RHK: Rest in Pieces

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DZED 12/5/2012 | 3:09:04 AM

re: RHK: Rest in Pieces So why does the US lurch from bubble to bubble.
Recently:
Dot com
Opto
Housing

Next:
Defence
Oil exploration

Where does the problem lie?
- Too much free cash around
- Too many dumb investors getting greedy with their pension funds?
- Poor regulation by the SEC

It does seem to me running a company in the US is just a license for execs to fleece VCs and investors.
Still, that alone does keep money flowing around the economy.

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rightlight 12/5/2012 | 3:09:04 AM

re: RHK: Rest in Pieces I think those who've figured out how to come out of this content and happy should post how they did it. No smartass "I shorted" or "I sold at the top and bought real estate" please. I talking about those who stuck with it and believed in the merit of this industry.

I'm looking at my buy in of NT after the November bubble popped. It stands at $50, less than half off the peak. Yet my portfolio shows a very very red 95%+ loss. I'm sure lot's of people also thought the post bubble would be something like a 30-50% haircut. But a 90%+ shave? That's the part of the post bubble that handed me my lunch.

RightLight - you can have the right light but on the wrong road.

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rjmcmahon 12/5/2012 | 3:09:03 AM

re: RHK: Rest in Pieces Where does the problem lie?

You might find the following article interesting.

Peter F. Drucker, "The Global Economy and the Nation-State," Foreign Affairs, Vol. 76, no. 5 (1997)

http://www.mtholyoke.edu/acad/...

The article makes me wonder if the creation of money and other intangible and highly liquid "securities" are in an open loop system. An excerpt describing the power of virtual money:

Floating exchange rates have created extreme currency instability, which in turn has created an enormous mass of "world money." This money has no existence outside the global economy and its main money markets. It is not being created by economic activity like investment, production, consumption, or trade. It is created primarily by currency trading. It fits none of the traditional definitions of money, whether standard of measurement, storage of value, or medium of exchange. It is totally anonymous. It is virtual rather than real money.

But its power is real. The volume of world money is so gigantic that its movements in and out of a currency have far greater impact than the flows of financing, trade, or investment. In one day, as much of this virtual money may be traded as the entire world needs to finance trade and investment for a year. This virtual money has total mobility because it serves no economic function. Billions of it can be switched from one currency to another by a trader pushing a few buttons on a keyboard. And because it serves no economic function and finances nothing, this money also does not follow economic logic or rationality. It is volatile and easily panicked by a rumor or unexpected event.

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DZED 12/5/2012 | 3:09:01 AM

re: RHK: Rest in Pieces Finally! rjm and I agree on something...

Drucker is an all round smart guy, so I'll agree with what he says too, whether or not I fully understand it.

Speculation is what creates the open loop, but then its entrepreneurship which creates valuevout of nothing. I guess its hard to separate the two.

Maybe the only way to damp it down is through capital gains tax on short term investments, say less than five years to mach the typical 'good' startup cycle. This would help focus the minds of VCs, and incidentally why old economies are typically more stable.

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particle_man 12/5/2012 | 3:08:58 AM

re: RHK: Rest in Pieces Housing bubbles, the election results, Iraq war commentary,.... you guys haven't started in on intelligent design or did I miss that in a post somewhere?

I just wanted to mention the RHK methodology, as I found their market models to be very nicely tied together and consistant. They were one of the few groups where you could actually tie component numbers all the way through system forecasts and CAPEX. I think Dana and Ron had put serious and critical thought into how they stitched together the info.

So why was it so wrong?

I would chalk this up to a mass hallucination (of which I was part or I'd be a lot richer now). They would talk to the marketing departments up and down the food chain and all of them would feed RHK the inflated numbers we all believed. There was no inconsistency visible between components and services. Everyone was swearing by their sales forecasts, and they were pretty much universaly wrong. Part of this has now proved to be fraud.

The first piece of data I saw that suggested the entire model was toast was a graph of carrier free cash flow. This was around mid 2000. It's clear the financial guys who we accused of "not getting it" fired the first warning shots.

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allidia 12/5/2012 | 3:08:57 AM

re: RHK: Rest in Pieces Back in October LR reported Cisco was likely to buy a softswitch provider within 12 months. Seeing there are 3.5 months left what's the latest on Italtel the likely partner?

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douggreen 12/5/2012 | 3:08:56 AM

re: RHK: Rest in Pieces particle_man,

The very fact that they depended so heavily on vendor input was a flaw in itself. You don't measure anticipated demand by what the vendors hope to sell. All vendors are going after the same business and all or believe they will capture it.

I was shocked when I was at Ciena when RHK asked us for our forecast. Being a public company we could not, and would not have anyway. We all got a laugh at Ciena when, in the early days of DWDM, RHK reported that the previous years entire market for DWDM was less than what Ciena had sold by themselves. This was probably the last time that the optical market was under-reported.

I always believed that RHK had some very smart people and I valued their advice. Their forcasting methodologies, however, would have recieved an "F" at any major university.

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Kevin Mitchell 12/5/2012 | 3:08:53 AM

re: RHK: Rest in Pieces Unlikely
Cisco has 2 softswitches: BTS and PGW
The BTS is their CLEC/MSO C5 softswitch.
For telcos, Cisco is going to switch with packet and media processing: gateways and routers.
I don't think they want to play that game.
Plus they have the relationship with Ericsson and Italtel currently.

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