Marissa Mayer Yahoo Plan B $YHOO, $BABA, $GOOG

Ok So Marissa is doing a stealth decimation. Weekly Yahoo HR takes over a bunch of board rooms and a group of  traumatized employees are excommunicated and released from any and all obligations Yahoo. Especially of the pay cheque variety.

Yahoo needs to cut costs. No secret. Marketplace looking for leadership from executive team. Slow short stokes have never done it; so why will it now?

Common sense and HR thinking in a rare intersection advocates you do one big day of execution and move forward with the survivors. Psychologically the wait is disturbing and pseudo survivors are not productive otherwise.

Cut to the bone. Motivate survivors and move on.

Marissa Mayer was hired for her skills as an engineer. She was not hired as an axe wielding cost cutter. Perhaps this is why we have a stealth decimation.

Is Marissa Mayer afraid to jump in the water and feel an invigorating change in body  temperature? She is afraid of something. Shedding headcount wholesale is a time-honoured but not guaranteed way to cut costs. So why pull your punches.

Because she is not sure this will really work. So its done in the back rooms quietly. Someone promised the board that she can turn Yahoo around. Cutting staff was not what they were thinking.

Ask not for whom the bell tolls for it tolls for thee.

George Gutowski writes from a caveat emptor perspective.

Achilles Heel for Banks and Credit Cards $V, $MA, $AMEX, $DFS, $C, $JPM, $WFC, $BAC

Interest Rates are rising or so the pundits say. Fed changed some wording on a sacred document and the market is convinced money will cost more. Usually banks do well in a rising interest rate environment. Lock in low cost deposits and capital. Lend and invest at variable rates and watch the spread expand.

True that but only so far.

Credit cards are fixed rate. They really have not come down as interest rates declined. After you chew through the tricky mumbo jumbo of a basic card holder agreement most credit card users are paying around 20%. Many are paying something north of that like 28% plus difficult to avoid fees.

That’s the way it used to be before the financial crisis. The banks may attempt to increase fees but the election cycle consumer turning into political pressure will be too high.

So spreads will narrow and that’s on the good accounts. The high risk accounts will increase defaults and the mathematical algorithms will start to invalidate.

Got that: The spreads will start to narrow as funding costs start to go up.

Not good for financial institutions. Wonder what the stress tests are showing on this fissure.

George Gutowski writes from a caveat emptor perspective.

Bank of America Bear Case Scenario Disaster Looming or Value Play $BAC, XLF

Financial Institutions of this size are usually too large to manage. They are not nimble or opportunistic. They are still the large aircraft carriers of the fleet. Too big to fail or sink without taking everything with them. Very depressing isn’t it.

It may take years before Bank of America covers its cost of capital. How long is a shareholder supposed to wait.

Cost cutting programs are usually not effective or take too long before the patient is declared terminally ill. Announcing a share buy back followed by the Fed’s giving them a provisional pass only smells of danger.

George Gutowski writes from a caveat emptor perspective.

Bank of America Bull Case Scenario; Reality or Delusion Driven $BAC, $XLF

Bank of America is poised to become a dominant provider of wealth management and deposit services. Low risk, high touch, low capital will generate fees far into the future.

Mortgage problems are finally behind them. Costs and exorbitant legal fees and settlements are a thing of the past.

Previous problems were attributable to poor capital allocation decisions. Given its current size there are no large mergers which could make senses to investment banker or fevered boards of directors. Besides the regulators are on duty and can be expected to scrutinize everything very carefully. Speaking of which B of A just passed the stress tests provisionally. They can still fail if they do not correct their homework properly.

Management was pretty cheeky when it announced a share buy back deal worth billions. That gets by the regulators but they did not seem to mind.

Most banks do well in a rising interest rate environment. Interest rates have only one way to go.

George Gutowski writes from a caveat emptor perspective.

What Will Kill Warren Buffett and Most Cities in the USA. The answers is …$MUNI, $BRK.B, $GOOG, $AAPL, $SUB, $MUB, $PZA, $SHM

What will kill Warren Buffett or more specifically his insurance operations and wipe out most American Cities?

Answer: Driverless Cars.

Driverless Cars have no active human intervention. Active human intervention is the leading sole cause of accidents. Humans making bad decisions resulting in accidents. Drunk Driving will stop being a factor. Speeding will become impossible. As a matter of fact Driverless cars will be programmed to follow all aspects of Highway Traffic Act and Municipal Ordinances. So there will be no accidents.

Risk reduces need for expansive auto insurance policies. Consumer starts to save a lot of money. Auto-Insurance companies start to shrink and then disappear. Insurance companies are major buyers of high yielding municipal debt. Politicians with good credit ratings will still go begging but the municipal bond market will dry up.

The driverless car will discipline municipal borrowers. Republicans and Democrats alike will need to cover their bills in another way.

Driverless cars will destroy the blood sucking auto litigation business that feeds so many shyster lawyers. If the accident did not occur there is no lawsuit.

Driverless cars will destroy auto repair shops. Less accidents means less work. Flinty eyed grease monkeys will stop taking money out of your pocket because you do not have as many accidents.

But the big issue is Berkshire Hathaway’s position within the general insurance market. The need for car insurance will lessen dramatically. After all who really likes their insurance agent.

Right no one.

This will be the first time that Berkshire Hathaway will need to go in a fast reverse and exit an investment before it drops dramatically. Everyone will see it coming. Insurance has been such an integral part of Berkshire Hathaway that when they attempt to dispose of it the stock valuation will drop like a stone.

Warren Buffett and associated minions have no experience or perspective with this kind of problem.

George Gutowski writes from a caveat emptor perspective.

Bear Case Scenario for Berkshire Hathaway. Winning Streaks never last forever. $BRK.A, $BRK.B

Warren Buffett did have the golden touch. His successors are smart but not as smart as he was/is. They probably cannot continue with his legendary ways.

To continue showing significant results they will need to make larger and larger deals. Eventually one will bomb and negatively impact.

If the market is due for a correction, the large portfolio of marketable securities will drop in value. There is no rule that says an investment needs to come back in value.

Insurance operations have significant risk. No risk pool is bullet proof. Warren Buffett likes to keep large cash reserves around just in case insurance runs into a problem. We should respect his wisdom.

The majority of Warren Buffett’s shares are going to Bill and Melinda Gates Foundation to fund charitable works. You must sell the shares to source cash. While the stock has great value a constant selling program will trigger some very simple supply and demand dynamics.

George Gutowski writes from a caveat emptor perspective.

Bull Case Scenario for Berkshire Hathaway. Dividends Probably? $BRK.A, $BRK.B

Berkshire had a float of some $360 Billion or so rounding to the closest Yankee dollar. The float had a negative carry cost as all returns are in capital gains. No yield from Omaha.

Traditionally Berkshire has not paid a dividend. The smartest investor in our time delivered outstanding long-term gains. When the torch passes the newbies as brilliant as they probably will be, will need to prove their value to investors. Nothing like a buy and hold investment with a constantly increasing dividend to entice investors to remain.

The management team is excellent and can be expected to generate above average returns well into the future.

The portfolio is well diversified into many different businesses.

George Gutowski writes from a caveat emptor perspective.

Bear Case Scenario Why Alibaba is over hyped; Crash and Burn $BABA

The Chinese market is huge. Other savvy well capitalized players are and will expand into China. Alibaba does not have all the answers.

Alibaba is Chinese and to a great extent beholden to Beijing. There will be subtle pressure from the Emperor’s court. The pressure only works if the Emperor’s court has much power globally.

Despite its domestic dominance in China it will be necessary to expand globally. This will be new battle ground without the normal advantages but much prestige will be involved. Alibaba will not automatically thrive in new markets.

Alibaba has and will invest in offerings within its eco system. This will distract management as it fights side battles and loses focus on the main goal.

George Gutowski writes from a caveat emptor perspective.

Big Bubble Bull Case Scenario for Alibaba. $BABA

Alibaba has only 20% of active buyers in China. Growth potential seems arithmetically simple. The first 20% is the hardest incrementally profits will continue as scale is realized.

Approximately 70% of Chinese internet shoppers born in the 1990s consider Taobao as their first online shopping destination. Loyalty and user habit may suggest a lifetime of potential transactions ahead.

Alibaba is structurally well positioned to profit from B2B to C2C. This will be revolutionary as the Chinese economy grows and matures.

George Gutowski writes from a caveat emptor perspective.