Business Blog: Hoover’s Business Insight Zone

The other day I talked about the UT Longhorns’ football season, and previewed their appearance in the Holiday Bowl, in terms of the cost of high expectations. The most memorable (read: bizarre) play from the Holiday Bowl game came when a Longhorn staffer named Chris Jessie — he happens to be the stepson of head coach Mack Brown — appeared to touch a live ball as he was standing on the edge of the playing field. You can read all the details in this thorough article from the Dallas Morning News:

Texas coach’s stepson steps in way

Even if you’re not going to read the article, give that link a click so you can look at the accompanying photo, which shows not just Chris Jessie, but several other Longhorn players and coaches, standing on the field of play.

Inexcusable.

This isn’t about the Longhorns per se Read more

His post is interesting, fairly short, and well worth a read. Here’s the crux:

In the end, this strike is not about DVD and digital royalties. Ultimately, this strike is about the massive and traumatic erosion of privileges afforded the middle-ranking factory workers. But of course, there’s not a damn thing they or their bosses can do to bring those privileges back. The landscape of media is moving away from large studios, to college dorms, downtown lofts, and suburban garages. Like Madison Avenue, Hollywood won’t disappear. But also like Madison Avenue, it’ll never command the cultural vanguard like it once did.

(Emphasis in original.)

Here’s a sketch of what I’ve been thinking about television and where it’s headed: Read more

John Murrell has a nice post at Good Morning Silicon Valley talking about recent moves at Facebook and Google that reflect the classic divide between programmers and users. It’s worth reading in full:

Developers are from Mars, users are from Venus

Many years ago now, I worked as a database administrator for a large, bureaucratic organization. Those of us who represented the users of our database tool would sit in meetings with the programming teams who were assigned to improve the tool. The programming team broke down into three groups:

• The unhelpful. Happily, there were few of these. Unhappily, one of them ran the main team that was supposed to be meeting our needs. I shudder at the memory — let’s move on.
• The helpful-but-misguided. This was the bulk of the programming team, and the problem was more or less exactly as described by Murrell. These coders wanted to do right by the users . . . but we the users often found out, much later than anyone would have liked, that their ideas and ours simply didn’t mesh. This was a problem since they were the only ones with the ability (and the mandate) to implement their understanding of users’ needs.
• The truly helpful. Out of the main group that worked with us, there were two programmers who genuinely grasped what we were after. One of them had learned programming during a long military career, and benefited from a level-headed engineering mindset. The other was a musician with a lot of interests outside of coding, who had the ability to talk across the programmer/user chasm. Both of them were big-minded enough that they truly wanted to implement the most useful changes rather than their own pet ideas.

Doing that is a lot harder than it sounds, and it’s hardly a one-way street where users know what’s right and the IT folks misunderstand them. My IT pals, including the two programmers I just praised, could tell you all kinds of horror stories about user ambiguity and rapidly shifting requirements. It’s a two-way street that is so hard to navigate that you tend to be more surprised when the process does work without a hitch.

The other day a commenter took issue with a post of mine on an environmental topic; his comment included the assertion that “The climate-predicting models are flawed, and the science is rotten.”

You can read that comment thread for my specific reply, but here I’ll add my more general view that climate science has been far too politicized over the past three decades, which has led us down the fruitless path of debating climate science as a matter of conservative versus liberal views (or pro-corporate versus anti-corporate etc.), rather than allowing us to step back and think of climatic changes in truly scientific terms.

Whatever the case, the insurance business is surely taking climate change seriously, as reflected in this MarketWatch story:

Catastrophe losses reach $75 billion in 2007

LONDON (MarketWatch) — The insurance industry faced $75 billion of losses from natural catastrophes during 2007, up 50% from last year despite a lack of “megacatastrophes,” German reinsurer Munich Re said Thursday.

The losses rose from $50 billion in 2006, though this was still well short of the $220 billion reached in 2005 when Hurricane Katrina ravaged New Orleans and the U.S. Gulf Coast.

Still, the number of natural catastrophes tallied 950 this year, up from 850 in 2006 and the highest figure since 1974, when Munich Re began tabulating such events. . . .

The trend in respect of weather extremes shows that climate change is already taking effect and that more such extremes are to be expected in the future. We should not be misled by the absence of megacatastrophes in 2007.” . . .

“These events cannot, of course, be attributed solely to climate change, but they are in line with the pattern that we can expect in the long term: severe storms, more heavy rainfall and a greater tendency toward flooding, including in Germany,” said Peter Hoppe, head of Munich Re’s geo risks-research department.

Put it another way: Munich Re doesn’t care what I think about climate science. They don’t care what a blog commenter who calls the science “rotten” thinks about it. They care about what they see in their underwriting books. And what they see, from a financial point of view, is sustained effects from climate change.

A brief programming note:  Whether or not, as the analyst quoted here suggests, the business problem of the year for 2008 will be information overload, you can certainly expect me to keep harping on it.  The more I read about our short attention spans and our overloaded days, the more I’m convinced that the willing subjection to information overload is a major limiter of success.

As we mentioned the other day, tonight the Longhorns of my beloved alma mater play against Arizona State in the Pacific Life Holiday Bowl. Texas is no stranger to the Holiday Bowl — this is their fourth trip there during the 2000s. If the Longhorns win, they’ll take their season record to 10-3 and their current bowl winning streak to four games.

The crazy thing is, a loss would make this season a profound disappointment for many Longhorns fans. The Horns have won ten games or more every year since 2001, a run of success that includes back-to-back Rose Bowl wins — the second of which earned them the national championship three years ago.

But this season, Texas lost to both Oklahoma and Texas A&M. A bowl loss would add insult to those injuries. Because of the high expectations put on the team and its head coach, Mack Brown, a 9-4 record counts as failure, plain and simple. This is true even though many coaches would gladly trade places — and won-loss records — with Brown.

This reminds me of the treatment that some companies get when they report increases in revenues and profits . . . but not increases as high as Wall Street was hoping. In cases like this, investors often drive down stock prices, which seems unwarranted in the face of record-high financial numbers, but which reflects the costs of high expectations.

Sky-high expectations mean that, win or lose tonight, the Longhorns and their fans are already thinking about next year.  It’s the price you pay when you keep raising the bar on yourself.

These days, breaking news that has any geopolitical angle is apt to set off fluctuations in the market for crude oil futures. Oil supplies are tight worldwide, and in recent years there has been ever more speculation in the oil-futures markets, not just by traditional oil traders, but by hedge funds and other financial outfits looking for diversified asset classes to hold.

As I write this, oil futures are $96.15 per barrel, and there are no shortage of headlines tying the price surge to the assassination of former Pakistani prime minister Benazir Bhutto. (Details on her death here.) An example:

Crude rises above $96 on news of Bhutto’s death
By Polya Lesova, MarketWatch

Crude-oil futures rose above $96 a barrel on Thursday, as news of the assassination of former Pakistani Prime Minister Benazir Bhutto rekindled concerns about rising tensions in the Middle East.

This comes on top of yesterday’s news about Turkish air strikes on Kurdish bases across the Turkish-Iraqi border:

Oil Rises After Report Turkey Attacked Kurdish Rebels in Iraq

Dec. 26 (Bloomberg) — Crude oil rose for a third day in New York on concern shipments from Iraq may be disrupted after the Turkish military attacked bases of Kurdish rebels in northern Iraq.

Oil prognosticators have spent zillions of column inches trying to explain the complex forces affecting oil prices. One of the major divides for petroleum-watchers separates those who credit long-term price trends to above-ground or below-ground forces. The below-grounders include the various subsets of the Peak Oil community, whose members generally agree that the world is running short on new oil supplies simply because we have already tapped the biggest and best pools of oil in the century and a half that we’ve been looking.

The above-grounders, led by prominent oil expert Daniel Yergin and his Cambridge Energy Research Associates firm, argue that the world still enjoys ample petroleum reserves below the ground, but that we can expect more above-ground problems — e.g. unrest in Pakistan and Kurdistan — to keep prices high.

These days, there seems to be plenty of fodder for both camps. Oil supplies remain tighter than one would expect, given that prices have been this high for this long; this would seem to support the idea that readily expoitable reserves are hard to come by. Then again, the many, many geopolitical complications that have beset oil-producing regions (Iraq, Iran, Pakistan, Venezuela, Nigeria, . . .) during this decade would likely keep prices high even with plenty of reserves in the ground.

Time will tell which of these arguments holds more weight. For now, we can expect prices to stay at levels we’ve never seen, and we can expect every piece of bad news coming from any oil-producing country to drive them still higher.  For better and for worse, we are living in very interesting times on the oil front.

You may have noticed that I have an analytical crush on Warren Buffett. It arises from the conviction that many investors and executives would be much better served if they copied Bufffett: stop trying to build a better mousetrap and instead make it your business to better understand — and put to use — the current mousetraps at your disposal. Put it another way: nobody ever got rich betting against Warren Buffett.

Now Buffett’s company, Berkshire Hathaway, is buying up most of The Marmon Group, which makes boring, profitable things (mining equipment, industrial materials, Wells Lamont gloves) that will fit in nicely alongside the other boring, profitable things already in the Berkshire portfolio (Acme Bricks, Geico insurance, etc.). More details from the Associated Press:

Berkshire Hathaway Inc., based in Omaha, Neb., said it plans to acquire the remaining 40 percent of Marmon over the next five to six years depending on future earnings of Marmon, according to a statement released Tuesday by both companies.

Marmon is owned by trusts for the benefits of the Pritzker family of Chicago, the family that developed the Hyatt Hotel chain. […]

Brothers Jay and Robert Pritzker acquired Marmon in 1953 when it was a small manufacturing operation in Ohio, according to the release. In 2002, Jay’s son Tom Pritzker took over as chairman.

“Our transaction was done just the way Jay would have liked it to be done — no consultants or studies,” Buffett said in the statement. “I am pleased that over the next five to six years, we will be partnering and working … in continuing to build Marmon.”

At this point, Buffett must know more about deal-making — or at least company-buying — than 99.99% of all the consultants now drawing breath. He’s had practice.

The Marmon purchase is the sort of deal it’s easy to do when you keep the odd $50 billion in cash sitting around. I have no doubt it will make lots more money, the boring way, for Berkshire in the years to come.

More details in these stories: Read more

From the “Pot Calls Kettle Black” department: Microsoft asserts that Google would enjoy monopoly advantages if its pending acquisition of DoubleClick goes through. Here’s the pith of the analysis from Clint Boulton at GoogleWatch:

Now that the FTC has blessed the merger (Merry Christmas, Google), Microsoft’s documentation of Google’s online ad position comes off as the data-driven equivalent of flipping the chess board up in frustration; Microsoft sees Google’s checkmate coming, but the only thing it can do is make some noise and hope someone listens.

Will the European Commission listen? I doubt it. Turnabout is fair play. How many Microsoft competitors felt the same helplessness watching the presiding market gorilla eat all of its bananas?

Amen. I don’t have any special ax to grind against Microsoft, but they are convicted monopolists. Some things are just too easy to parody.

[Hat-tip: Slashdot.]

I have, at times, found myself watching the XCorp.com Grape Bowl¹ and wondering this: “What the heck does XCorp.com even do, and why do they feel the need to sponsor the Grape Bowl?” To help other college football fans facing the same predicament, I offer this handy cheat sheet of this season’s bowl games, with links to Hoover’s records on sponsors.

• San Diego County Credit Union Poinsettia Bowl² — December 20 — Utah beat Navy, 35-32
• R+L Carriers New Orleans Bowl — December 21 — Florida Atlantic beat Memphis, 44-27
• Papajohns.com Bowl — December 22 — Cincinnati beat Southern Miss, 31-21.
• New Mexico Bowl³ — December 22 — New Mexico shut out Nevada, 23-0.
• Pioneer Las Vegas Bowl — December 22 — BYU edged out UCLA, 17-16.
• Sheraton Hawaii Bowl — December 23 — East Carolina pulled off the upset over Boise State, 41-38 Read more
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