Rio Bravo..a blue light special and Google

November 17,2004
Hello,

Well it’s not Rio Bravo either, but the market is starting to exude more positives. Compelling valuations that’s what we see and apparently even if some investors are not sold on the value of stock investing; Corporate America has gotten bitten by the merger bug. Dow Jones found value on the internet and Kmart found value in Sears real estate. It is all about location; location, location, location. Speaking of location as you may know I have been cool to this whole “google” thing since its inception. I didn’t like the way the IPO was conducted, I thought the timing of the thing was a day late and a dollar short; I don’t like the capitol structure and I wanted to wait and see for the lock up period to end. Well as you know google doubled in price since the IPO, but recently there has been more criticism of the way the IPO was conducted, including some that suggested that the mishandled road show caused a much lower IPO price leaving a lot of money on the table.

The number of outstanding shares to be freely traded will increase from 22.5 million to a tad fewer than 300 million by February. That is a 10 fold increase! What is a “lock up”? The lock up period is a time period that insiders, original investors, employees and other have to hold stock and are not allowed to trade it freely. Google is not unique in this practice, but the size of the lock up stock compared to the total outstanding stock seems very significant. This is why I remain hands off till I see the lock up end or as they say the “stuff” hits the fan.

Once again inflation has reared it ugly head or has it? Those of you who are regular readers would note that I have constantly swam against the current of the “sky is falling inflation is coming” crowd. Wholesale price increases and consumer price increases have ever so temporary spooked the market again only to be shrugged off one day later. The reason is simple the effects of reflating are not in them selves a trend of inflation. Folks how easily we forget that a little over three years ago we were on a ledge looking straight down at the specter of a deflationary depression. Looking at Japan of the late 1980’s and the Great Depression the FED and the president got together and decided to flood the market with liquidity, with the motto, thanks to P.Diddy “deflate or die”. Recently higher oil prices, which are coming down, a declining dollar and hurricanes displacing the winter food crop, are all contributing to short term price increases. We would need to see several months of data suggesting a consistent uptrend. “Better to devour the data and beware of the dogma”.


James