Season's Greetings

The season wherein that which has lain dormant and desiccated springs to life is most definitely upon us. The Texas Hill Country is having one of the best wildflower seasons ever, as so much verdant energy, long suppressed by drought, has been unleashed by a half a year of relatively cool, wet weather. The cattle and wildlife seem to be more abundant, and much less stressed than in that awful period, and for the past few weeks most of the afternoons have had that soft, warm breezy feel that one guesses might be the temperature of Heaven. It has been anything but heavenly for allergy sufferers, though, as apparently all those frolicking photosynthesizers have been spewing record quantities of pollen.

Spring also brings the highest of Holy Days for the great faiths of the West, and almost as predictably, yet another tediously recycled attack on the papacy and all that it stands for. It is as if every Easter, an abuse scandal take turns with yet another “rediscovery” of some Gnostic Gospel that supposedly changes everything (until someone points out that it has been “rediscovered” and discredited more times over the past few centuries than anyone can remember) in trying to crash the party and spoil the occasion. This time around, the “scandal” seems to pose the question as to whether the present Vicar of Rome was incompetent or indifferent in the execution of his administrative duties some thirty years ago. It is as if the CEO of one of the world’s largest corporations were being taken to task because of claims that back when he was in his first managerial job he made some mistakes. Anyone who has managed much of anything for longer than a few hours, especially within an enterprise which systematically challenges its young managers so as to see what they are made of, will recognize how fallacious this is. It is Monday morning quarterbacking, akin to listening to analysts who have never managed anything taking a management to task for not living up their (the analyst’s) estimates. (Could it also be a misperception regarding whatever Papal infallibility means?) As others have ably pointed out, there are not a few bottom feeders who have an acute pecuniary interest in keeping this “abuse” narrative going. My sense is that just like Stalin’s “how many divisions does this Pope have?” outcome, a good man we call Benedict XVI will be remembered and respected long after the erstwhile “paper of record” is nothing but another signifier amid the digital archives, and its editors and publishers long forgotten as well.

Of course, the season most on our minds (unless we are ardent baseball fans) at this time is the earnings season that had just kicked off. Intel’s big “beat” certainly added heft to what was already a rather extended, anticipatory advance. It should be noted that no small amount of credit for blowing by all that collective brainpower, as manifested in 40+ analyst estimates, goes to Intel itself. They got my attention a few years back, when conventional wisdom had it that “AMD was kicking Intel’s ass”. That episode managed to blow away whatever hubris might have crept into the atmosphere at Intel, and the company set to work to reassert its dominance. There were a few promising signs just before the Big Panic interrupted, but with a resurgence of more normal demand, Intel is looking leaner and meaner than ever. They are also riding a global wave that they helped trigger, brought about by a step change in the value of mobile communication. So the answer to whether this latest “beat” by INTC was because they were lucky (as in at the right place at the right time) or smart (as in good fortune being the result of one’s own diligence) is: Both.

This is probably not quite 1994/Wintel driving what by 1999 burgeoned into the Tech Bubble of a lifetime. Let’s just say that History is not about to repeat itself, but as Mark Twain (who I understand lost a bundle on a Tech investment, i.e., a new system for typesetting that likely “came in second” or was a little ahead of its time) would have put it, it is setting up to rhyme. The onset of this latest earnings season has me feeling very good about the rather big bet I have made on Web 2.0 (see the List, that is upwards of 44% of my investable assets in companies that have been making that happen). Somewhat sane, somewhat rational niches within the Tech sector have been a very long time in coming. The valuations are still as if evolution-to-the-good within an industry never happens. Decrepitude is, of course, out there in time, but not just around the corner. The next few years are going to be a wonderful time to own a lot of the stocks that crashed and burned a decade ago. This does not mean our patience will not be tested. We should be surprised if 2010 does not include another correction at least as meaningful as that which marked January. It might even start before this earnings season has run its course. It will probably be a good idea to trim some marginal positions in the days and weeks ahead if there is any doubt about having flexibility when the inevitable correction arrives, but my sense is that we are in the very early innings of what just might end up being the Web 2.0 Bubble.