10-10-06 This Bear is Bullish on the Revolution.
Good Evening.
Throughout the 1970's and early 1980's, IBM was the dominant player in computer technology. Their architecture was based on mainframe technology that used a hierarchical approach. Corporations had no choice but to purchase very expensive, oversized mainframe computers that provided the brains on a token-ring network, sending data out to "dumb" terminals on each user's desktop. Applications were rigid and the end user had very little customized computing power at their disposal. Eventually this archaic model was replaced with a distributive architecture in which powerful desktop PC's acted as servers and could be connected to each other through Ethernet Networks, local area networks ( LAN), and eventually wide area networks ( WAN). This gave birth to the early internet super highway model.
Digital Equipment Corporation (DEC), was the original champion of the distributed architecture model that went head to head with the embedded hierarchical IBM method of computing. Ultimately, as telecommunication companies expanded their networks by allowing efficient robust digital communications on "POTS" (plain old telephone lines), the distributive methodology of computing became the more dominant model of which the world shares interconnectivity today. Broadband further enabled developers to create sophisticated applications that further enhanced the functionality and our dependence of computer technology on all of us. In essence, the old hierarchical top down (mainframe-dumb terminal) IBM model was largely replaced by peer to peer computing solutions in which the processing power was brought directly to the individual desk tops.
Peer to peer (PC) computing was indeed a revolution that took IBM by surprise with the speed of adaptation by society. After all, the IBM mainframe model was the standard, as IBM was also considered pound for pound, the best corporation and stock out there. Few would argue today that IBM has since become just another player in a universe of more innovative technology companies that have become household names in their own right. The lesson here is that, no methodology is so entrenched where it cannot be improved displacing the leader, either completely or significantly enough as to relegate the originator as antiquated.
In analyzing the GOOG/YouTube deal, your friendly neighborhood Kcap Team is further reminded as to why we are long term Bullish in Technology land. That's right, we said Bullish, despite all of the growling we have been doing over the past month. Remember, Bullishness and Bearishness is a function of time frame and we hold different views for numerous times ahead. Regular readers of Kcap will know that we fully expect the NASDAQ to be led by Large Cap Technology stocks of the 1999 variety over the next couple of years, eventually bringing the index very close to all time highs. However, a few short term obstacles remain in the way of the market that are of enough significance to be avoided, hence our near term Bearish outlook. We will not discuss those obstacles in this post since we have recently done so. We will however mention that if the explosion of a Nuclear weapon from North Korea (which did not have any negative effects on the stock market) doesn't signal complacency from Investors than what does? We had been recently writing about how the current issues will slowly flip to the dark side and they seem to be doing so. Unfortunately the stock market has yet to take notice.
Back to GOOG. The broadcast television industry, much like the music industry, and IBM of old, has had a nice monopoly for generations. They have force fed entertainment, told us what to think, provided the expertise, and all types of content that we live by. Their business model has had the benefit of monopoly power much like a Big Brother concept and they cleaned up with advertising dollars as we were spoon fed many poisons. Strategically placed or just plain out lucky individuals have gained celebrity status in our society as all knowing, full of wisdom, untouchable, reliable gurus. Never mind that many people we watch every day on T.V. don't know any more than you and I on numerous important issues that they speak so authoritatively on. Never mind that nepotism or the like has placed them in their role as "King Pin" monopolizing the media. We simply have no other convenient vehicle to obtain our virtual face to face information and our entertainment as easily as the broadcasters are able to deliver.
The "Googlenet" has provided a new model based on search that allows everyone to find anything about anything. Imagine, further enhancing search functionality with excellent video content on any subject that you choose to inquire about. Better yet, imagine a system developed in which every person in the world with a computer and built in video cam could be a sought out expert in their own right on whatever subject matter they excel at or hold major credentials in. They would be able to "put themselves out there", perhaps publicly ranked by users who have engaged them or from another respected organization and offer informative video content for applicable searches done by other end users. This content that they deliver could be boiler plate clips or further enhanced with scheduled live direct interaction between searcher and new found guru. The gurus (all of us) would be celebrities in our own right further allowing everyone the ability to profit handsomely from regularly offering expert advice or opinions. Enhanced or paid interactive searches could be charged to the end user through PayPal type technology and the revenue can be shared between the content provider (guru) and the facilitator of the exchange, namely GOOG in this example.
The GOOG guys are revolutionary in their thinking and have no doubt considered their ability to revolutionize how all society interacts with each other as far as content deliver versus the statusquoi television broadcast methodology. Buying YouTube for $1.65billion is a drop in the bucket when considering the dramatic changes that Google may invoke in how we all interact in this increasingly news worthy competitive world. Oh, and by the way, the traditional broadcasters who own today's content that they have been shoving down our throats all of these decades are in "deep doodoo". No content owner regardless of size and scope will be any match for the power of distributive video search at the individual level on any subject, at any time, from anybody, through search technology. Even customized peer to peer on demand entertainment will soon replace the broadcasted formula (same old same old) that we all endure for lack of better alternatives.
The horse power needed to provide these applications and infrastructure is available today and will certainly benefit companies such as Goog, MSFT, CSCO, AKAM, and other well financed technology companies that understand the most crucial element of all: large profits will not come to the companies who own the most content such as Disney or Time Warner, but instead to the best enablers of communication that facilitates the transfer of high quality interactive text and video content ( the content that resides in each and every one of us).
In the not too distant future, expect to see many people making a fine living in front of their computer or mobile device offering real-time advice or information to anyone in the world who asks for their expert experience. Remember, everybody is an expert in something and all of us can learn from anyone. Imagine easily being able to offer your own expert experience to anyone in the world by simply scheduling a certain amount of time during the day to field incoming inquiries or to reach out to others. Video applications allow for a warmer interaction then e-mail or instant messaging and would further the use of peer to peer electronic communication. Heck, you may even be able to video chat with a high profile elected government official for a couple of expensive minutes (that he or she may or may not charge) about what you think of a critical issue. We all have a lot to offer in some regard and future applications of GOOG/YouTube is only the beginning of tapping into further recognizing what each and every one of us has to offer. The days of the untouchable "Big Brother Broadcasters" are numbered. Interactive video communication with the ability to search for relevant information and expertise is the revolution.
If You Held a Taser to Our Head:
Having said all of the above, we must unfortunately put our Bear suit back on and remind you of the short-term risks that are inherent in the U.S. Financial Markets. Longer term players may ask why we would be concerned at all about short term volatility especially considering our mega Bullish views explained above. Unfortunately, money managers can have clients remove their assets at any time, managers are compelled to eliminate short-term volatility as much as possible. Therefore, since the recent rally in the markets seems to be commencing on performance anxiety alone we are concerned as we head into the heart of earnings season with an economy that is going through a transformation.
After the bell, AA has further added to the beleaguered MU, NSM, MRVL recent reports by offering worse than expected "slow down news" of their own. Expect more of this in the next few weeks in the guidance from most companies whether or not they meet current quarters earnings. Additionally, notice how the wrong sectors from earlier in the year are starting to attract bottom fishers (which certainly isn't too promising at this juncture). Specifically the Housing Sector, Oil Stocks and Gold are showing signs of improvement that might steal the show yet again from the recent large cap winners over the past month. Hence, we are building back more exposure into the beleaguered Energy and Gold sectors and continue to short Semiconductors whenever they lift their head.
This will be our last post until early next week.
Worry, but be happy! ___________________________________________________
The analysis, opinions and/or forecasts expressed on the Kcap Trading Blog (âKTBâ) are for informational purposes only and should not be relied upon in making investment decisions. By using this site you agree that Kleiner Capital Management, LLC (âKCAPâ) and its principals are not liable for any action you take or any decision you make in reliance on any content. Please be aware that there is no commitment by KCAP to update the KTB. Furthermore, there may be inconsistent timing and follow up (if any) of posts.
None of the information on KTB is considered individualized investment advice and should not be construed as a recommendation or solicitation to purchase any securities. Reliance on information provided on KTB in no way establishes an advisor-client relationship. Investors are encouraged to seek the advice of a qualified investment professional prior to investing funds.
Clients of KCAP, as well as the firmâs principals and other employees, may be invested in securities discussed at KTB. However, any mention of said securities is not intended to influence market conditions for the security to the benefit of KCAP clients and/or principals and employees. KCAP is not affiliated with any advertisers on this site and does not endorse any of their content. For additional information and disclosures, please visit www.kleinercapital.com.
The information on KTB has been furnished from sources we consider to be reliable, but no guarantee is made with respect to accuracy.
___________________________
Throughout the 1970's and early 1980's, IBM was the dominant player in computer technology. Their architecture was based on mainframe technology that used a hierarchical approach. Corporations had no choice but to purchase very expensive, oversized mainframe computers that provided the brains on a token-ring network, sending data out to "dumb" terminals on each user's desktop. Applications were rigid and the end user had very little customized computing power at their disposal. Eventually this archaic model was replaced with a distributive architecture in which powerful desktop PC's acted as servers and could be connected to each other through Ethernet Networks, local area networks ( LAN), and eventually wide area networks ( WAN). This gave birth to the early internet super highway model.
Digital Equipment Corporation (DEC), was the original champion of the distributed architecture model that went head to head with the embedded hierarchical IBM method of computing. Ultimately, as telecommunication companies expanded their networks by allowing efficient robust digital communications on "POTS" (plain old telephone lines), the distributive methodology of computing became the more dominant model of which the world shares interconnectivity today. Broadband further enabled developers to create sophisticated applications that further enhanced the functionality and our dependence of computer technology on all of us. In essence, the old hierarchical top down (mainframe-dumb terminal) IBM model was largely replaced by peer to peer computing solutions in which the processing power was brought directly to the individual desk tops.
Peer to peer (PC) computing was indeed a revolution that took IBM by surprise with the speed of adaptation by society. After all, the IBM mainframe model was the standard, as IBM was also considered pound for pound, the best corporation and stock out there. Few would argue today that IBM has since become just another player in a universe of more innovative technology companies that have become household names in their own right. The lesson here is that, no methodology is so entrenched where it cannot be improved displacing the leader, either completely or significantly enough as to relegate the originator as antiquated.
In analyzing the GOOG/YouTube deal, your friendly neighborhood Kcap Team is further reminded as to why we are long term Bullish in Technology land. That's right, we said Bullish, despite all of the growling we have been doing over the past month. Remember, Bullishness and Bearishness is a function of time frame and we hold different views for numerous times ahead. Regular readers of Kcap will know that we fully expect the NASDAQ to be led by Large Cap Technology stocks of the 1999 variety over the next couple of years, eventually bringing the index very close to all time highs. However, a few short term obstacles remain in the way of the market that are of enough significance to be avoided, hence our near term Bearish outlook. We will not discuss those obstacles in this post since we have recently done so. We will however mention that if the explosion of a Nuclear weapon from North Korea (which did not have any negative effects on the stock market) doesn't signal complacency from Investors than what does? We had been recently writing about how the current issues will slowly flip to the dark side and they seem to be doing so. Unfortunately the stock market has yet to take notice.
Back to GOOG. The broadcast television industry, much like the music industry, and IBM of old, has had a nice monopoly for generations. They have force fed entertainment, told us what to think, provided the expertise, and all types of content that we live by. Their business model has had the benefit of monopoly power much like a Big Brother concept and they cleaned up with advertising dollars as we were spoon fed many poisons. Strategically placed or just plain out lucky individuals have gained celebrity status in our society as all knowing, full of wisdom, untouchable, reliable gurus. Never mind that many people we watch every day on T.V. don't know any more than you and I on numerous important issues that they speak so authoritatively on. Never mind that nepotism or the like has placed them in their role as "King Pin" monopolizing the media. We simply have no other convenient vehicle to obtain our virtual face to face information and our entertainment as easily as the broadcasters are able to deliver.
The "Googlenet" has provided a new model based on search that allows everyone to find anything about anything. Imagine, further enhancing search functionality with excellent video content on any subject that you choose to inquire about. Better yet, imagine a system developed in which every person in the world with a computer and built in video cam could be a sought out expert in their own right on whatever subject matter they excel at or hold major credentials in. They would be able to "put themselves out there", perhaps publicly ranked by users who have engaged them or from another respected organization and offer informative video content for applicable searches done by other end users. This content that they deliver could be boiler plate clips or further enhanced with scheduled live direct interaction between searcher and new found guru. The gurus (all of us) would be celebrities in our own right further allowing everyone the ability to profit handsomely from regularly offering expert advice or opinions. Enhanced or paid interactive searches could be charged to the end user through PayPal type technology and the revenue can be shared between the content provider (guru) and the facilitator of the exchange, namely GOOG in this example.
The GOOG guys are revolutionary in their thinking and have no doubt considered their ability to revolutionize how all society interacts with each other as far as content deliver versus the statusquoi television broadcast methodology. Buying YouTube for $1.65billion is a drop in the bucket when considering the dramatic changes that Google may invoke in how we all interact in this increasingly news worthy competitive world. Oh, and by the way, the traditional broadcasters who own today's content that they have been shoving down our throats all of these decades are in "deep doodoo". No content owner regardless of size and scope will be any match for the power of distributive video search at the individual level on any subject, at any time, from anybody, through search technology. Even customized peer to peer on demand entertainment will soon replace the broadcasted formula (same old same old) that we all endure for lack of better alternatives.
The horse power needed to provide these applications and infrastructure is available today and will certainly benefit companies such as Goog, MSFT, CSCO, AKAM, and other well financed technology companies that understand the most crucial element of all: large profits will not come to the companies who own the most content such as Disney or Time Warner, but instead to the best enablers of communication that facilitates the transfer of high quality interactive text and video content ( the content that resides in each and every one of us).
In the not too distant future, expect to see many people making a fine living in front of their computer or mobile device offering real-time advice or information to anyone in the world who asks for their expert experience. Remember, everybody is an expert in something and all of us can learn from anyone. Imagine easily being able to offer your own expert experience to anyone in the world by simply scheduling a certain amount of time during the day to field incoming inquiries or to reach out to others. Video applications allow for a warmer interaction then e-mail or instant messaging and would further the use of peer to peer electronic communication. Heck, you may even be able to video chat with a high profile elected government official for a couple of expensive minutes (that he or she may or may not charge) about what you think of a critical issue. We all have a lot to offer in some regard and future applications of GOOG/YouTube is only the beginning of tapping into further recognizing what each and every one of us has to offer. The days of the untouchable "Big Brother Broadcasters" are numbered. Interactive video communication with the ability to search for relevant information and expertise is the revolution.
If You Held a Taser to Our Head:
Having said all of the above, we must unfortunately put our Bear suit back on and remind you of the short-term risks that are inherent in the U.S. Financial Markets. Longer term players may ask why we would be concerned at all about short term volatility especially considering our mega Bullish views explained above. Unfortunately, money managers can have clients remove their assets at any time, managers are compelled to eliminate short-term volatility as much as possible. Therefore, since the recent rally in the markets seems to be commencing on performance anxiety alone we are concerned as we head into the heart of earnings season with an economy that is going through a transformation.
After the bell, AA has further added to the beleaguered MU, NSM, MRVL recent reports by offering worse than expected "slow down news" of their own. Expect more of this in the next few weeks in the guidance from most companies whether or not they meet current quarters earnings. Additionally, notice how the wrong sectors from earlier in the year are starting to attract bottom fishers (which certainly isn't too promising at this juncture). Specifically the Housing Sector, Oil Stocks and Gold are showing signs of improvement that might steal the show yet again from the recent large cap winners over the past month. Hence, we are building back more exposure into the beleaguered Energy and Gold sectors and continue to short Semiconductors whenever they lift their head.
This will be our last post until early next week.
Worry, but be happy! ___________________________________________________
The analysis, opinions and/or forecasts expressed on the Kcap Trading Blog (âKTBâ) are for informational purposes only and should not be relied upon in making investment decisions. By using this site you agree that Kleiner Capital Management, LLC (âKCAPâ) and its principals are not liable for any action you take or any decision you make in reliance on any content. Please be aware that there is no commitment by KCAP to update the KTB. Furthermore, there may be inconsistent timing and follow up (if any) of posts.
None of the information on KTB is considered individualized investment advice and should not be construed as a recommendation or solicitation to purchase any securities. Reliance on information provided on KTB in no way establishes an advisor-client relationship. Investors are encouraged to seek the advice of a qualified investment professional prior to investing funds.
Clients of KCAP, as well as the firmâs principals and other employees, may be invested in securities discussed at KTB. However, any mention of said securities is not intended to influence market conditions for the security to the benefit of KCAP clients and/or principals and employees. KCAP is not affiliated with any advertisers on this site and does not endorse any of their content. For additional information and disclosures, please visit www.kleinercapital.com.
The information on KTB has been furnished from sources we consider to be reliable, but no guarantee is made with respect to accuracy.
___________________________
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posted by Kleiner Capital Management, LLC. | 8:09 PM
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