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Day Trading Makes a Comeback (whoopee!)

Tuesday, September 30, 2003 | 08:46 AM

They're back.

The Wall Street Journal notes that the day traders have returned. Not in the same size and scope as during the bubble heyday, but in sufficient force to prompt Fidelity to cut trading prices to just $8 per trade for its most active clients (240 trades per year or more).

Not quite a contrary indicator, but certainly a warning sign.

I do not believe this has much value as a specific market timing signal; However, it an ominous dark cloud on the distant horizon. For those who consider the Macro environment, this is yet another important sign that all of the speculative excesses has yet to be wrung out of the markets.

Here's an excerpt:

Fidelity -- one of the nation's biggest discount brokers as well as the largest mutual-fund company -- reported 59,976 average daily trades in August, up 16% from the same month the year before. Two big rivals, Ameritrade Holding Corp . and E*Trade Group Inc., have both announced recently that trading activity in September is up 30% or more from August.

Fidelity said Monday it would cut the commissions on stock and options trades almost in half for those who trade at least 120 times a year. Those customers will pay only $8 a trade. Fidelity's best commission rate was previously $14 and available only to customers that traded 240 times a year or more . . .

Analysts say that day trading correlates strongly with the technology-focused Nasdaq Composite Index, which is up 64% since hitting bottom last October. Charles Biderman, chief executive officer at TrimTabs.com Investment Research, says much of the quick buying and selling is focusing on the same sorts of technology and Internet stocks that populated accounts during the late 1990s. Starting in 2000, many of those investors lost fortunes, and many of the firms that egged them on have now shut their doors.

Day Trading Makes a Comeback And Brokers Vie for the Business
http://online.wsj.com/article/0,,SB106487814397200100,00.html
by John Hechinger and Jeff D. Opdyke
Staff Reporters, The Wall Street Journal

Tuesday, September 30, 2003 | 08:46 AM | Permalink | Comments (0) | TrackBack (0)
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Oligopoly

Monday, September 29, 2003 | 10:56 PM

Kevin Laws (by way of Tim Oren's Due Diligence) raises some very interesting issues regarding the music industry, and questions of monopoly and profitability.

I disagree with Kevin's take on the matter; Here's my counter argument:

The music industry is not a Monopoly -- but it is an Oligopoly. The five major labels control the vast majority of musical acts and capture over 90% of the consumers money spent on recorded music.

Nor are artists monopolists: Consider the 90% number mentioned above: How far down the artist roster will you have to go to reach that 90% of consumer dollars spent on recorded music, or concert appearances or both? We know the Rolling Stones do big touring and bring in a lot of dough; So does Paul McCartney. But if you go down the list of total dollars spent on the musical entertainment, you wont reach the 90% level until you have included 100s of artists. Hence, no monopoly.

Kevin also wonders why music companies aren't wildly profitable? There are several reasons:

First, as mentioned above, they are not monopolies; They are a loose cabal of price fixing companies who recently came to learn a very basic law of economics: Increased prices = decreased demand. Shockingly, its taken them about 5 years to figure this out.

Secondly, broaden the sector where the industry competes from the narrow music to the broader category of entertainment. Suddenly, music has a serious fight on its hands for each and every discretionary consumer dollar. Music is battling against cable and satellite and film and tv, against internet and print, against video games -- both local playstations, and massive multiplayer games over the net. Sports are another form of live entertainment taking a hefty chunk of consumers time and money. The gambling industry takes their piece also.

Demand is quite elastic for their product; Their products are not like cigarettes or gasoline or heroin; Raise the price or lower the quality or both, and Voila! Sales tank.

All these reasons help explain why Music aint all that profitable -- and thats before we even begin to analyze how effective management is at the 5 big labels; I suspect we would find that most of the companies in the industry are not particularly well run or efficiently managed. They lack innovative ideas or creative responses to challenges. They have been slow to adapt to new technologies. They do not respect their clients. They have not shown they understand artists.

Lastly, the music industry is married to a film industry model. Film production involves a large budget, limited output of production; Studios release a relatively small number of films and hope for a few big movies each year. The big labels base their marketing on long-term stars who release multimillion-copy blockbusters. One album that sells 10 million copies is more lucrative than 10 that sell 1 million. They certainly arent prepared for a 500 bands selling 20,000 copies each, yet thats where the music itself wants to go . . .

Here's a rundown of 2002's Top 10 live acts, according to Pollstar:

1. Paul McCartney, $103.3 million
2. The Rolling Stones, $87.9 million
3. Cher, $73.6 million
4. Billy Joel/Elton John, $65.5 million
5. Dave Matthews Band, $60.1 million
6. Bruce Springsteen & the E Street Band, $42.6 million
7. Aerosmith, $41.4 million
8. Creed, $39.2 million
9. Neil Diamond, $36.5 million
10. The Eagles, $35.4 million


Sources:
Music Industry Structure: Why Madonna Never Complains
Due Diligence, Guest blogger Kevin Laws

Concert Cash: Forget CD Sales the Real Money for Hot Acts Is in Concert Tours
By Peter Kafka, Forbes.com

Hit Charade: The Music Industry's Self-Inflicted Wounds
by Mark Jenkins, Slate.

Monday, September 29, 2003 | 10:56 PM | Permalink | Comments (2) | TrackBack (1)
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Seasonal Weakness Arrives at Last

Monday, September 29, 2003 | 02:37 PM

After a nearly uninterrupted six month run, the markets’ momentum finally faded last week. The combination of the dollar weakening, crude strengthening, and a smattering of pre-announcements, or just the September/October blues were a handy excuse for a bout of profit taking; As observed last week, any ole’ excuse would have sufficed – the markets simply became tired and needed to digest a bit before their next directional move.

Seasonality is a double-edged sword that cuts both ways. The good seasonal news is that 3Q window dressing is here, and many institutions will be protecting bids to defend their gains before the quarter ends on September 30th. The bad news is that most funds operate on a fiscal year ending October 31st. The repositioning of portfolios prior to fiscal year’s end would not surprise us. After two nearly straight up quarters, choppiness should be expected during October.

Given how far the highest beta, speculative issues have run – notably, the internets, biotech, and semiconductors – the next big move might involve rotation away from those red hot names. Holders of stocks gorged with beefy gains in spicy sectors should consider burping up some partial profits as we enter the rally’s next phase.

Indeed, the focus on the highest beta, most speculative names (some of which are up tenfold during the past 3 Qs) leads us to wonder whether the worst of the Bear market has been fully worked out of the capital markets systems.

Perhaps we’re early, but for risk averse investors looking to participate in the rally, the more defensive sectors look appealing: industrials, energy, chemicals, financials, and other dividend paying stocks could see their moment in the sun. We expect the benefits of the mostly-ignored dividend tax cuts to receive more attention from the public; As the early stage speculative excesses of the rally get wrung out, expect investors to seek safety in value and dividend plays.

The weakest link to this thesis are the two assumptions upon which its predicated: First, that the present rally is based upon more than mere excessive stimulus from government market intervention; Second, corporate CapEx spending and hiring will pick up noticeably by Q3 2003, and Q1 2004.

Lacking those two corporate contributions to the overall economy, we fear signs that the economy’s momentum was fading will appear by the end of first quarter next year.

Monday, September 29, 2003 | 02:37 PM | Permalink | Comments (0) | TrackBack (0)
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Chart of the Day

Monday, September 29, 2003 | 02:21 PM

Intermediate trend still intact; A pullback to support (1760-1780) would not be a problem.

Nasdaq 6 Month Chart
nasdaq 9-29
Source: Gary B. Smith, Real Money.com

A breach of the Nasdaq uptrend, however, would lead to things getting real ugly real fast.

Monday, September 29, 2003 | 02:21 PM | Permalink | Comments (0) | TrackBack (0)
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Random Items

Monday, September 29, 2003 | 02:17 PM

Seasonality kicking in

Building Intelligence to Fight Terrorism

Is the Big Board a small clique?

The Dollar Meltdown

Study Finds Net Gain From Pollution Rules

Al-Qaida Asks Pakistanis to Oust Musharraf

Quote of the day: "The generally accepted view is that markets are always right -- that is, market prices tend to discount future developments accurately even when it is unclear what those developments are. I start with the opposite point of view. I believe that market prices are always wrong in the sense that they present a biased view of the future.” -George Soros

Monday, September 29, 2003 | 02:17 PM | Permalink | Comments (0) | TrackBack (0)
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Kodak: when they're out, who's in?

Saturday, September 27, 2003 | 10:02 AM

"Attention ladies and gentleman: In tonight's production of The Dow Man Cometh, the role of Eastman Kodak will be played by . . . "

A follow up to yesterday's Kodak discussion: If and when that fateful day arrives (in 2004?), who will replace Kodak in the DJIA?

a) Cisco Systems;

b) AOL Time Warner;

c) Amgen;

d) A player to be named later.

Discuss


Saturday, September 27, 2003 | 10:02 AM | Permalink | Comments (0) | TrackBack (0)
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WeedShare Music Model

Friday, September 26, 2003 | 01:46 PM
in Music

Good Morning Silicon Valley posted a terrific response to the Great Recording Industry Business Model Contest from Weedshare:

"Our new music sharing service, which went "live" less than 3 weeks ago, doesn't sue people who share files. It pays them. Rather than try to punish people who don't respect copyrights, we reward people who do.

We have developed a proprietary variation on the Windows Media file format which allows us to track the distribution and redistribution of files. We call our format "Weed" (as in "spreads like a...").

We encode files for content owners and send them back to the owner. The owner may then distribute these Weed files in any way they see fit: download site, peer-to-peer network, email, CD, we don't care.

Anybody who receives a Weed file from anywhere can listen to it 3 times for free (using Windows Media Player). After that, a message pops up encouraging them to buy it, which they do by clicking the "Buy" button. The song's price, which is set by the owner, is deducted from the listener's Weed account. Once you buy the song, you can play it on up to 3 computers, burn it to CD, and download it to a portable player.

Here's the twist: once you've bought the song, you're encouraged to share it. Say you send it to your friend Al. If Al buys it, you get 20% of the sale (and the content owner, as always, gets 50%). If Al sends it to Becky and she buys it, you get 10% and Al gets 20%. If Becky sends it to Chuck and he buys it, you get 5%, Al gets 10%, and Becky gets 20%. After that, you're out of the loop, but the content owner is happy because their material has been exposed to a lot of people, and they get 50% of every sale. The money they would have spent on promoters and payola goes instead to the fans, who provide the best kind of promotion there is: word of mouth.

If you do the math, you'll see that if every recipient finds 2 more buyers, he or she winds up earning 120% of whatever the file cost. With 3 new buyers at each level, sharers earn almost 3 times the file's cost.

Casual users can reduce or eliminate their cost of purchasing music. More active users can develop a hobby business that's fun and modestly profitable (typically by creating a personal web page offering downloads of their favorite music to friends, classmates, etc.). Record labels can realize significant revenue from their catalogs, and the sharing incentives provide a fantastic way to spread the word about new artists, new CD releases, etc.

Our service is especially attractive to unsigned artists who have no practical way to distribute their material and get paid. We offer them do-it-yourself, pay-as-you-go distribution and promotion, with zero up-front cost.

That's a really creative and interesting idea -- wrapping a multi-level marketing model around a DRM issue. I like it -- but have a few very minor quibbles:

1) Windows Media Player? It sucks. I'd rather see a cross platform, open architecture. But hey, that's DRM for ya. (They say they'll have other platform versions soon).

2) Hack-arounds. Can the Weed/WMP DRM system be broken? If so, than it kinda defeats the purpose. (although those looking to download for free will download MP3s, not Weeds)

3) RIAA: Will the goons be able to distinguish between the sharers of these products? Will I be inviting a lawsuit from the Music Police if I share weed products?

All told, its a way cool idea that has some promise . . .

Friday, September 26, 2003 | 01:46 PM | Permalink | Comments (8) | TrackBack (1)
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Stocks vs Gold

Friday, September 26, 2003 | 11:31 AM

Jim Picerno of The Capital Spectator addresses the relationship between the Dollar and Gold, in THE COMFORTING AURA OF GOLD.

Note that the quote he pulled from yesterday's comment's Currency and Pre-announcements and Oil – Oh My! appears somewhat Bearish, that's more of a short term concern. I'm more Bullish intermediate term; longer term, I fear we may be rangebound for a few years.


Friday, September 26, 2003 | 11:31 AM | Permalink | Comments (2) | TrackBack (0)
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Kodak? Buh-Bye!

Friday, September 26, 2003 | 07:28 AM

Eastman Kodak's long slide to oblivion continues.

Yesterday, they announced their Maginot Line in the sand: Hey, this digital thingie looks pretty cool!

More than a day late and a few dollars short, the stock got whacked yesterday to the tune of 13% (ouch). Unless the company can pull off a miraculous transformation, there's probably more to go.

Their very belated shift into digital has allowed both nascent competitors and established names to create a marketplace where no one company dominates. Thus, despite their 100 year history of owning the film market, Kodak is simply another entrant in a crowded field.

This may become a classic B school case. (Moral: Cannibalize yourself before someone else does)

I believe the inexorable decline of the once great company will accelerate over the next decade. Somewhere between now and then, Kodak will ignomiously get booted from the Dow, joining a growing list of previous stars on the road to irrelevancy.

They had their opportunities: Aggressive moves into digital hardware or, cobranding with camera manufacturers; creating a software solutions (See Apple's iPhoto for an example); On line photo sites like Shutterbug.com, Snapfish.com, snap-shot.com, etc. could have been snatched up on the cheap after the dotcom crash. EK doesn't even own EastmanKodak.com, for crying out loud.

Kodak is not one but two paradigm shifts behind the times, as they make their foray into digital cameras. Two days before Kodak's announcement, camera phones reach a milestone: For the first time, global sales of camera-enabled mobile handsets surpassed sales of conventional digital cameras (in 1H 2003). (Thanks to
Due Diligence
for the pointer).

They have seen the coming digital challenge, and dithered for quite a few years. Hey, I hear PCs are gonna be big also.


UPDATE: 02/06/04 3:04PM

Interesting trashing of Kodak's accounting from BusinessWeek:

Kodak's Fuzzy Numbers
The company has taken "one-time" charges every year for the past 12
Faith Arner
Business Week, FEBRUARY 9, 2004
http://www.businessweek.com/magazine/content/04_06/b3869096_mz020.htm

Friday, September 26, 2003 | 07:28 AM | Permalink | Comments (0) | TrackBack (2)
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Where them Dems Stand on Tax Cuts

Thursday, September 25, 2003 | 11:15 PM


democrats_taxcuts4.gif

Source: CNN/Money

Thursday, September 25, 2003 | 11:15 PM | Permalink | Comments (0) | TrackBack (0)
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