Monthly Archives: March 2013

Syrian Rebels – Help Wanted

It struck me as kind of odd when I read the article about the National Coalition president Mouaz al-Khatib quitting due to frustration.   I pulled these quotes from a great summary of the event:

He said his resignation means he can now “work with freedom that is not available inside the official institutions.”

He also blamed world powers for providing what he deemed insufficient support for the rebel cause, and complained that many “international and regional parties” have insisted on pushing the opposition toward dialogue with the regime.

Really?  Sounds like this Syrian Rebel group must be a bureaucratic mess from the sounds of it.  Too many special interests perhaps?  And he is complaining about pressure for diplomacy with the Assad regime?  Please tell us more – all we hear is saber rattling from all the third parties.

After looking this further –  I think Mr al-Khatib ‘is pursuing other opportunities’ – he got fired.  Sounds like he wasn’t following the rules put down by all the foreign countries behind this revolution.   And who was waiting in the wings to take the reins?   Would you believe a US educated Texas businessman born in Syria but has lived in the US since 1980?  Ghassan Hitto has replaced al-Khatib. He was elected Prime Minister on March 18th, and on the 23rd Mouaz al-Khatib ‘quit’.  Hitto’s primary qualifications?

Hitto’s profile has recently risen to prominence via a series of public service and fundraising initiatives, such as the Walk for Children of Syria Day.

This article gives a great summary of  Mr Hitto’s backgrount – http://rt.com/news/syrian-opposition-prime-minister-458/.  This was the most qualified candidate?  Sounds like its not what you know, but who you know.  Interestingly, the rebels are rejecting the appointment of Hitto, further highlighting the oddity of this situation.   Hopefully the rebels will provide us some information on who was behind Hitto’s miraculous rise to power.

It will be interesting to find out who is pulling the strings behind all this – I long for the day where we will get some investigative journalism into this worldwide political involvement with what in theory is a civil war.

Another Government Attack on an Internet Activist

Check out this article on these ‘Hackers’ who just got 3 years of prison and is to pay  $73,000 in restitution:

http://www.wired.com/threatlevel/2013/03/att-hacker-gets-3-years/

This was not a hack – Andrew Aurernheimer and his colleague stumbled across a huge security whole that AT&T exposed.  It is unbelievable that a company the size of AT&T would expose this information.

Here is the ‘hack’ that was perpetrated – he  noticed that if you take an AT&T URL and increment the querystring variable, you can pull another users information.  For instance, lets say you log into your AT&T account, and you see a URL like ‘http://www.att.com/default.aspx?ICCID=1234 which shows your profile information.  Then if you go to your browser URL, and change the URL to http://www.att.com/default.aspx?ICCID=1235, you see someone else’s profile information – that is a hack?  Then you spend 15 minutes writing a script which loops through and generates urls with the ICCID incremented, and parse the webpage information into a database.

Ethical? Probably not.  But if you want to expose AT&T as treating customer information carelessly you could be considered a  whistle blower.    These guys did not profit off this information – they sent the data to the editors of a popular website (Gawker.com) to embarrass AT&T.  Arguably, if you tried to sue AT&T for breach custodial conduct of your information, their lawyers would probably argue there were no damages since no harm was done to you.

However the federal government is able to get a 3 year conviction.  Oh.. coincidentally…. Andrew Aurernheimer  is an internet activist in the vein of Aaron Schwarz – http://en.wikipedia.org/wiki/Andrew_Auernheimer.

The government crackdown on behalf of corporate America continues.   As a commenter states in the article comments:  “In America, if you want your rights protected, you had best incorporate first.”.

 

 

Esterline First Quarter Earnings Review

Esterline Technologies (ESL) has always been an interesting company to me – a collection of 10 plus semi-autonomous companies focused on aerospace and defense. Since their first quarter earnings report was released on February 28th, the stock has outperformed the S&P 500 (up 5.5% VS 2.5% for the S&P 500), which caused me to dig a little deeper into the earnings report to see if I could find a reason.

First, here is an overview of some key metrics for Esterline over the last few years:

Esterline

Annual revenue growth is still positive, at a relatively healthy 8.9%. While the revenue growth is slowing faster than I would prefer, at this point I will chalk it up to macro factors rather than to management issues. However this will be a metric to watch closely in future earnings releases.

Trailing 12 month after tax margin has been relatively flat (barring the exception of the impairment charge Racal Acoustics Defense in third quarter 2012), so no big concerns there. However Inventories were up 5% from recent quarters – this is somewhat cautionary as it could indicate future write-downs impacting margins.

Perhaps the outperformance of the stock after the earnings release can be attributed to the new markets Esterline is exploring. With the slowing defense spending, Esterline has announced they have some opportunities in high-speed rail, nuclear power, and gaming initiatives. This must be the catalyst for growth that investors are anticipating, though it seems awfully early to be pricing these opportunities into the stock.

Note what this recent price increase has done to the stocks earnings yield. When I compare Esterline to another defense related company of approximately the same size, Flir Systems, Inc (FLIR), you notice the valuation for Esterline is not as attractive as it once was:

ESL vs FLIR

While Flir is not a pure comp to Esterline, this chart does indicate that much of the good news is priced into Esterline.

Conclusion

This quarters earnings report does have reasons for optimism, but I believe the stock may be over anticipating future catalysts for growth. Given the unanticipated US Government sequester (admittedly unanticipated by management), keep an eye on the annual revenue growth. Also keep an eye on the new market opportunities mentioned. Due to Esterline distributed organizational structure, they may be able to move quickly to gain traction. But I would need to see more proof first.

To see the full first quarter earnings report, click here.

The Future of Unemployment

A few months ago I joined Amazon Prime, so for $75 it give me free 2 day shipping on most items.  The thing that amazes me the most is how much that it has increased my spending on Amazon- or conversely how much it has shifted me from buying stuff from brick and mortar stores.  It is cutting probably almost half of my purchases from Home Improvement stores, drugstores, etc.  It is so much more efficient than driving  to the store, finding the item in the store (or having to go to a different store) and then getting home and realizing I forgot something..

This article got me wondering further about where all the worlds low skilled labor would make a living in the coming years:

http://www.businessinsider.com/50-percent-unemployment-robot-economy-2013-1

And back to Amazon for a moment – even they are working to automate as much as possible:

http://www.businessweek.com/articles/2012-11-30/amazons-robotic-future-a-work-in-progress

I realize that for hundreds of years people have had this worry about technological advancements, but I am hard pressed to think of a low skilled job sector that is not faced with competition from automation.   So for young, low skilled, or under educated people, where do they get their start?  I have to think retail jobs and even warehouse jobs are or will be on the decline,  and for low skilled manufacturing you are competing with the rest of the world.

Here is a chart I put together from data from the Bureau of Labor Statistics of historical unemployment by age group:

unemployment

 Is it a coincidence that the unemployment rate gap for those under 24 has increased in the last few years?  And this appears to be a global phenonenom – Spains youth  unemployment rate  is over 50%:

http://www.bbc.co.uk/news/business-21180371

So maybe we are in the early stagest of an economic evolution – or revolution.  It will be interesting to watch Spain and the rest of the eurozone deal with this unemployment problem, because we will likely be dealing with the same problems soon.