uncommonprofits

Over the last year or so - Android's updates have outpaced Apple by about 6 times (or more). Google has little reason to hold back an update (other than to let device manufacturers keep up to the rapid pace). Google intruduced ver. 1.5 (Cupcake) just over a year ago (end April/09). Since then they have had 3 updated versions: 1.6 (Donut), 2.0/2.1 (Eclair), and just a couple weeks ago 2.2 (Froyo). Their updates will probably slow down a bit -- but as long as device manufacturers can keep up -- I suspect they will continue to outpace the others by a good margin. Because it is free, Google does not have the same reasoning to hold back that MSFT and Apple would otherwise have. The benefit for Google is what this brings to it's burgeoning mobile search business. Everyone wants an iPhone right now -- but from most indications Froyo could be taking quite a huge jump ahead of iPhone's current OS.

I don't think this is a slam dunk for AAPL. Android is rapidly catching up -- with many of the large enterprises pushing it along. A lone hardware based enterprise was not able to do it all in the past (although IBM tried) - I don't think that will change in the future. MSFT succeeded because it was software based and got much of the industry behind them. Android is not only software based (also, with much of the industry behind them) -- the OS is free and code unlocked, opening up a whole new realm of innovation not available in the past for hardware manufactuers. Is this an asset or a liability? What about non-Apple devices? Problems with portability to other devices has been a problem for Apple in the past which could potentially repeat itself. Then again we could be locked in a world where we have a few very viable competing OS's whereby portability becomes a problem/opportunity for app developers to figure out.

There is a good possibility the desk top of the future evolves to simply a keyboad and display with the brain power coming from a mobile device. As rapid as things are happening it might not be as far away as people think either. So yes desktop PC's might not vanish - but they could have the bulky guts stripped. Desktops have already shed a lot of bulk over the years - and this trend is likely to continue. Microsoft's OS could be challenged when/if there is a shift of the brain power from the desk top to the mobile device. It's probably coming -- just a matter of how long -- and whether MSFT can adapt.

I think your friend's comments are only valid up to the (less mobile) WiFi standard. MSFT's OS is dominant in this segment. But as you shift toward 3G (and beyond) -- the windows mobile position is pretty weak. Higher portability will take away market share from less portability and this will gain significant momentum as 4G rolls out. In the 3G+ portable segment, RIMM and Apple are the leading players in North America - but Android is rapidly catching up (with Windows falling behind considerably). As most device makers (excluding RIMM and Apple obviously) shift toward the more mobile segment, the trend is toward the open Android OS. A recent exception would be HP's recent purchase of Palm (for it's Web OS). I agree with Tiddman's comment that perhaps a takeover of RIMM could be in the cards for MSFT -- but that is not without it's challenges either. The flip-side to this could be RIMM adopting the open Android platform. Bottom line is cell/smart phone device makers and computer manufacturers are converging into each other's space - with an explosion of variety and choice. Apple makes some great products, but if you look beyond the current hype -- toward the variety and choice that is coming and the tremendous innovation taking place, it's heavily geared toward the open Android platform. Not only does Android have Google's full support and lead --- it is also the reason behind the founding of the Open Handset Alliance which continues to add some very significant members: http://en.wikipedia.org/wiki/Open_Handset_Alliance http://www.openhandsetalliance.com/ What a handset means to us 5 years from now will take on more meaning than it does today. Again as this innovation takes place, portability will be a key market share driver. This is what MSFT must adapt to -- the hurdle they face (more than Apple or anything else) -- is this 'open' movement.

Kobo has an app on the IPad also. And it syncs not only back to it’s own device. It is in fact cloud based and will sync back to any device you own (with the exception of a Kindle).... or any device you want to trade up or down to in the future. As this all evolves it will also work in a shared environment with pretty much all devices (again -- expect Kindle). Something you seem to be missing is that laptops, netbooks, cell/smart phone manufacturers are all converging. Apple will not dominate this like they did with the IPod. There are just too many big players getting already involved or about to. And open platforms are gaining popularity in a big way – of course Android in particular. Apple will soon be competing against some other very large manufacturers --- these are not the small type of players they had to deal with when overtaking the MP3 player. These are some of them --- in many (if not all) cases these devices will be at lower price points than Apple: - HP just announced today that they are buying Palm. Obviously HP is taking this seriously. - Toshiba has announced they are coming out with their line of android based slates. So has Dell with a line up of about 7 different sized devices – all android based. - I saw a rumour out the other day that Cisco will be releasing a 7 inch android tablet for the business market. - Motorolla’s Droid is making a resurgence of the company – they apparently recently showed a prototype of a 7” Android tablet. - Say what you want about RIM – but Blackberry is still a significant smart phone player. Mike Lazaridis (CEO) has said a tablet will be coming out in Q3 of this year. Also rumours that Blackberry may convert to Android open platform at some point. - Acer is bringing one out --- Nokia is rumoured to be. - The Microsoft Courier is in development. - Lenovo (IBM) apparently has something in the works. - Add Sony Ericsson, LG, Samsung, Google and HTC to the list. The bottom line is these are very large players. Expect Kobo to be working on revenue/profit sharing relationships with many of them – making it potentially very lucrative for device manufacturers to introduce a device with instant recurring revenues going back to them (this opportunity did not exist when ITunes came along). The IPad can perhaps generate revenue from IBooks – but don’t expect it to be like ITunes. Far too many players getting into this – with more content players out there than with the advent of the MP3 player. Kobo has made it their mission to make any purchased content downloadable to any device – at the moment they are the strongest (open and on every device) content distributor – and they are global.

Also meant to point out this article about Kobo in Canadian Business magazine: http://www.canadianbusiness.com/managing/strategy/article.jsp?content=20100301_10019_10019 Below are a few snips from that article: >>> “While Amazon has an app in the [Apple] store, and you don’t necessarily have to buy their device, Kobo has been across the smartphone space from the beginning,” says Lisa Charters, senior vice-president and director of digital for Random House Canada. “And that unique offering is really important to us as publishers, because we want consumers to have all options to read e-books, and not necessarily have to purchase a $300 device.” <<< >>>What’s more, says New York publishing consultant Mike Shatzkin, “they beat Google into the cloud.” Kobo’s library system is based in cloud computing.<<< >>>What they’re seeking to build, in other words, is the conduit through which much of the world’s digital book trade will happen. Says Rob Chaplinksy, managing director of California-based venture capital firm Bridgescale Partners, “Kobo’s trying to be the Intel inside.” <<<

Digitimes is reporting that the Nook actually outsold the Kindle in March: http://www.digitimes.com/news/a20100426VL204.html If this research report is even remotely accurate it kind of blows out the theory that a new brand cannot gain popularity. Someone mentioned that when Kindle first came out -- it was called 'that Amazon Reader'. Well I would suspect when the Nook came out it was thought of as 'that B&N reader'. So more than likely when the Kobo arrives next week it will be called' 'that Indigo reader' --- and when introduced into the States later in the summer it will be called 'that Borders reader'. The estimated worldwide shipments is pretty much in line with everything else I have been reading though. Consider that by the end of 2010 the total # of dedicated ereaders sold in 2009 & 2010 alone will be about 15 million units. All indications are that the average user of these dedicated readers buys 1-2 books a month. Take the bottom of that range and you have a global $2 billion industry going into 2011. And that's probably a conservative figure as it does not include anything sold on a multiuse device such as the IPad, smartphones, desk/laptops; or the ereaders sold in 2008 or earlier. It also ignores any additional purchases of other digital reading content such as newspapers, magazines, etc.

OK lets ignore that Kobo was able sign on 1.8 million free books through the internet archive – and no one else has. Lets ignore that just the other day they signed on Author Solutions (with 125,000 paid titles). Ignore these altogether and the count is probably 300,000 Kobo versus 500,000 Kindle. Kobo was at zero about a year ago – surely it should be obvious they are growing more rapidly in the paid category than Kindle. I am assuming when you are speaking of Apple/Amazon products you are referring to their devices. Kobo is not a device maker – how meaningful their market share becomes with their device means way less than how Kobo executes in becoming an engine where much of the global trade of digital reading content takes place. If they execute and succeed – much of it will be outside their own device. I think the opposite could be said as far as Apple, Amazon.

The digital music industry was dominated by Apple because their iPod has 70% market share. You have content providers captured, more or less. The same will probably happen with digital reading. Amazon/Apple will probably hold 50-70% plus of the market and content providers will crumble. I wouldn't be going long hardware that no one has ever heard of. I don't even remember the last time no-name consumer hardware sold anything impressive. Add digital media hardware, and history doesn't bode well for them. I'm 27 years old and no one I know has any consumer electronics from no name providers. Brands are extremely powerful for my age group. There is no longer such thing as an mp3 player. There are iPods and iPod knock offs. Even when I had the Kindle 1st Generation, people called it that "Amazon reader" more than "Kindle." Again, Kobo is NOT about the hardware. This device is merely a showcase to strive forward with the ‘Powered by Kobo’ initiative .... to get noticed by various industry players and show their strength as a distribution partner. And actually this is not being targeted that much at your age group – what Kobo has found is an amazing demand from the older crowd that want simplicity but also their eye sight is in decline. The three I have on order are all for people 50+. If as you predict the big 6 publishers are going to crumble and Apple + Amazon rule the roost – I guess in the same breath one could assume that most of the other device makers will crumble. Ironically many of the other device makers are embracing the future of mobile wireless through the Android platform. Amazon and Apple at present are not. What you are missing is the flood of devices that will be coming out in the future. Not only dedicated but also multi-use gadgets that will take on shapes and sizes beyond our present imagination. Something like Kobo did not exist when the MP3 player rolled out. ‘Powered by Kobo’ is attempting to get inside the future HPs, Blackberrys, Nokias, Motorolas, Acers, Dells, Sonys, Toshibas, Fujitsus, Lenovos etc, etc, etc --- do you really think all these device makers will crumble too in your world of Apple, Amazon domination? And there will be new players too – Kobo will be attempting to get inside many of the viable ones – some will make it and some wont.

Actually if you consider free books - KOBO exceeds Amazon with an offering of 2 million+. And in the paid category they are rapidly catching up to Amazon -- particularly in the mainstream category. And in fact there are some pretty significant mainstream titles you can get on Kobo that you cannot on Kindle: http://www.kobobooks.com/lists/You_Cant_Get_These_On_Kindle/eIA7nsQuGkmMfXYcOi0K0w-1.html Amazon's warehouse announcement is pretty much limited to impacting Indigo's online service where they are break even at best anyway. It's pretty much a non-event when it comes to their bricks and mortar side and digital initiative. You may want to visit one of the new Indigo concept stores (Indigo Books, Gifts, Kids) - it is quickly becoming more than a book store. Specialty toys and gifts are replacing any decline in book sales. You might also want to visit their financials and check out the ROA's etc. Heather Reisman has done a fine job in turning this into a world class retailer - the story might just be beginning though.

To answer that question you have to decide whether the evolution of digital reading content will be decided by one player as was the case with Apple; or, will this fate be figured out as more of a collaboritive effort amongst the publishing industry. Thus far Amazon has attempted to copy the Apple method that worked (at least in the short term) with music. However, the publishing industry has now turned to the agency model to give it time to work things through. 5 of the 6 major publishers have turned to the Agency model. Random House has opted out - but their content is not available on Apple's Ibooks. Neither Amazon or Apple are invovled in the discussions going on that will shape the direction of digital reading content. Kobo is involved in these discussions and are beginning to play a key lead role from the distribution side of these meaningful talks. Below are a couple presentations by Michael Tamblyn (VP Content, Sales and Merchandising, Kobo) : http://www.blip.tv/file/2798840 http://www.teleread.org/2010/04/21/michael-tamblyn-of-kobo-talks-about-what-he-has-learned/ Keep in mind too that Kobo is a global player - in 200 countries in the world. Amazon has struggled with the Kindle globally. Something to note is Cheung Kong (Li Ka Shing) now has a stake in Kobo (through a company CK formed called 'Instant Fame'). The Asian market has tremendous potential for the first company that can be successful. Not only do you have the growing middle class -- but you also have a market that is very underserved with a retail bricks and mortar presense. Certainly there will be a challenge for Kobo to attain a lead position in the U.S.A. where the Kindle has a strong following at least by the early adopters. But with digital reading about to go mainstream and people everywhere challenging closed platforms like Itunes one could be underestimating Kobo's ability in the U.S. Certainly though they have their ducks in a row as this goes globally. Here in Canada the Kobo rollout next week will quite likely propel Kobo into the #1 and most well known ereading offering. Other than having 3G (which is quite expensive here) there is not much reason to opt for a Kindle - after all ebook content has now gone 'agency' (meaning Kindle and Kobo will have the same prices for most mainstream content). And there will be other 3G device offerings - Apple and Kindle are not the only device makers. If they can execute on this 'Powered by Kobo' initiative - absolutely they can compete with Kindle and Apple. I should just point out that I established my position in IDG several years ago when everyone thought Indigo would not survive because of Amazon. As such most of my position was bought between $4-$5. Kobo would obviously be a more risky bet if you were just buying that entity. But with IDG I figure at the moment you are getting Kobo free + about $4 bucks in the bank to boot.

Yes - the device is the launching pad - they might even LOSE money selling it. Content will be the key. Interesting timing though as here is some comments from Michael Serbinis (Kobo CEO) on BNN this evening: http://video.ca.msn.com/watch/video/google-of-ereaders-04-23-10-5-30-pm/jvlz5kgn This is totally correct. Think of it in terms of having an IKEA book shelf at home. When you pick a book up at the gas station versus a big box retailer you can still store your purchased book on your IKEA bookshelf. Then all of a sudden you get tired of the IKEA book shelf and want to replace it with the one you see at Costco. Quite amazing but all the books you have bought under this open system can be placed on the Costco bookshelf. Totally open and fair -- that is the way this is being approached. Remains to be seen - but I think piracy will probably be a lesser problem in the publishing industry than music. The publishing industry has the music experience to draw from - not only that but the whole industry is far more dynamic. Also something to consider is that the more people read - crime drops accordingly (see the Indigo Love of Music Foundation charity and all the good things they do) - I am not sure you can make the same correlation with music listening.

You have to keep in mind the closed platform that Apple created when it monopolized the music industry. A revolt as such was bound to occur at sometime or another. Apple dictated to the music industry -- rather than work issues out with them (Amazon has done the same with publsihers). There was no viable open platform alternate such as Kobo when Apple did what they did ... in fact the music industry was being pillaged by pirates - making it easier for Apple to stake their claim. Here is another partnership announcement today between Kobo and Author Solutions: http://www.seopressreleases.com/author-solutions-announces-distribution-pact-kobo-ereading-service/8126 It is quite an opposite situation than you have in the music industry. Self publishers are embracing Kobo and their fair and open philosophy. Author Solutions has helped 85,000 artists self publish 120,000 titles. And they are now in partnership with Kobo. Like I say there was no Kobo at the time the music industry was making it's first platform change in a decade or two. But now a system does exist and a company with excellent relations with publishers is working with the industry as a whole in establishing the first major alternative in traditional reading. Thus far they have concentrated efforts on the bound book of course invented many centuries ago.... but are also moving on to newspapers and magazines too.

I agree. Of the three I have on order, one is for my wife and the others for two of her sisters -- all three will be using it primarily for reading fiction. One of them hopes to use it for reading newspapers eventaully too - but I don't know how practical it might be for that either. Personally though at the moment for myself - I am holding off for something that is more multi-use to do things as you mention plus read newspapers. But as Canadians, this is a long waited development and should be of interest to non-fiction readers also (by the way it comes prepackaged with 100 free classics!!). There is going to be an explosion of dedicated and multiuse devices hitting the market in the next year. This Kobo device is more of a showcase for the company in launching their 'Powered by Kobo' initiative. The strategy is to provide value to various device manufacturers and have the app preloaded in many of the viable open devices coming out (similar to what Intel did long ago with processor chips). Despite having their own device now - the Kobo app is still a very open platform (and are going global with it in 200 countries). If you decide to switch devices sometime in the future - your library moves with you. Try taking your Kindle library with you if you decided to buy an Alex. Alex is a device being introduced by Spring Design who is a start up company formed by the former founders of SanDisk. Alex was the first announced 'Powered by Kobo' partner (as announced at the January CES show in Vegas). The Alex might suit the sort of tasks you mentioned but much more pricey ($399). I believe the Alex is already available in the States and is supposedly coming here to Canada. It is a neat looking unit - although I don't know how good it would be for reading newspapers either (it has the same 6" e-ink screen). These devices will get cheaper as time goes on and will take on various shapes and sizes to suit all kinds of tasks. Kobo has apparently been looking into subscription contracts similar to cell phones -- whereby you subscribe to a newspaper or agree to purchase a certain amount of books over X years and get the device for a big discount or even free. Here are a couple reviews on the Alex -- there are many more out there. By the way the Alex has been developed by a group called Spring Design - one of the co-founders of Spring Design was a co-founder of SanDisk (Jack Yuan -- I believe that is him displaying the unit in the second review): http://www.engadget.com/2010/03/22/spring-design-alex-review/ http://www.slashgear.com/spring-design-alex-ships-today-1481559/

Wouldn't say I am the most knowlegeable (regarding RNK) -- there are a couple others here on the board that follow it quite well too. Not sure why you would think they overestimated their abilities to handle multiple initiatives - the opposite is actually the case. Since Franklin came on board (as CEO) and Tim (as Chairman) the company has transitioned itself into a focussed pure animation studio (the FX division, payroll and tax credit divisions are gone - other than a 30% interest in the later). Where things went off the rails the past year was the financial panic -- work dried up -- financing to forward IP projects dried up. And the sale of the FX division was very untimely (with earnouts in jeapordy?). But Q4 showed a hint of things turning around --- the animation business was slightly EBITDA positive in that quarter. You might be interested in reading this article that was in the Globe and Mail the other day: http://www.theglobeandmail.com/news/arts/pixar-studio-opens-in-vancouver/article1540515/ If the Vancouver animation industry is going into a major growth spurt as that article suggests (by the way this is not the first such article or indication of this) --- then just what is the largest animation studio in town worth? RNK's combined studios are about 64,000 square feet. Pixar (Vancouver) is currently 7,000 -- expanding to 25,000. RNK is still the largest though -- and not only that they have a very good reputation with a very dynamic management team put in place. With many of these companies moving to Vancouver -- one has to wonder if RNK might be an attractive takeover candidate. Much of the management team assembled at RNK have roots to Lucas --- perhaps they would be interested? Or maybe Mattel would be interested --- Robert Eckert is doing a fine job in transitioning Mattel into an Entertainment company. RNK brings value to Mattel in a similar manner that Pixar brought to Disney. 64,000 sq feet is a far cry from Pixars 200,000+ sq ft studio in California (with growth plans to 500,000 sq feet). But is it only worth $6 million? When they still have $4.9 million Deluxe credits remaining, a 30% stake in Base 10 (EP+CFC) and associated earnouts that came with the sale. The IP property has been kept closely under wraps and mostly expensed --- but there could also be some value here too. Seems to me that at the current price one is getting paid to own the animation studio which to me seems like the real prize. Yes I still have faith in this story. It seems that things are turning around and the cash burn is over.

Indigo Books and Music (IDG) makes up a pretty good chunk of my portfolio and I follow their ereading intiative (Kobo) quite closely. Since many members here do a lot of reading -- I thought some of you might be interested in the Kobo e-ink device that is due to ship here in Canada in the next week or two (later in the summer in the States). About the only downfall with the Kobo eReader is it does not have 3G or Wifi - but makes up for it in price ($149 cndn). Canadians are finally going to have access to economical digital reading -- the very open Kobo reading app continues gaining momentum as does the excitement associated with the device's launch. (I don't think we will see the disappointing delays that most others have experienced) Below are a couple reviews (the second one being a decent video review): http://technology.automated.it/2010/04/21/hands-on-with-the-149-kobo-ereader/ http://www.sync-blog.com/sync/2010/04/video-first-look-at-the-kobo-ereader.html There is also the opportunity to win a Kobo eReader by acting quickly and purchasing an ebook now on your PC, Smartphone, etc (I don't think this is presently offered to those south of the border though). http://www.kobobooks.com/contest Note that each ebook purchase = a contest entry. This contest is kind of timely too as I noticed that Kobo finally has the latest version of 'The Intelligent Investor' available at a decent price of $10.99 cndn ($11.99 U.S. on the more closed Kindle format). I already have 3 of these eReaders on preorder but am going enter to win another by adding the investment bible to my cloud based digital library. http://www.kobobooks.com/ebook/Intelligent-Investor-The-Revised-Edition/book-raIyyTajEE-TBpLlVkPI3g/page1.html

In all fairness, Tim was blindsided by the Sun-Rype strike in late 2007. Sun-Rype was doing really well up until this point -- and is the major event that pushed the Sunrype cart off the rails. The mistake made on this one would seem to be miscalculating the risks with Sun-rype's labour relations. Tim actually took actions later by selling a big chunk of his Sun-rype position to the controlling Pattison Group. The position he now holds is a lot smaller than what he sold to Pattison. Meanwhile Sun-Rype seems to have the cart back on the rails - the food segment remains a gem in my opinion (I no longer hold a position -- but follow it some). If I had one criticism of Tim's Trust/LP -- it would be the management and incentive fees. The series B & F are the most prudent -- charge is 1% for admin & management. On top of it he takes an incentive of 20% over a 6% hurdle. I realize that he has a lot of ground to make up before any incentive is again charged -- but this is still the structure. Tim's philosophy in a lot of ways is similar to that of Bill Ruane and the very successful Sequoia Fund [Tim might be considered more of a restructuring/transitioning specialist -- but as a side note: fund holders and outside observers also criticized Sequoia for holding too long. Bill Ruane criticized himself for selling too soon and was known for not sleeping at night when he held a high amount of cash]. The straight 1% management fee that Sequoia has charged over the years puts Tim's fee structure to shame. Sequoia is an outstanding comparitive though. With that said - I agree that Tim will have a strong chance of outperforming in the years ahead. There are some very excellent (and seemingly cheap) companies in the portfolio - at least of the ones I follow. Tim got hit with a perfect storm in 07/08. It started with the Sunrype strike, followed by the Maple Leaf Foods listeriosis disaster, then a couple of high debt media companies (Canwest & Citadel) were bought just before a major financial freeze. Some of the other companies held have recovered - others will in due course (including Sunrype and Maple Leaf - Maple Leaf is still very cheap imo). Underperformance in 2009 seems to be a result of holding too much cash and selling some positions too soon (Sothebys, CBS, etc). I am pretty sure that he will retain the core philosophy that he makes (or loses money) based on what he purchases and at what price -- rather than when or at what price he sells. More trading only makes sense if offered excellent prices to sell and/or cheaper opportunities to buy. I am pretty confident Tim will figure it all out. In the end though, I bet his turnover will remain lower than average. If Tim is shifting a portion of small caps to large -- I hope he takes a look at Ingersoll Rand. Should be right up his alley especially at the <$32 recently. Similar to Maple Leaf - IR is transitioning itself toward similar performance of it's peers. The difference though is IR's capacity utilization is very low (<35%). Meanwhile IR is generating significant free cash and reducing debt quickly. UCP / DD

At closing, Jevco’s expected MCT ratio will be about 220% - this is an improvement from 190% at YE/08. And it’s even after taking into account a $40 million dividend that Jevco is paying Kingsway upon closing. An improved capital ratio is usually good news – but this one is for the wrong reasons – surrounding the uncertainty of the Kingsway situation, brokers are moving Jevco policies to competitors (creating somewhat of an unplanned partial run-off). Jevco is obviously in better hands. How timely it is – depends on a few things: Does the bleeding (losing market share) stop now that it is out of KFS’s hands and in WED’s? If WED’s philosophy with this will be to take on a higher equity exposure --- they will need to decrease the company’s leverage further – so perhaps underwriting volumes will not be the first priority for WED? And equities are still not that cheap. Amid the Kingsway crisis -- how much Jevco talent left for competitors? The best always seem to leave first. Could there be further talent drain? In any acquisition, there is always the risk of talent leaving – as they don’t buy into a new philosophy. Jevco’s two prime competitors are Pafco (Allstate) & Echelon (EGI Financial). In normal circumstances – the bigger threat to competent non-standard insurers isn’t each other – but rather the larger standard insurers moving into their space. The interesting thing is this cycle is in a phase where standard insurers have been in this space for several years and are now seeing profit margins erode and the trend seems to be towards the start of an exiting phase -- hence a hardening of non-standard seems to be taking shape. The non-standard insurance companies that would be most timely at this juncture – would seem to be those that are least levered. Despite probably taking some market share from Jevco -- EGI Financial has improved their MCT ratio from 268% (YE/08) to 314% (Q3/09). Their annualized ratio of net written premiums to shareholders equity was 1.1:1 at Q3/09. This is well below the 2.5:1 ratio they feel is fully leveraged capital – meaning they have tons of room to take on further Jevco bleeding, standard exiting and their on-going niche product growth plus the recent move into Florida. Westaim will probably do well with Jevco. I just don’t see them being in as good of shape to go after this hardening cycle and in fact will probably have to back off some more if they want to increase equity exposure quickly. Meanwhile WED trades at about a 15% premium to the private placement to purchase Jevco at .95x BV at December 31/09. YE results are due out in a couple weeks for EFH – I think we will find that it’s currently been trading at about .90x YE BV. I do of course own a position in EFH. I plan on keeping an eye on WED – it might make a lot of sense particularly if markets get very cheap sometime in the next several years. A Cheap stock market, combined with a very underleveraged Jevco could be a real winner – I just don’t see either at the moment. UCP / DD

A couple lower risk plays (perhaps lower potential return too – but I still think pretty good). They both have stable and growing business models in North America -- with some tremendous growth potential in China and other emerging markets thrown in free. Ingersoll Rand Paying down debt quite quickly as they increase free cash. Goal is to get their debt rating up to 'A' status. Price has dropped back to $32 level -- representing a multiple of about 8x free cash of about $4. As they integrate the recent Trane acquisition -- some of the free cash being generated is coming from improved inventory turns, working capital improvements, etc. While some of these improvements may be temporary -- they should become more than offset by lower interest costs from paying down debt, improving their ratings and a recovery of the overall economy and pent up demand. So my thinking is that they can maintain this kind of free cash generation up until the economy recovers -- after which they should continue on a more consistent earnings growth trajectory (3-5 percent better than the overall economy without using any of this free cash). After they have debt levels to where they need them -- all this free cash can be put toward other purposes (dividend increases, buying back stock, acquisitions, etc). At the time they purchased Trane - Trane's volumes were 75% Americas, 25% International -- with very little in China or India. The Ingersoll Rand company though has had a presence in China and India -- so the synergies are quite large. Ingersoll Rand becomes a one-stop shop when it comes to expansion in places like China and India. When Wal-mart (or whoever else) builds a store - Ingersoll Rand provides them with the climate control package - not only for the store itself - but also the refrigerated display cases. Beyond the theme of this thread is also energy efficiency. Indigo Books and Music World class book retailer here in Canada. It is not as cheap as it was a few months ago - but it is still pretty reasonable - particularly if you consider that by YE March/10 they should have close to $5 in cash with very little debt. So what does a boring book retailer have to do with China? Mainly their e-book startup, Kobo (www.kobobooks.com) that is partnering with the Li-Ka-Shing empire. Predictions are calling for e-books in China to exceed that of the US by 2012. Unlike the past era of PC’s – the era we are entering (mobile devices) has so many different operating platforms. Kobo is one of the few to recognize that mobility from device to different device will be important in the years ahead. They are currently the largest global player with this device agnostic strategy. They have very good relations with publishers and are part of the decision making as to how things evolve. Over time I think they can develop market share in the U.S -- but it might take more time than say China where things are just beginning and they are very well positioned (China's ebook growth has so much potential). If it doesn’t work out – at least it is thrown in for free along with the $5 in cash. Some other interesting things going on in their stores here in Canada – but I won’t go into it as it’s off topic to this thread. UCP / DD

I agree with you entirely. The best thing we can do as investors is think like smart business people. A smart business person will no doubt be thinking about this energy supply/demand problem that the world is in.... how it effects his/her business, the solutions they can create within their organization and/or for others, etc. A smart business person would also be aware of Government regulation about to come down the pipe --- such as cap and trade carbon tariffs. They will also think beyond this year and next -- figure out ways to prosper through good and difficult times. Energy demand will be a huge head wind for some compannies -- a huge tail wind for others. UCP / DD

Had governments around the world taken deflationary measures, then I agree these might be silly places to spend (in fact we would hardly be spending at all). However, if you are taking an inflationary approach and spending like crazy -- one of the places you ought to spend is where there are barriers to growth. That barrier to growth going forward is energy supply. Any recovery at all and any growth around the globe will increase demand. The supply side cannot handle all the pressure, the cost of energy will go up (at least until the next recession). You can either go through recession after recession until the system figures out an equilibrium ..... OR you could think ahead and mitigate the impact by spending some of these dollars on conservation, efficiency, alternative projects (etc) now. To say that jet (and even road travel) has advantages over rail is backward thinking -- it does not take into account the future problems of higher energy costs. Nor does it take into account a soon to be created cap and trade carbon tariff system that charges to burn the stuff. An interesting change shift (driven by energy supply/demand) is not only on the horizon -- it has begun. UCP / DD

I am not sure what data you are looking at for the 1929-1945 period. GDP at the height of 1929 had matched itself by 1940. By 1945 it had more than doubled. But the significant intervention had not happened until around 32/33 after tremendous damage had taken place. If on the other hand you are referring to corporate earnings -- that might be a valid point; however, do consider that S&P earnings for 2009 have already taken this situation back about 6 years. It's perhaps more valid to counter argue this by pointing out what happened in the Great Depression once intervention did take place. Again, this was around 32/33 --- which was both the very low point for GDP and Corporate Earnings. Things were very much onward and upward from there.... other than a bit of deflation in 1938. One should also consider though that we had not committed ourselves to an inflationary economic model until that time in 32/33 --- and some would argue that we did not fully commit to this model until the early 70's. As for Japan -- there are so many differences: - different corporate culture pertaining to employee loyalty - slow and easy cutbacks over the course of a decade vs swift corrective measures and massive layoffs - little or no immigration (in fact an aging population) - banks kept toxic assets on their balance sheets for years - intervention was slower - not the world's current rule maker/rule breaker - two gigantic bubbles coexisted (both real estate + stocks). [note: 2007 was not a stock bubble -- at least not of the epic type 1999/2000 was -- that is now 10-11 years behind us]

China may very well have created itself a bubble. Oil money has without question created one for the OPEC countries and Dubai. And even here in Canada we are in complete denial of every thing that has gone on (when thinking about real estate prices). If China pops - then oil pops. And that is a pretty scary scenario considering the very lofty house prices in much of Canada. It would definitely be akin to what happened here in Alberta in the early 80's -- only this time worse as the oil wealth is dispersed more throughout the country. I agree with you that at some point the Chinese economy needs to be brought down to a normal scale. My hope is that it can be done gently. And I think that is more likely than an all out fall. There is already a tremendous amount of stimulus out there -- cheap energy would add that much more -- and lift things back up pretty quick. But the more likely scenario with all this stimulus is pressure on demand with a lagging supply side.... eventually finding some sort of oil equilibrium that basically forces China (and others) down to a more normal type of growth. UCP / DD

I believe you are dead on about oil prices contributing to a recession. It happened that the financial system melted down before the 140$ barrel could finish what it started. I have not heard a lot of people talk about that aspect of the financial crisis but to me it makes perfect sense. When you get a highly leveraged society with a discretionary income of about 1% end you take away this 1% in a year with a sharp price increase what do you think can happen? It's simple arithmetic. It's going to be fun to see the economy trying to pick up speed with the oil prices choking it. BeerBaron But one has to think of oil equilibrium on a global basis. Most of the demand growth is coming from the emerging and OPEC countries. Part of the problem is that places like China are subsidizing oil and most OPEC Countries are giving the stuff away – gasoline in Saudi Arabia, Iran, Venezuela (etc) goes for a mere 25-50 cents per gallon! Then you have places like Dubai being funded by oil money. Ironically, the same oil commodity that China is helping to drive up by subsidizing it – works to their disadvantage in terms of US exports. At some increased oil price, there becomes a tipping point in which China’s cheap labour can’t offset the substantial increase in overseas shipping for many of their exports. When this point is met, China and other cheap labour overseas countries start to lose their competitive export advantage. It seems possible that this tipping point could be Oil Equilibrium? Oil prices go higher than equilibrium and jobs start being repatriated back to the U.S.? [Mexico is viable – but not as viable in many instances] Of course it won’t happen overnight – and it could be a slow grind getting there. How can you speed up the process? Ironically, by penalizing oil further though some sort of cap and trade carbon tariffs. Yes, Americans will have to pay more for burning fuel; however, the repatriation will be worth it. Cap and Trade Carbon Tariffs are a matter of ‘when’, not ‘if’. As per my initial post – I share your concern that rising oil prices have the potential to continue choking out growth; however, escalating import shipping costs at some point will create a dramatic shift in corporate thinking that starts trending toward local homeland manufacturing expansion rather than overseas. And at some point a gradual repatriation of some industries. The other surprise may be how some alternative energy, efficiency (etc) industries take shape. How long it takes to pull the American economy out of it’s funk remains to be seen – but despite higher energy prices, I don’t think it is all bad news. I recently read a very good book on much of the above. Highly recommend it - you can read an 11 page introduction here for free (if anyone wants to buy it - look for discount codes for as much as 25%): http://www.kobobooks.com/ebook/Why-Your-World-Is-About/book-o6NpiolfFESaTS2DsQsRGw/page1.html UCP / DD

Unemployment always peaks after a recession is over .... same case with foreclosures in a housing wreck. The matter of having the economy stand on it's own two feet takes us back to the root cause. The head wind to recovery will be rising energy demand alongside a supply side that has now been knocked back a couple years. The dominos in the financial/housing crisis had been lining up for a while. The jolt that made them start to topple was oil soaring to $140/barrel. One way or another -- the economy was headed for recession due to soaring energy costs alone. Yes, the financial/housing crisis made things a lot worse. However, there has been a lot of money thrown at this problem. Energy equilibrium is still outstanding and the balance the economy needs to reach. UCP/DD