlines had to shut down after being in operation for more than 60 years, ATA airlines, SkyBus and champion Air (charter only) followed suit. The major excuse was rising fuel costs, and low cost airlines competing in the same markets.

So before i go further, i’d like to take a look at the rising fuel cost first.

Oil has obviously been hitting unprecedented levels compared to previous levels (with inflation accounted for, which peaked at $104 Dec 1979), March represented the first month ever with a continuous closing price of over $100. What’s interesting regarding Oil prices is that lately more and more researchers have been crediting the continous high price of oil primarily due to speculation in Oil rather than demand. That makes more and more sense, US is the largest consumer of Oil, consuming around 25% of all Oil used on a daily basis (but only representing 4.8% of the world population). China have had a surge of increased Oil use, both on a commercial (manufacturing) and Personal (people buy cars), however China’s largest export partner is the US. However due to the strenghening Yuan compared to the Dollar, China has seen a slowdown in growth the last few months compared to previous quarters, since Chinese manufactures can’t raise their prices to offset the weakening dollar, and compete with other countries where their currencies might be tied to the dollar.
Since US is coming in to a possible (i.e) recession, there should be a slow down in the use of Oil. A US recession will hit china’s growth hard considering the huge export, Walmart for instance gets around 80% of their products from China (Another reason i don’t get why American’s say there should be taxes on products from China… they would only shoot themselves in the foot). Businessweek ran a story this issue regarding how many manufacturing plants had to be shut down due to the rising cost of labor, Oil and currency. China will be fine in the long run, since the alternatives can’t stack up, India and Vietnam are the 2 most used examples, Vietnam works in the short term, but due to the size of the country, relative wealth will spread quickly and drive up salaries, India is different ballgame, but the infrastructure isn’t as well established as in China.

So this means that the largest economy on earth will see a major slowdown, which should effect Oil, and the largest growing economy on earth will see a major slowdown in their growth due to the issues in the US, not to mention as previous post pointed out the increase in food prices will slowdown the “luxury” items in China, which a Car currently qualifies as.

The above is all well documented but if it will change the pricing of Oil, i don’t know.
Common sense says the use of Oil should drop or stay the same though.

So back to the Airline business, most Airlines hedge their fuel costs to a certain extent to be able to project costs. Southwest most famously pays $49 per barrel for 65% of their Fuel in 2008. Obviously a fantastic deal for them, hedging fuel has not always been a large part of running an airline, but have been used more and more the last few years due to the high volatility of fuel prices.

Ryanair’s hedge just ran out which increased their fuel cost with an estimated $400m, impacting the highest profit margin in the industry (around 20% net margin, Gol, AirAsia are, 2/3d).

2007 was a stellar year for the Aircraft manufactures though, Airbus delivered 453 planes, whilst Boeing came close second with 441. And a record 1413 aircraft where ordered from Boeing, and 1341 from Airbus. The airline industry was delivering their first profit statements since 9/11 and the market for aircraft both on the buy and lease side was dried up, and drove up the pricing of especially the leasing market.

With the 4 Airlines going out of business this week, a total of 78 Aircraft was given up. That’s a lot of aircraft, especially in a market like this. SkyBus on top of their 12 Airbus A319 Aircraft’s which is most likely the most lucrative planes of all the one’s that’s becoming available due to being almost brand new and a popular plane for low-cost airline operators (EasyJey and Virgin America as two examples), also had a staggering 63 aircraft orders to Airbus (Worth at list price $3.7 Billion).

So where am i getting at, i think someone should start an Airline.
Someone called me crazy for the thought, primarily for starting an Airline in the current fuel market, but just as Southwest was called crazy for hedging their fuel costs in the start of 2000, i think someone can hedge their lease cost of aircraft and hope that fuel costs goes down (Worth pointing out though that fuelcost is a larger operating cost for airlines, than the dry aircraft cost). But still, i hope someone is willing to take the risk, and jump to setup a new airline. Maybe a new low cost airline from Dubai to Europe or Asia (Relatively low cost of fuel, compared to western world).

David Neeleman the founder of JetBlue, announced he would setup a new low-cost airline serving Brazil, he seems to have settled on using Embraer 195. So that removes the possibility of him using the newly available aircraft’s since they primarily Boeing planes.

Anyway end of the rant, do i think someone will start a new airline, not really, do i think it would be fun if someone did. Yep, do i realize the huge risk involved, probably not, but hey that’s why there is crazy people with crazy money out there.

“Let me put it this way, I voted against the bill because I didn’t want to make it harder for people to buy milk” - Gov Barltet, discussing why he voted against a increase in price of milk - As a reference that In 2006, The poverty rate for minors in the United States was 21.9% - highest child poverty rate in the developed world

Which leads me some articles that have been published lately.
Maize (Corn), Rice and Wheat are the 3 largest food sources in the world, producing close to a combined 2 Billion metric ton a year.

Hence when pricing changes for any of these crops, it has a gigantic effect on the world population at large, and especially poor people, far more so than the changing of oil prices (which is a luxury product). Oil prices do affect the prices of Maize primarily due to Maize being used for Ethanol, and due to the increased price of Oil, a larger amount of Ethanol is used and subsidized, where you have a larger margin than on Maize used for Food. Hence the maize is more lucrative to sell for energy purposes than for food consumption. So the cycle of Nature comes to play.

The New York Times had a great article on the possible impact on the increasing price of rice. Depending on location, the price of rice has increased heavily during the last year or so, and the pricing inflation far surpass any GDP growth of any country in the world.

That made me worried enough, knowing the enormous power Rice has in Asia.
Rice stands as the premier food source for around 3 Billion people on earth, so the slightest price change has a massive effect. The president of the World Bank, estimated that 33 countries in the world, faced potential social unrest primarily due to the increase in food prices.

Then i read that the price of Corn had surged almost 30% this year.

Maize/Corn being a huge part of the nutrition for people in the Americas, Corn is used primarily as food for livestock in the US, and due to that the developed world will see an increase in the price of meet.

I have no idea where it’s heading, but it’s certainly not heading somewhere good.

“Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food” -Universal Declaration of Human Rights

New york times has an article on what looks to be a deal between Live Nation and Jay-Z which would lock him for a long period on several sides of the business.

The sum thrown around is $150 Million, which would make it one of the largest ever deals in the music industry for talent, this would be the third high profile deal Live Nation has signed in the last few months, after snatching Madonna over from Warnerbrothers, and signing on U2 for their future merchandise and concert offerings.

Live Nation’s stock have been taking a hit, and a lot of analysts is striking down their effort in trying to grow in to a serious publisher (well serious they are already, but move in to the big 4 i guess). All i can say is that i love it, Live Nation is taking the jump on acquiring talent at a huge cost (Sucks being a public company in their case i would say) - But taking the risk, saying by acquiring some of the best talent in their industry, hoping that secondary talents will follow. I agree with their views that the price for acquiring real unique talent, is almost never to high. Live Nation might come out at the top or bankruptcy, i doubt they will stay in the middle of anything, all i can say is i hope it goes well, because i love the risk they are taking (again sucks being public company, and have to make that jump with stockholders, but still)

They even knew it back in the old days:

“If you can talk with crowds and keep your virtue,
Or walk with kings–nor lose the common touch”

Rudyard Kipling, If - 1895

Nope, not another “analysis” of the deal really, but some quick thoughts:

- M&A Would take a big dip for next 2-3 years.
Had dinner with Michael Montgomery yesterday, first thing he pointed out was that MS and Yahoo are 2 of the most common bidders for web companies, i know Yahoo is pretty much ALWAYS in the mix for web companies, so would be quite a blow. Time to get back on horse would be a while, considering integration would be 12 months or more, then another 12 months to find out where things have gone wrong and how they can patch it together by buying someone to fill the gap. IHT have a story on it today to.

- Search monetization wouldn’t increase hugely.

Why? Google receives a very large part of their search revenue from non US operations, both MSN and Yahoo are not market leaders in any region (well except Japan in Yahoo’s case) - And Yahoo’s Contextual program is still only available for US based companies/people.

- People are stuck with Google
Maybe i’m very much biased here because i know the back end technology a lot better, and understand how to structure a query to get the result i want. But i think people who use google currently will be stuck with it, and even though it’s a much simpler switch than say from Windows to Mac Os, i still think it will be hard to win over current users.

- News Corp and PE firms make an offer, would be very interesting.

Why, well according to a US piece by a analyst, Yahoo sits on a lot of, off balance sheet assets, if News Corp could get someone to pick these up, so strip company of all “non media/ad assets” they could probably get in the range of something doable combined with some PE money, another issue though would be whom to run that unit, my suggestion is Omid Kordestani, but i guess it would be hard to tear him away from Google and his 3$ billion or so, very nice guy and seems incredibly smart.

Yahoo’s Off-Balance Sheet Assets:

Jeff Lindsay’s Yahoo valuation, as relayed by Eric Savitz at Barrons:

He calculates the total value of the company’s non-operating assets at $13.24 a share: $6.48 a share for the Yahoo! Japan stake, $3.13 for its share of Alibaba.com, $1.07 for its Alibaba Group stake, 8 cents for its share of GMarket (GMKT), $1.99 a share in cash, and 49 cents a share in net operating loss carryforwards. That leaves the value of core Yahoo as of last night’s close at just $10.85.”

- Yahoo used to own quite a bit of google shares, 8.2 Million to be exact

Yahoo settled a patent dispute with Google back in 2004, regarding serving contextual ad’s depending on a search query. They got another 2.7 Million shares for that, today that looks quite little. But if Yahoo had held on to those shares, at closing time they would have been worth a bit more than $4.2 Billion, which would have been more than 10% of Yahoo’s Market Cap.

- Yahoo/MS would be world leading on IM and E-mail
Just to bad you don’t make any money off that…
But would be interesting if News Corp bought Yahoo, and then bought Skype…

This article made me really happy

Nytimes - Mosquito Nets and a New Drug Make Sharp Inroads Against Malaria

Dr. Arata Kochi, chief of malaria for the W.H.O. “If this is done everywhere, we can reduce the disease burden 80 to 85 percent in most African countries within five years.”

About 1-3 million people die yearly due to Malaria, most of whom are children, and even though this is not a huge step forward from a medical point of view, it’s still a huge win!

Marc Andreessen  not only seems to be very sharp, but i can’t but help laughing at quite a few of his posts.
I read this on the flight over to NYC from europe, and it was the second time, and i just read it again, and even though it’s a sad story overall, his take on it is enormously funny. He should have been a writer for The West Wing.

Headline of the day, killer tiger edition

    Mollinedo said the ”moat” contained no water, and has never had any. He did not address whether that affected the tiger’s ability to get out.Interesting.

“The implication here is: had the tiger been able to walk on water, it would have been able to escape much more quickly, had there been water in the moat. Or something.”

One part of his quote reminds me of a very funny man, and one of his jokes:
“Moses, who said when the Red Sea parted, “What the hell was that? I was just going in for a dip!”Never got a dinner!”

I’ve been reading The Ikea Way, and lessons from the book have popped up on an almost daily basis.
The basis of Ikea as a company have always been to design functional and “good” looking furniture for the every day person, at a reasonable cost primarily by removing the middle man. This is obviously the dream for most businesses that produces any type of goods, control the entire flow (Ikea didn’t want to control the availability of wood/manufacturing but had to buy Swedwood in the end to ensure delivery capacity).

One industry that is moving faster than it has since the first mass produced product was released is looking more and more to be the Car industry, you have your giants based out of Detroit and Japan. For Detroit based businesses it seems like it’s all going downhill, and i am not sure how they will turn their faith around. Japanese businesses are steaming ahead, and Toyota is set to take the throne as the biggest producers of cars in the world this year. The innovation in the car industry is happening primarily in two categories.

1. Electric cars - You have small new companies that are focusing on using new battery technology to achieve a extremely “energy” saving way of moving forward.

2. Cheap cars - having spent considerable time in China, and also in India and Asia overall you have a thirst for cars, the number of cars being bought in Asia is on a stunning growth curve, obviously the GDP is growing and purchasing power is getting higher, but still far away from that of a western country.

I was reading this New York Times piece on “taking a whack at making a car” the other day, not that it was one of the top pieces i’ve read this year at Nytimes, but it was still interesting. I thought there was one quote in the article that was a bit amusing:
“David Cole, chairman of the Center for Automotive Research, an industry-financed research group in Ann Arbor, Mich., said there was little chance that a start-up could succeed in creating a car for the mass market. The entrepreneurs’ optimism, he said, reflects ignorance of manufacturing costs, regulatory hurdles and intricate technical challenges involving heating, ventilation and safety.”

David Cole might be completely right what do i know, but Cars are made in a reasonable similar way to how they have been made for a very very long time, which brings me to another nytimes piece discussing innovation - One of the largest problems from my view with large corporations is that it’s hard to get innovation through all the way, which is really why start ups exist in some markets.

Also how well David Cole know the cost of production in countries like China and India i do not know, i remember speaking to a friend who runs a apparel factory a bit outside Hong Kong, he told me they had done research and discovered if they factory in towards the middle of China by 100 miles each 10 years, they could continue to pay the same salaries for the next 100 years (adjusted with inflation).

So that brings me to the enormous human powered capacity that exists to create cheap vehicles in these countries, what’s left at cost would be the cost of material which due to the fast growth is however going up.

Which brings me to the point of the Ikea Way - There is currently cars that are very close to arriving on the public market for a lot less money that what is currently out there, primarily the car Tata is set to launch next month that will cost around 2500$ in the Indian market. Being a big fanatic of cars there is only one question left having seen a lot of the so called “cheap cars” that will revolutionize the market.

Why do they have to be so UGLY?
Every year there is ton’s of car shows where car manufactures and design companies (pininfarina etc) show new concepts, a large part of them don’t look all that good, but every year there is a couple that stand out, just as there is ready made templates out there for most designing, i ask myself, why these start ups and large companies taking a shot at a huge market simply don’t buy an existing design that have received good reviews?

Below is an example of 2 cars, one is a concept that was never made, the other one is in production.

Can you guess which one is designed by a manufacturer trying to create a cheap car?

And obviously people in India will like a different look to the people in Sweden, but overall there is almost always points in a design that can be used for different markets and then have it modified slightly depending on market. But as Ikea to have shown is that Design can be “nationless” - The same sofa/bookcase/coffee table/bed etc that gets sold in US also gets sold in Sweden and China.

So i am very exited to see how 2008 will turn out for the car industry, i am not saying it’s easy to make a car, but i believe we will see it being turned around within the next 2 years, now all that’s left for the chinese/indian manufactures is to fly in someone who used to work at Volvo to get the safety working, and someone from BMW so it feels like a quality machine and they should have a good shoot at grabbing piece by piece of the worldwide market.

If you are interested in some examples of cars that are targeting the lower end of the market you can view a slideshow at businessweek (Accompanying article)

PS. can someone please make a lightweight SUV for US market so soccer mom’s can stop polluting the air, lighter car = less pollution. The average US car lets out 4 times the pollution as the average car, and it’s twice as bad pollution wise as the average Chinese car! According to Nytimes piece americans want BIG and powerful cars… how come BMW can squeeze out more power from a 2 liter engine than GM can from a 6 liter one… must just be lack of innovation on GM’s side.

PS2. Andy Grove, Co-founder at Intel spoke about innovation in this Portfolio piece - Where he suggested “Or as my email to Immelt urged, it could be G.E. building an electric car and taking on the energy industry. These are companies big and powerful enough to solve intractable, industrywide problems and produce lasting change.”

I don’t think that’s a bad idea either.

2007 was A LOT ligther than 05/06, better sort myself out for next year.
- Miles flown: 78216 miles
Countries visited: 5
Flights: 31

So now all continents have been taken care of (except north/south pole).

This is just priceless, was fun to try and find all schedule matches.

“Then Norman Borlaug comes along. See the problem was wheat is top-heavy. It was falling over on itself and it took up too much space. The dwarf wheat… guys, it was an agricultural revolution that was credited with saving one billion lives. “

In his Nobel Lecture speech he said:
“When the Nobel Peace Prize Committee designated me the recipient of the 1970 award for my contribution to the ‘green revolution’, they were in effect, I believe, selecting an individual to symbolize the vital role of agriculture and food production in a world that is hungry, both for bread and for peace”

(Somehow i came to think about Dr Borlaug yesterday, can’t remember why, but certainly worth giving credit to)

Had an email this morning:

“
Hi Guys,

Just looked up my inbox of 10/09/06 (see below) - and got a tiny bit emotional.

Wow - it’s been exactly a year that we launched our Zecco.com baby - which is live and kicking as never before!”

The launch date was an interesting one for me to, considering it was part of being woken up at 6 am after going to bed 2 hours earlier, to run through the streets of Barcelona to get hold of my laptops which i had dropped at a friends place only to be yelling on the phone for 3-4 hours, but it all turned out alright in the end.
(Full story will be told at the Case study once it’s sold for billions)

I congratulate the guys in California, i hope they continue to do well, it’s by far the funniest team i have ever worked with, dutch humor is hard to beat i have to say, and when you mix it with Scandinavian craziness it only becomes breathtakingly funny!

FareCompare was featured on CBS Evening News today, you can watch it here

A 86 year old, turns down $1 Million: “Money doesn’t matter”

Stories like this makes me happy and i hope a lot of people pick something up from the story

I have been watching the VLJ Market closely (That’s Very light jet) - My friend thinks they will just drop down from the sky (And to his favor, he’s an engineer and flies jets all the time), DayJet have started flying their eclipse’s for commercial service now, so it’s really the start of a new era in the commercial private-jet market. I just found out that a company started by a former American Airlines CEO just filed for IPO - The filing is here

You can see a good comparison of different VLJ’s here

It will be very interesting to see how the market reacts to the IPO, and what % will be institutional versus private. Also noted in the filing that Tiger Partners invested, happen to have a meeting there on Tuesday so will try and find out their views on the market

Picked up the topic at Curbed LA - Is an interesting discussion.
With the current meltdown in the mortgage market (Foremost people with bad credit) the question pops up if Rent will go up or down due to it.
So far it seems people think rent will continue to go up, mostly due to the people not being able to cover their mortgage and hence moving in to a rental instead.

There is very very few people i consider to be heroes of epic proportions, but anybody who can make any childs life better is one, it’s simply a pretty extravagant gift to mankind at large

“Have I managed to brighten up one single miserable childhood then I’m satisfied.” - Astrid Lindgren