Gene Morphis ' View

Here’s our annual high-level comparison of Amazon vs. Walmart. From a growth perspective, Amazon wiped the floor with Walmart. AMZN added $18 billion in revenue for a 20.2% growth rate, while WMT shrank by $(3.5) billion or (0.7%).  WMT’s revenue was negatively affected by currency exchange rates moving against it, but even adjusting for that WMT’s revenue wasn’t in the realm of AMZN From a GAAP earnings perspective, WMT maintains its lead, although that is diminishing. WMT’s GAAP operating margin was 5.0%, which was a 0.6 PPT improvement, while AMZN delivered 2.1% operating margin. However, AMZN’s margin improved a whopping 1.9 PPT. WMT’s net income still dwarfs AMZN at $14.7 billion vs. $0.6 billion. But again, the change is informative: as WMT launched programs for higher associate pay and stronger e-commerce capability, its net income fell by 10.2% or $1.7 billion. Conversely, AMZN increased income by $0.8 billion from a prior year loss. While this is an annual com...

A savvy businessman once told me “it’s important to know what problem you are trying to solve”. Let’s ignore for the moment whether or not Treasury or the IRS had the power to change the rules on so-called tax inversions without Congressional action. (The power they said they didn’t have only a few months ago.) Rather, let’s focus on what problem we are trying to solve. That is, why is the greatest country on earth chasing companies away? Shouldn’t the U.S. be the place that companies want to locate their headquarters? Imagine this: the U.S. legal structure and tax regime was so attractive that Mercedes, Toyota, Astra Zeneca, Samsung, Total, Singapore Air, Banco Santander, Petrobras, Fujitsu, Nokia, SAP, Audi, Tata Group, Lenovo, Pirelli, Deutsche Bank, Honda, LG, Hyundai, Roche, Credit Suisse, Four Seasons, Siemens, Phillips, Bridgestone, Anglo-America, DeBeers, Volkswagen, Canon,  L’Oréal, Swatch, Armani, LVMH, Toshiba, H&M, Mahindra, Aldi, Kubota, Onex, Ducati, ...

The number of asset lite businesses is steadily increasing, as is the breadth of industries effected.  I first noticed them in the 1970’s, when Baron Hilton sold several flagship Hilton hotels while retaining management contracts that entitled Hilton Corporation to a share of revenue and earnings. Over the next two decades, Marriott Corp copied and then perfected the hotel management agreement business approach, coupling a Marriott franchise with a management agreement for any one of a growing stable of brands (Fairfield Inns, Courtyard by Marriott, Residence Inns, J.W. Marriott, etc. etc.), enabling absentee investor/owners.  It turns out, however, that asset lite business structures date back much earlier. Franchises and Dealers Early versions of asset lite businesses include franchise and dealer organizations. Soft drink and beer distributors, auto dealers and tire and repair franchises date to the early nineteen hundreds, as manufacturers needed mass distribution. T...

Why is there growing earnings gap between the highest earners and the rest of the U.S. workforce? While a number of hypotheses have been advanced, I think many miss important developments. In my view, the following culprits have materially affected the wages, salaries and income of the lowest ranks.   Both governmental and cultural destruction of the family. I’m not going to dwell on this, but, statistically, the fastest path to poverty is to be a single mom. Want to not be poor? Finish high school and get married before getting pregnant. Harsh perhaps, but statistically unarguable. The Federal Reserve continues to oppress lower earners. For most folks, building wealth starts with home ownership. Replacing rent payments with mortgage payments generally results in owning an asset (home). In some markets, that asset appreciates. When my wife and I were apartment dwellers, we saved for a home down payment. Our savings earned interest. Now, I won’t say that the interest was hug...

One of my cousins was recently admitted to the hospital with pneumonia, and went straight into the ICU. People tend to ignore pneumonia, or minimize its seriousness. You might have even heard people talking about “walking pneumonia”. That, in technical terms, is BS. Pneumonia is a badass illness. According to Centers for Disease Control, 53,000 people died of pneumonia last year. For those of us over 65, vaccinations are recommended, with the usual exceptions for certain conditions. And it is recommended for many under 65 with certain conditions. There are two different vaccines that cover different strains. You need both shots. Of course it isn’t foolproof. The vaccines aren’t 100% effective, and new strains emerge. Still, there is no reason to get seriously ill from a strain that a vax would have likely prevented. If you are over 65 and haven’t had the shots, go see your doc. Don’t screw around. And if you are younger, check with your parents, other relatives and friends to ma...

Stock buybacks are all the rage. There is even an investing newsletter called Total Yield that adds dividends and stock repurchases and uses that measure as a key criterion for investment decisions. Despite its widespread popularity, I’m not crazy about stock buybacks. In fact, they are increasingly signs of dumb, lazy or incompetent management. Here’s why: 1.        They are frequently used as a palliative to offset bad news.   About to issue an earnings release with a sales decline and a miss to analyst estimates? Throw in a stock buyback to see if it will relieve some investor pain, or even better, moderate a certain stock price decline. 2.        It doesn’t return money to shareholders; it gives money to people who no longer want to be shareholders. Real believers in a company’s story want to hold the stock. Who sells into a buyback? People who no longer believe. 3.        It raise...

As happens this time of year, publishers list their most important/influential/etc. youngsters.  As an example, the May issue of Wired has “20 Unsung Geniuses”.  We think mature adults deserve recognition just as much as 20-something billionaires.  Here is our Sixty Over Sixty list of the most influential, annoying, important or folks we just find interesting.  Here then, sorted by age, is The Sixty Most Important Leaders Over Sixty. Henry Kissinger.  Still the U.S. best thinker on foreign policy and diplomacy. His recently published book (at age 91) World Order is not only a best seller, it is extraorinary. Jimmy Carter.  Better as an ex-President than President.  His work for Habitat for Humanity is a lesson for all of us. T. Boone Pickens.  Oilman, energy expert.  Creator of The Pickens Plan for energy independence. Frank Gehry.  Showing the world what new materials and CAD design can do to architecture. Warren Bufett. B...

Has the concept of retirement come to an end? Background Retirement, in human terms, is a new concept.  Until the industrial age and the massive shift from farms to factories, there really wasn’t retirement.  One worked the family farm or ranch until unable to work.  At that point one hoped that his children would take care of him during his short remaining life.  Industrialization changed much of that.  While manual farm work was back-breaking labor (and, even with today’s highly mechanized farms, remains so), coal miners, steel-mill-hands, textile plant employees, slaughterhouse and meatpacking plant workers and millions of others had it even tougher, with serious workplace injuries and fatalities common. Bismarck is credited with the first old-age pension in 1889. The industrial age was dawning, and Germany needed an incentive to convince young workers to leave the farm for factory jobs in the cities.  This was a part of that plan. It became w...

Here is a high-level comparison of Amazon to Wal-Mart. Note that Amazon uses a calendar year, while Wal-Mart uses a traditional retail fiscal calendar ending January 31 st . I’ve compiled some numbers and ratios from each company for their respective fiscal year periods that include most or all of 2014. Therefore this comparison is slightly off. However, the comparison does include the traditional peak seasons of back-to-school and Christmas in both. To make my job easier, I’m listing Wal-Mart first each time in the following comparisons. Revenue: (in billions) Absolute:  $485.6 vs. $89.0 Revenue Growth $:  $9.4 vs. $14.5 Revenue Growth %:  2.0% vs. 19.5% There is no question that the clear growth winner is Amazon – adding $5.1 bil more in revenue in the last twelve months despite Wal-Mart’s base size advantage.  And the rate of growth is indeed impressive at almost 10X Wal-Mart’s. Operating income: (in billions) Absolute: $27.1 vs. $0.2 Oper...

From time to time one reads a book that is important. The Second Machine Age Work Progress And Prosperity In A Time of Brilliant Technologies by Erik Brynjolfsson and Andrew McAfee is important. In the authors’ view, the confluence of falling technology costs, increased computer processing power, cheap sensors and the quality and ubiquity of networks, are ushering in a revolution equally as potent and far-reaching as the Industrial Revolution. Drawing parallels to the effect on civilization of the Industrial evolution, and how long its subsequent impact has continued, they see brilliant technologies in the early stage of changing about everything. They provide a historical context on the growth in living standards, starting with the domestication of the horse, development of agriculture, which led to cities, afforded great armies and so on.  Things really didn’t advance much from there until the steam engine was perfected, which created factories, mass transit, electrification ...

The most recent trustees’ report forecasts that the Medicare trust fund will be exhausted in 2030. While that is a financially frightening prospect, there was good news buried in the report: the previous forecast indicated the funds would be gone in 2026. I believe there are reasons to be far more optimistic. Here’s why: 1.        There are cheaper medical services on the way. Theranos has a totally new approach to blood analysis as an example. Founded by Elizabeth Holmes, and backed by a who’s who, Theranos has micro labs that can be installed anywhere and only require a few drops of blood. Millions of us troop to a Quest Diagnostics center, or one of its competitors, to have our blood chemistry tested for any of thousands of things like cholesterol levels, hepatitis presence, insulin and blood sugar and so on. Quest, of course, bills the patient, and/or the patient’s insurer, including Medicare. Theranos is an example of a better, cheaper, faster op...

If you are a William Gibson fan, you’ll likely be excited to learn that he has returned to his particular flavor of science fiction. He has detoured into more conventional (but no less enjoyable) fiction recently, exploring conflicts among ad agency/security firms, investment denim creators, spying drones controlled by smart phones, etc, but returns to the scifi genre in The Peripheral . For folks who’ve never read his work, his prose is exactly right-not unnecessarily long, not too spare. Just right.  He is the guru of the near-future; one reads about things in his work that you are certain don’t exist, and then observes them in a few years. This novel however reaches a little farther into time than his previous work. It presumes that multiple presents and futures exist-that is the multiverse or quantum universe hypothesis. Within that framework, he shows his craftsmanship in creating characters that the reader immediately envisions, easily finds believable and become interes...

Dr. Amy Reed, an anesthesiologist from Boston, has advanced cancer, possibly spread by a device called a morcellator. According to highly –esteemed analyst Stephanie Pomboy of Macro Mavens, as quoted in Barron’s July 12 th 2014 edition, there are three million four hundred thousand (3,400,000) fewer fulltime workers now than before the Great Recession. The FDA is proposing regulation of cigar manufacturers and a stunning tax on cigars. How are these three things connected? Before we get into that, let us thank Dr. Amy Reed, who is battling Stage Four cancer, for raising the issue of the risks that may be associated with using the morbidly named “morcellator” in association with hysterectomies.   More on that here .   Dr. Reed is doing all women a big favor.   And thanks should also go to USA Today , and more particularly to America’s sole remaining conservative newspaper The Wall St. Journal for raising awareness sufficiently that the FDA had to look ...

I was re-reading a business book that was published in 1991.   It had success stories of companies that had installed new management techniques.   (The author, of course, was an expert on those techniques.)   Many of those companies no longer exist.   Not because of following the writer’s recommendations – those are actually pretty good even today. But because of the earth-shattering changes that have swept U.S. and the world- of industry. You – our model worker- just recently celebrated your fifty –second birthday.   You were part of a wave of baby –boomer women who swept into colleges and universities in the seventies and eighties and graduated in 1984.   Or perhaps it is you – the man who completed military service at that same time.   You entered the work force in 1984. Think about just how much things have changed since then.   Tools you learned to use only to discard and replace them with something newer and better.   When you...

  Today Forbes announced its list of the thirty most important people under thirty.   Fortune did the same thing recently.   Are you tired of reading lists of “Thirty Leaders Under Thirty”?   Here is a list of the sixty most influential, annoying, important or just folks over sixty.   Here then, sorted by age, is The Sixty Most Important People Over Sixty . Henry Kissinger.   Still the U.S. best thinker on foreign policy and diplomacy. Jimmy Carter.   Better as an ex-President than President.   His work for Habitat for Humanity is a lesson for all of us. T. Boone Pickens.   Oilman, energy expert.   Creator of The Pickens Plan for energy independence. Frank Gehry.   Showing the world what new materials and CAD design can do to architecture. Warren Bufett. Best investor in history.   Becoming one of the best philanthropists in history. Alan Simpson.   Former Senator who, along with Bowles (below) is tryi...