Chris Edmonds and Eric Gillin chatted on Yahoo!, Thursday, Sept. 6 at 5 p.m. EDT. To hear the transcript, click here.
Welcome to the debut edition of
Martini Chat. My name is Eric Gillin. Chris Edmonds is my co-host, coming to you live from -- where are you? That's right. Hot-Lan-Ta!
Today's special guest is Lowell Edmunds, author of
Martini, Straight Up
, a book published way, way before the whole Martini revival began. His book, available on Johns Hopkins University Press, is an insightful history of the cultural impact of the drink H.L. Mencken called "the only American invention as perfect as a sonnet."
In about 20 minutes, he'll be on to discuss the perfect Martini. At 5:15 we'll have George Mannes's Five Dumbest Things on Wall Street, followed by the news with staff writer Yi Ping Ho. Chris. And I'll be reviewing 2001 so far and talking about this week's mergers. And, of course, we'll be taking your questions.
occasionally airs a show called "Things That Aren't Here Anymore." The gist of it is to walk far down memory lane to another time and place -- say, Atlantic City in the 1920s -- and remember the way things used to be. This week, we thought we'd do the same thing, harking back to another bygone time -- Wall Street, 1999 -- and raise a glass to six things that aren't here anymore.
1. Hot acronyms. There were two types of p-to-p (pay to play and path to profitability), lots of variants on b-to-b, Pets.com-style B-to-C's, even the far rarer b-to-g. Only one acronym remains: SOL.
2. Delivering goods over the Web in under an hour. Maybe someone will look back on Kozmo.com, Webvan, UrbanFetch and Sameday.com and think, "What a good idea!" Ben Affleck's got a better chance at an Oscar for
, but anything's possible -- PDQuick.com still exists, doesn't it?
3. Internet incubators.
, Divine InterVentures and
... these guys were highfliers with unlimited potential, hives of creativity that burst at the seams with ideas. Turns out all the ideas in these hives were so bad and untenable that today you can either buy a single share of each or grab an Extra Value meal at McDonald's.
4. The hip, young CEO. From 26-year-old Stephan Paternot's dancing in leather pants while helming
CEO Sky Dayton's afternoons spent in the surf -- people no longer trust a twentysomething kid at the wheel. So now, instead, we get a sweaty, fortysomething Steve Ballmer bounding around the stage. Poetic justice is ugly.
5. Trust. Billions of dollars in market capitalization have been erased since '99, and there's been more finger-pointing than disco night at Shannon Doherty's house as a result. Everybody drank the Kool-Aid -- analysts, the media, the CEOs, investors themselves -- but when the deadly cocktail wore off, trust in Wall Street was poisoned.
6. Stupid company names. Did Prince serve as a consultant on some of these corporate names? Net.B@nk and @mosphere used the @ symbol in their names. Others, like Crynwr Software, were unpronounceable -- maybe they could have bought a vowel from eToys.com, now that the e-boys aren't using it.
We also had the alphanumeric aberrations such as Go2Net and Phone4Free. Following Prince's cue, many, such as Net.B@nk, dropped the symbol, becoming "NetBank" in April 2000. Others dropped entirely.
Honorable mentions: Dr. C. Everett Koop's unsullied reputation, cybersquatting, glitzy dot-com parties and Walter "$1,000 price target on Qualcomm" Piecyk.
The funny thing is, even the most ephemeral stuff can get recycled for another money grab -- remember Meat Loaf's '90s revival? The same is true of dot-comville. This week,
The New York Post
reported that the dynamic duo that burned through millions in record time at Boo.com (a company whose sole function seemed to be serving as a poster child for dot-com excess) netted about six figures for their book, and are shopping the movie rights for a six-figure price tag.
So, when life hands you Lemons.com, make Lemonade, the Movie.
Looking back over the wasteland of 2001, one thing becomes clear to me. This has been a year of revelations. After the bubble has popped, investors can see Wall Street for what it really is -- investment banking, analyst research and corporations all working together to put the best face forward -- even if at times that means overlooking bad news until it's too late.
Look at the case of
, one of the most widely held companies in America. Individual investors are brokenhearted and smarter as a result of seeing their billions vanish in a fortnight. Earlier, I mentioned the loss of trust in a joking manner. But now that investors can see that analysts differ in quality and integrity, they don't know who to believe. And with the federal government looking into the relationship between banking and research, they really don't know who to trust.
This year may very well go down as one massive reality check. My question: How damaged is the relationship between Wall Street and Main Street? Who will investors listen to for advice now?
The relationship between Wall Street and Main Street is typically strained as the market corrects itself. By and large analysts lag the market, especially when it comes to turning negative. That's psychology as much as it is a big banking conspiracy -- people don't like to find reasons to be negative.
That said, banking issues and the cozy relationships with companies analysts cover is an issue -- if for no other reason than it creates a larger incentive to remain positive and a larger impediment to becoming cautious or negative. It's easy to overlook the small things that may signal caution if you're
close to a company.
Balance, however, is important. You want to earn the company's trust and you do that by creating relationships. So, you want the inside scoop but you also want discipline. And, in sour markets, that becomes very difficult to find.
What do you look for? You look for analysts that have been around and managed in tough times; for example, guys that were around in the late '80s or the mid-90s when this game wasn't so easy. I also look for seasoned guys at small, regional shops that have developed a niche and have a penchant for rigorous discipline in their analytical approach.
Take, for example, a shop like
, a real estate investment research firm in California. All they do is real estate and they do very little public banking.
They also have a disciplined approach to analyzing the real estate market and create a solid relative value matrix in their sector so they are always going to have the best, the middle, and the worst companies rated -- just like a bell curve. Are they always right? Of course not. But they have a methodology that's hard to influence because of relationships.
Finally, I would look for analysts that have moved from the buy side to the sell side. That doesn't happen as often as the reverse -- from the sell side to the buy side -- but the guys who make that move have managed money and have a better appreciation for the ups and downs.
Bottom line: The relationship is perceived to be damaged, so it's slightly tarnished. But it's also cyclical. When the market comes back -- even if it doesn't come back roaring like the 1998-99 market -- there will be some analysts left in the dust -- as it should be -- but the relationship, in general terms, will return to coziness at a time when analysts critical opinions are, frankly, less important.
Another lesson learned the hard way in 2001: How to lose money. Despite Regulation FD's best intent to put the individual investor on equal footing, and we'll get to that, many have come to the revelation that they should let someone else manage their money. They feel grossly inadequate running against the professionals, and rightfully so.
Have we seen the death knell of the individual who runs his own portfolio? And if these people don't trust Wall Street and can't trust themselves, then where should they turn?
We've probably seen the end of the individual, hobbyist trader. The individual investor is alive and well -- investors who follow the Warren Buffett discipline and buy good companies and throw them in a lockbox -- and that's not the Al Gore lockbox.
Remember, you don't have to beat the market year in and year out to build wealth in the market. You just have to avoid big mistakes and be patient. You will always have your gunslingers -- guys who buy and sell and are up and down -- but that group of people is constantly churning.
There are just four months left this year -- enough time for the
to mount a little rally and perhaps the
, but certainly not the
. December can be put in the win column now -- 13 of the last 14 Decembers have been winners. So that leaves us with three months to determine 2001's fate.
I have no visibility...
Just kidding -- my gut tells me September will be more of the same and October could be more interesting. I think the expectations -- in general -- for earnings are so darn low that the negative surprises will have marginally smaller impact than any upside surprises.
Last year, the corridor between September and November was when technology first came off the rails, with warnings from
. What do you think about the next four months? What's your gut reaction?
I think earnings sentiment is so negative that we are close to an inflection point. Earnings could be -- notice I am not ready to say
-- a catalyst.
As for November and December -- the consumer dictates market optimism beginning after Halloween, so the talk we had about the consumer earlier plays in here.
I'm not terribly confident in my predictive ability here but if forced, I would say the broader market would be up mid-single digits to low double digits from here and, with a little luck, tech will remain even to modestly higher from here. That doesn't mean we won't see some real sloppy action between now and then, however.
Now it's time for the Five Dumbest things on Wall Street. Chris and I will give you the rundown.
1. The drones who gave chairman and founder Charles Wang a standing ovation at the annual meeting of
for defeating Sam Wyly's hostile bid. Wang's the same guy who backed a billion-dollar stock compensation package for himself and two others in 1998, despite underperforming peers and probes into its accounting practices.
And to make things worse, CA stock is off 9% since 1996, versus the S&P 500's 75% gain. Wang deserves something, but it certainly isn't applause.
3. Irrational at best, paranoid at worst,
spat with research house Gartner Group is plain dumb. Oracle posted a release on its Web site that said a not-so-nice report from Gartner betrayed a "bias."
A spokesperson was quick to point out that Oracle received negative reports 23% of the time, while IBM received negative coverage 8% of the time. Still, that hasn't stopped Oracle from using stories like "Gartner's Dataquest Says Oracle is No. 1 Database Software Leader" and "Gartner Issues Negative Ariba Report" on its Web site.
4. One of the more bone-headed ideas of the late '90s was that any momentum-loving newbie with a modem could run money as well as folks well-versed in balance sheets. Consider
fund, which bought stocks based on advice from amateurs.
5. If there were ever any doubts about how ill-timed
IPO was, last week cleared them up. Agere's credit rating was dropped to junk status, only five months after the company was partly spun off from
And, dancin' Ballmer does it again. Yet another unsettling clip has surfaced, once again showing the khaki-clad
funk daddy in full-on, corporate cheerleader mode. In it, a perspiring Ballmer claps his hands evangelist-style, shouting, "Developers! Developers! Developers! Developers!"
For the record, Ballmer's presided over a 43.7% year-to-date return for Microsoft stock. He may not be dumb, but he sure looks dumb.
Now it's time for Yi Ping with the news.
Yi Ping Ho:
Stocks sold off all day following bad news from the retail and wireless sectors, and the major averages closed at their lowest levels since early April.
plummeted $3.16, or 28.8%, to $7.80 after issuing a profit warning last night.
lost $4, or 21%, to $15 after posting a 17% drop in August same-store sales.
shed $1.78, or 3.6%, to $47.37.
was among the most active stocks on the
New York Stock Exchange
, trading down 6 cents, or 0.6%, to $10.35.
fell 90 cents, or 6.5%, to $12.95. Earlier Thursday, the Labor Department released its weekly initial jobless claims report, which revealed a slight drop in the number of first-time claims. The total fell to 402,000 from 405,000 the previous week.
Microsoft received a boost earlier today when the Justice Department said it wouldn't pursue trying to break up the software company as a possible remedy in the government's antitrust case. However, the rally was short-lived as Wall Street tried to decipher the implications of the announcement. Microsoft traded down $1.72, or 3%, to $56.02.
In Treasuries, the 10-year note was recently up 29/32 to 101 5/32, yielding 4.85%. As for currencies, the dollar was stronger against the yen and the euro.
Overseas, European stocks were stung by continued weakness in the telecom sector. The bourses dropped across the board, with exchanges in Britain and Germany hitting their lowest levels in more than two years. In London, the FTSE 100 traded down 112 points, or 2.1%, to 5204. Japan's Nikkei 225 closed up 52 points, or 0.5%, to 10,650 on the strength of banking stocks. Hong Kong's Hang Seng was also hurt by telecom as the index dropped 279 points, or 2.6%, to 10,664.
With us today is Lowell Edmunds, a professor of classics at Rutgers University. More importantly, he's a Martini expert, author of the book
Martini, Straight Up
, which beat the Martini revival by almost two full decades. Academic, gentleman, scholar -- we could think of no better guest to be on our first show.
Mr. Edmunds, before I ask whether to use vodka or gin in a Martini, one of the most essential and hotly debated questions in all of Martinidom, I feel our listeners could use a little background on gin and vodka.
Whether it be the dryer London variety or the more full-bodied Dutch version, gin is diluted pure alcohol flavored with the potent juniper berry and other natural flavors, like orange peel and coriander.
Its clear-blooded brother, vodka, especially the better varieties, has little flavor unless it is purposely added in. Although similar, those juniper berries make all the difference in the world, giving gin mystical behavioral properties. Hence the phrase, "Gin makes a man mean."
Prior to 1950, gin was the main component of the Martini proper, while vodka was a spinoff, starring in the Vodkatini. When ordering a Martini, the only question used to be "How dry?" But now, as vodka surges in popularity and white-aproned mixologists have become polo-shirted bartenders, "Gin or vodka?" is the new query.
Barnaby Conrad, III, in his book,
wrote, "Today it is purely a matter of taste" when addressing the vodka-gin question, but is that really the truth? For once and for all -- is it gin or vodka?
Gin and vodka are fundamentally the same thing: a highly distilled neutral spirit. The fermentable material from which it comes can be almost anything. No one knows or cares what it was.
Almost all gin manufacturers buy their neutral spirit from someone else and add flavors, principally the flavor of juniper berries. Bob Emmons,
The Book of Gins and Vodkas
(Open Court, 2000), is good on this subject.
So as I said in the first edition of my book on the Martini and as I still believe, both gin and vodka are legitimate in a Martini.
In your writing, you put forth the idea that the Martini is an urban phenomenon. But in the last 50 years, as people moved to the suburbs, the Martini has changed as well. Glasses seem to have gotten bigger and the Martini has mutated into vile forms like "sour apple" and "chocolate." Two questions. Has the Martini been warped by suburban flight? And what do you make of these flavored Martinis?
Urban or suburban. In talking about drinks, one has to distinguish between reality and symbolism. Even if statistically more Martinis are consumed in the suburbs than in cities, the Martini is still symbolically urban and urbane. Even in the suburbs it is not interchangeable with a can of beer.
The new Martinis? Only linguistically are they Martinis. There is a file on this subject on my Web page ("The Anything Martini ...").
In, for example, "Tootsie Roll Martini," "Martini" is a metaphor that affirms, "This tootsie roll drink is as good as a Martini." Cf. "dance marathon."
Ordering a Martini in a bar. You are right. Is' almost impossible to find a bar in which you can get the classic straight-up gin Martini properly made.
With the rise of flavored vodkas, the move away from gin, the enlargement of glasses -- it seems harder than ever to get a really good dry Martini. Bartenders lack proficiency in making them and customers seem willing to drink anything dubbed Martini, as long as it has an olive and is in the correct glass. Has the Martini become "an acquired taste," something for older folks, like rare steaks and cocktails before dinner?
I haven't ordered a Martini in a bar since 1997, when I had one at the bar in railroad station in Washington, DC.
In the taste, I could clearly distinguish chlorine, metal, water, whiskey and detergent, in addition to gin and vermouth.
The current practice of serving three to five olives with a Martini is especially vulgar and abhorrent.
It seems that during bull markets, tastes for Martinis revive. In the mid-1980s, the Wall Street fueled culture took a liking to them, while in the late-1990s, the revival was part of what it meant to be a dot-com millionaire. You say that the Martini is optimistic, not pessimistic. In your research, have you discovered a cultural link between booming business and the Martini? Was the Martini craze of the 1990s part of the bull market?
Yes, the bull market and the return of the "Martini" in the 1990s are linked. It's hard to prove, but I doubt that anyone doubts it.
The best evidence is circumstantial. For example, the simultaneous emergence of super-premium versions of all the distilled spirits -- single-malt Scotch, single-barrel or small batch bourbon, 100% Agave tequila.
Martini, Straight Up,
I refer to William Grimes' excellent observation on the connection between the Martini and capitalism. It goes way back.
The Martini has been around for more than a century. Although it has a much-disputed origin, it began as an almost folksie drink, before developing more sophisticated airs and entering what I would call its "commoner" phase.
Everything, from food to candy, has been given the Martini treatment. What do you see as the future of the classic dry gin Martini with an olive? And, bottom line: How do you take your Martinis, sir?
The best example in fiction is Elam Harnish, the protagonist of Jack London's
The future of the classic Martini? The symbolism is alive and well and will endure. The drink itself is now drunk by a small band of cognoscenti. Sometime in the future, the dry-sweet cycle will come around to dry again and the classic drink will make a comeback.
It may be paranoia but I also see a tendency toward sweetness in the vinification of red wine in California and Oregon, especially of pinot noir, too much of which is turning out to taste like cherry soda without the bubbles.
I know that terror has something to do with how the wine finally tastes, but the control of the winemaker is rather formidable.
Bottom line: How do you take your Martinis, sir?
All utensils except zesteur and paring knife should be made of glass. Glasses from freezer. Plymouth gin, chilled or from freezer. Noilly Prat or Martini and Rossi vermouth.
Ice cubes, large ones, made of spring water with lowest possible mineral content. Proportions depend on proof of gin. Because Plymouth is low, 8:1. If 90-plus proof gin, more vermouth, say, 6:1. Stir. Do not shake.
Cut a piece of lemon rind and twist, yellow side down, over the drink. Discard this piece of rind. Make a zest with a zesteur for a garnish.
Forget about cocktail olives, which are an abomination, the lowest-grade olives, which cannot be used for anything else and which are always stale by the time they arrive in a Martini.
In the spirit of that, let's go to the inbox.
How about KCS as a natural gas takeover play, Chris?
Note -- KCS is
. Closed at $5.34 today.
Good question, decent company. I think there are better ideas but clearly the second-tier companies are all in play given this week's news.
What do you think about the
I don't like the HP deal.
Clearly the consensus appears to be that it is an average deal at best and if you've read the very astute comments by out resident tech gurus like Jim Seymour and David Brail, the deal is probably less than that.
What's the big deal? A really, really big computer company? I'll pass on getting all excited over the cost savings. So what do we have?
On the edge, clearly, and the business climate certainly lends some credence to that. However, I think both CEOs are sincerely looking at the future and think this is one way to make it better for both company's shareholders. Problem is, not many shareholders appear to agree.
I'm not excited.
The big deal here -- at least from the partners' perspective -- appears to be the ever-popular synergies -- cost savings in the form of consolidation, headcount reductions, administrative duplication deletion, etc.
No added value means no go.
Clearly, that can be an important part of a merger story. For example, think of the possible synergies you may get if
decided to merge.
Huge, simply huge
But that isn't the most important issue for investors -- that, in itself, doesn't make a merger attractive. It's not that difficult really -- ask yourself if the combined companies have a compelling business model and competitive advantages that were not achievable independently. Mergers for cost sake usually don't work out as promised.
Stefan Walgreen, a regular reader of
, sent this question in via email.
It seems that the demand picture in trying to figure out the price of crude is greatly exaggerated. Do you agree?
Thanks for writing, Stefan!
The one thing that has kept crude prices higher is OPEC supply management. Without that I think the prices would be lower.
Thoughts on the MSFT-DOJ matter today?
I don't think it was unexpected. I also think it's an opening for MSFT to get to the table -- and I think if I were them I would now. But Jim should be offering his opinions here. A great column on the site on Mister Softee from Mr. Seymour.
I'm sure this makes MSFT shareholders feel a lot better.
But with a Bush in the White House, you kind of had to see this coming.
I don't see it as a huge benefit to the stock because the essential story is the same.
Will XP be a success? Do we need more software?
Oh, hell, Chris -- you're too polite. HWP-CPQ was Carly Fiorina's effort to buy another year's time before termination; it was Mike Capellas' effort to get his shareholders out of an impossible hole?
Well said. Yeah, people should really check out
to check out what Jim Seymour has written.
Chris, good mention on Buffett. Do you think he'd find any great bargains in this market yet?
Not sure there are great values but they are more rational than they were.
Well, if you look at what he's buying --
-- his money talks.
That said, he has been selling many of his REIT positions and looking at boring, mainstream businesses.
He's buying businesses that sell things that people will need going forward.
He's been selling banks.
Chris, do you think it's too early to be buying stocks like TDW, PTEN etc.?
. PTEN --
I might nibble here and watch the markets. I think there's still volatility but we are closer to the bottom than the top -- see my column on Nat Gas today.
Both are oil service stocks. Drillers. Worth checking out Chris Edmonds' column today on
In day-to-day talk with friends, everyone is starting to talk about getting out of their tech 401k funds. Do you think we'll continue to see more funds unloading and therefore further downside in tech issues?
J-Dukes, thanks for the question Hell yes!
Exactly what I want to hear. That is the sentiment I'm looking for to show me we are closer to a bottom. I think Eric may be a bit negative here. Remember, the stocks will lead the fundamentals. Let them sell --
People are going to keep selling. I want people to sell. More selling brings you closer to a bottom. There's no upside for tech -- not for a long time.
I find it unctionable to keep buying tech.
Is there no hope left for one small onion, in a (gin) Martini?
That's called a Gibson, Jim.
That's the Gibson, and yes, there is!
What's the image of a Martini drinker? What are you implying when you say, "I'll have a Martini"? And how has that image evolved?
I think a Martini drinker is sophisticated. But not anymore.
All I can think of is
Sex and the City
Gin has a completely different and distinct flavor. It enhances a Martini, don't you think?
I would say so. Vodka is a little cheating.
I would agree -- nothing like the juniper berry to get you going.
Are there any secrets to keeping a Martini cold after it's served in the glass other than drinking it before it gets warm?
Use big old ice cubes.
Drink it quickly.
Get 'em as cold as you can before you serve 'em. Use smaller glasses.
Thanks for showing up this week. We'll be back next Thursday at 5 p.m to hash out the latest Wall Street headlines while tackling the topic of online advertising with Dave Morgan, founder and former CEO of
He'll be here live to take questions. K.C. will be back with the five dumbest things, Yi Ping will have the news, Chris will have more to say, I'll have another toast and we'll be thanking you again for showing up.
Thanks for coming. We look forward to seeing you here every week. Cheers!
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Martini, Straight Up