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An exclusive monthly news report for private company CEO's
October 11, 2006
Sign of the Times
Did You Know
Ask the Expert
Market Stats
Helpful Links
Quote of the Month:

"A?woman was caught trying to jump over the White House fence after tossing a package?to the other side. Turns out it was just Hillary Clinton with carpet samples."

---George W. Bush (at White House Correspondent Dinner)

Sign of the Times

A monthly market commentary

“It's All About Barack Obama (this week anyway) !”

Every businessman knows that when opportunity knocks, you have to take advantage of it. And if you don't, someone else will quickly fill the void.

This is precisely where Obama Barack is at today. Whether you support him or not, as a fundamental note,?he may never have this opportunity again. No doubt it has surprised him more than anyone else, hence his backing off comments made just a few months back that he had no intention of running in 2008.

This harkens back to another senator named John F. Kennedy who became the president at the tender age of 43. Obama is 45 and would be 47 if he were to become president in 2008. Moving ahead, I would expect Obama to use the age comparison with Kennedy frequently?when he is queried about whether or not he is ready to assume the responsibilities of the presidency. I know I would.

His new book. "The Audacity of Hope: Thoughts on Reclaiming the American Dream," is getting high marks as a thoughtful, careful analysis of what needs to be done to preserve our freedoms in a time of terror. For those who question whether he has enough experience to have good judgment, he can point back to 2003?when he?warned against invading Iraq--which most Americans? today?agree?was a mistake. That's not to say Saddam Hussein should not have been removed.

His service in the Illinois Senate and the U.S. Senate has earned the respect of his colleagues on both sides of the aisle. His approach is that of a consensus builder?as he looks for?solutions to problems before him. He does not engage in arguments about big versus small government preferring to call the correct approach "smart government."

From a national perspective, Obama burst on the scene in his now well known (some say famous) 2004 speech at the Democratic?National Convention. He seemed to transcend the usual problems of race and gender and ethnicity talking about "One America", not blue or red states. He?forcefully painted a picture of America's future faithful to our ideals and our Constitution.

Whether or not Barak Obama is elected, it appears his?chance has come, premature or not. It's going to be interesting to watch.?

Did You Know

“Traveling to Spain? Consider an Island Trip to Upscale Mallorca”

Spain seems to be on everyone's mind these days when discussions about European travel emerge. From the tapas bars to the Catalonian modernism?in Barcelona to the cultural intensity and artistic activity in Madrid (not to mention the very lively nightlife) to America's Cup Sailing in Valencia in 2007, yes, there are plenty of reasons to visit. Here's one more:

Mallorca, long known as a bargain destination for those who couldn't afford anything better, has a lovely new face. Over the past six to eight years, investors--betting that the island's abundant beauty could draw well-heeled vacationers--seeded a crop of five-star resorts, small luxury hotels, and top notch restaurants. A flush of Northern European vacation home buyers has also helped create a more upscale service industry. With a population of 640,000, Mallorca now boasts six Michelin-starred restaurants serving innovative Mediterranean cuisine.

The local government has worked hard to develop a smart facelift for the port and the historic center of Palma, Mallorca's main city of 300,000 residents, just under half the island's population. The streets of Palma are lined with gracious palms, chic boutiques, and cafes that lend urban energy and style to a once-provincial city. Just 15 minutes away, you're in the countryside.

Perhaps the biggest surprise is the feverish culinary competition under way. A growing number of talented European chefs and sommeliers are gravitating to Mallorca to ply their trade. They're opening restaurants offering inventive dishes. And despite the premium food, the tab for a tasting menu, or de'gustation menu, at a?one-star Michelin eatery runs from 21 to 60 euros ($26-$75), just a fraction of the cost of equally fine establishments in major European capitals.

One top address is the Michelin-starred restaurant at Read's Hotel, outside the little town of Santa Maria. Chef Marc Fosh delights with dishes that eschew rich sauces and butter, cooking savory meals only with natural juices and fresh herbs. His roasted duck with eucalyptus sauce and caramelized pineapple is a running hit.

Another hot spot is the resstaurant Refectori in the 17th century Convent de la Missio in the old town of Palma. Refectori's interior looks like a modern art museum, with black and white decor, pale wood floors, and a cascading wall of water.

To make sure you land in the part of Mallorca that suits you best, do a bit of research. The choices range from plush golf resorts to hip urban lodgings and hotels perched on remote cliffs.

Weekend visitors might prefer a designer hotel on the waterfront on the outskirts of Palma, such as the Hospes Maricel, which opened in 2002. It has 29 rooms, some of which have splendid terraces where it would be easy to pass two relaxing days reading a good book. The Maricel overlooks the?water below?and its dramatic pool looks as if it drops off into the sea. Individual therapy spots take place in the open air as waves wash over the rocky cove.

Mallorca's shakey reputation from the past may put some travelers off, but for those?who are aware of the recent developments, the unspoiled parts of the island are well worth the visit.

Ask the Expert

“Click Here to see how Wealthy Americans Party !”

The Luxury Institute, a Manhattan-based research institution that follows the behavior of the wealthiest American consumers, conducted a survey requested by certain advertisers and clients to determine which arts and entertainment events were perceived by the affluent to be the most prestigious. The survey was given to 500 wealthy Americans with a gross annual income of $200,000 and a net worth of at least $5 million.

The resondents were given a list of events--everything from the Academy Awards to the Cannes Film Festival to the American Wine & Food Festival--and were asked to rate them based on such categories as exclusivity, quality, and whether the event is a "must see" or a "must attend." According to Milton Pedraza, CEO of the Luxury Institute, the survey results help advertisers and companies decide which events to sponsor.

Making it to the top of prestigious events is the?Kennedy Center Honors, an annual show that pays tribute to artists who have made a lifetime contribution to the arts and American culture. It is followed by the Chelsea Flower Show, a garden show and garden design competition held annually in London. These two events also feature some pretty prominent guests. The current President and First Lady always attend the Kennedy Center Honors, while the Queen and the rest of the British Royal Family are always expected to attend the Chelsea Flower Show in London.

GOOD CAUSES. The top 10 events share common themes. The most are cultural events that made the list--such as any performance by the American Ballet Theatre, New York City Ballet, and the New York Philarmonic. Other events voted into the top 10 focus on food and wine, such as the Naples Winter Wine Festival, Auction Napa Valley, and the Taste of Vail Food & Wine Fest. The Kennedy Center Honors, the Chelsea Flower Show, and the Pebble Beach Concours d'Elegance fall under the award show category. The one how that stands out from the crowd (and is a personal favorite of mine--if you're into boats--Go!) is the Annual Yacht & Brokerage Show, held in February in Miami, which unlike the other top 10 events is totally free to attend.

Sure the events all sound like a great time, but many are more than just a way to enjoy a performance or taste a great bottle of wine. Taking advantage of the large presence of wealthy audience members, many of the events are also huge fundraisers that donate a portion of ticket sales and proceeds to different charities. Two of the biggest fundraisers on this list are Auction Napa Valley and the Naples Winter Wine Festival. During 2006's Auction Napa Valley, $8.6 million was raised in four days for charities that supported health care, youth services, and low-income housing efforts. During its three-day event, the 2006 Naples Winter Wine Festival raised $13.7 million for local children's charities.

Market Stats

“Earnings Per Share? Why Bother? Economic Profit is What Matters”

Ivan P. Feinseth, Director of Research at Manhattan brokerage Matrix USA, has slapped so many stocks with a "Strong Sell" rating that you'd think he has an ax to grind. Even after the stock analyst scandals of the 1990's, most Wall Streeters are loath to call a bad stock when they see one: In total, they recommend that clients get out of just 7% of the stocks they cover. But Feinseth rates 40% of his universe of 3,100 companies--roughly 1,200 companies--"Sell" or "Strong Sell."

Feinseth insists it's nothing personal. Rather, his computer model, which forces him to rank the best and worst relative values in the Russell 3000 index, makes him do it. Given that a third of that benchmark's stocks were down this year through May 26, Feinseth's 40% "Sell" percentage seems a trifle more realistic than the rest of the Street's.

Skeptics point out that by focusing primarily on data, he misses out on the nuances and "body language" that other analysts pick up on as they study companies and their executives. Feinseth doesn't seem to care. His focus is on doing a deep analysis of the numbers rather than talking with companies.

What makes Feinseth's analysis unique is its fixation on something other than the bottom line. He says traditional corporate earnings are vastly overrated as an investment gauge. The question, he says, is whether a company is creating real, hard value for its shareholders. "Earnings per share," he says, "is just an accounting measure of profit, when the real key to the stock price is economic profit." In other words, earnings are in the eye of the beholder. Companies manage analysts' expectations quite carefully--so they can beat them. But they can't fudge economic profit, which Feinseth defines as the extent of a company's return above its cost of capital.

That barometer, which anchors a proprietary model that includes 12 other factors, has helped Feinseth trounce the market since Matrix' late 2004 launch. Through mid-September, Matrix' 25-to-60 stock "Focus List" of favorites (yes, he recommends stocks as well--1,200 in all) has gained 12% in 2006, compared with 4% for the Standard & Poor's 500-stock index. Last year the list registered a gain of 33%, vs. 5% for the S&P. Overall, since its September, 2004, inception, the list has done more than triple the markets return.

It would consume every hour of the trading day for someone to act on the thousands of Matrix' frequently changing calls. Still, Feinseth believes this is a trader's market where he can deliver excess return only by managing his ratings in real time. "Even the greatest stocks," he says, "are not buy and hold. You need to understand the right time to be in and be out."

Helpful Links

“Go Rent A Movie....

Go rent a movie...right from your computer.?Indisputably, the company that made this all possible is an ambitious outfit known as Netflix. From 1.5 million subscribers in 2003 to over 5 million in 2006, this is one of Hollywood's hottest stories, and it's still in the first reel. Few upstarts this side of Google have grander plans than Netflix. This year, Netflix executives expect revenues to reach at least $990 Million. The Los Gatos based company blew away earnings estimates last week and the stock jumped 19% in a single day.

While the Bay Area of Northern California is by far the leading market (where Netflix is headquartered), it is beginning to catch on across the country. It's hard to find someone who has tried the service and not become instantly hooked. They simply make it too easy. Speaking for myself, I havent been in a video store for close to 3 years. No need. With Netflix, you have your own online video store and the selection is amazing. They carry the hard to find DVD's that a typical stand alone video store can't afford to stock. Keep the rented DVD's as long as you like as there is no late charge. Free shipping each way in smartly designed envelopes. The standard plan is $19.75 a month for 3 DVD's?you can have in your possession at any given time---no limit on how often you can send?one back for a new movie. One would have no problem getting 20 movies a month on the standard plan. The movies are released based?on a queue you set up in the order you want to receive the?movies. New movies not yet released for DVD can be added to a waiting list which will ship as soon as they become available. Believe me, it's nice to get home and open your mailbox and find a movie in the mail.

Back to the business aspect of Netflix, CEO Reed Hastings doesn't buy the idea that Web movie downloads will wipe Netflix out--not with studios protecting the 60% of film revenue that comes from DVD sales and rentals. Nevertheless, Hastings is hedging his bets by expanding Netflix into niches that will help it maintain an edge as new rivals emerge. He's positioning it as a film investor and source of high-quality content--like HBO for DVD rentals.

Mind you, plenty of people don't think Netflix can pull this caper off long term. Adams Media Research President Tom Adams says the market for Netflix-style rentals will crest at around 13 million U.S. households. Adams?contends that?many consumers rent on impulse and actually enjoy going to the local video rental outfit while?Netflix makes them order ahead. That analysis falls flat when a "newbie" experiences a trip to the Netflix website. Smartly organized with great content and?endless selections, it's fun?to simply browse the website. As I have encouraged friends over the past 3 years to sign up at Netflix and listened to their feedback, they love not having to?jump in a car to?hustle up?a movie when the mood hits.?Having 3 DVD's from Netflix in your possession at any given time allows for that one decadent end all we all love--instant gratification. Ah, yes, we are Americans!?

In the end,?it would appear?there is potential for?a substantially larger market that would exceed?20 million households signing up. While the?market itself is flat for overall DVD rentals, both NetFlix and Blockbuster Online are in significant?growth modes.?The future suggests a continuation of the growing popularity of online rentals and the slide in store visits that will culminate in stores going out of business.?At?present, there are over 10,000 Hollywood Video, Movie Gallery and Blockbuster stores scattered across the U.S.

The larger question is the future of downloading and what the studios will do. Clearly, to date, the movies available for downloading are limited and carefully selected to avoid infringing on the other more lucrative revenue streams. However, with nearly 25% of Netflix shares having been sold short by investors, it's obvious that many of them believe that eventually movie downloading will clobber the mail-order phenom.

Whatever the case, take the liberty of being the happy consumer enjoying the fruits that Netflix offers in the current environment. You can't beat it.



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