Sneaky Business

How to hide bad news - one press release at a time

A press release is usually timed for maximum impact. Unless, of course, it happens to come from a catastrophically struggling sub-prime mortgage lender on the brink of implosion. Sneaky Business awards maximum marks for effort (though none for style) to American Home Mortgage Investment Corporation. Reuters Dealzone Blog reports that:

"The mortgage lender's shares plummeted 40 percent on Monday morning, after the company put out a press release at 10:19 p.m. EDT on Friday saying that it was writing down assets and receiving margin calls on credit facilities."

The company is clearly ruing the fact that timing is not in fact everything when it comes to press releases.

Now slipping a press release out late at night is one way to reduce coverage. There are other more advanced tactics, as Sneaky Business has determined through a series of informal discussions:

• The news-sandwich. Bury the bad news deep within a dry, feature-rich release on, for example, the role of local channel partners in the Black Sea region.
• The Cheney-stratagem: Circulate the press release with minimal effort to ultra-local news organizations, and hope that it never goes further.
• The Orkneys-approach: Release the news to a little known overseas news organization, preferably in a rarely-used local language.
• The thermo-cline tactic: Submerge the press release on a day of intense media coverage of another breaking story. Hope that your information remains hidden from the prying, but otherwise overworked, eyes of the media.

Perhaps if American Home Mortgage survives long enough they will be able to employ such tactics in the future.

US housing market slows, stalls then stops; where to next?

[The following article launches a major new series from Sneaky Business examining the state of the US housing market]

The release of a key report Friday confirmed the scale of the crisis engulfing the US housing market. Derek Martin of the Homebuilders and Remodelers Association (HRA) confirmed the worst, "The market ran off the rails last year, moved into a prolonged skid and has now hit a brick wall. Sales fell to a trickle in June and then actually stopped for most of July."

As sales ossified, Dayton resident Peter Benedict became the only person to complete a home purchase during the month. "I knew things were tight" responded Benedict, "but I had no idea how important my purchase would be". Area builder Beaston Homes threw in a long list of incentives to win the deal, including a 30% price reduction, a hot tub and the adjoining house for free. "To be honest we don't really need the second house" continued Benedict, "But Beaston insisted on it".

The slow-down in housing has been more wide spread and prolonged than many in the industry had predicted. Jitters in the sub-prime market, a tightening of mortgage approvals to the under eighteens and a reluctance to grant home equity loans for "tasteless" renovations have weakened the market considerably.

News of Benedict's purchase propelled housing stocks upwards. "This is the turning point" declared Leeward Stochs analyst Jennifer Lee, "The housing market can start rebuilding momentum now". Word that Benedict may have already lined up a buyer for his free home energized stocks even further.

However, talk of a rebound may be premature. Sneaky Business has learned that further sales may be hard to come by. "There is still a chance that the market will move into negative territory during August" stated Martin of the HRA, "Builders may start paying prospective owners to move into their homes. And some have threatened to start tearing down houses under construction".

Keep reading Sneaky Business for more up to date analysis of the slump in housing.

[The next article in this series will be released during Fall 2008]

Aquafina comes from a tap; shudder to think about Trump Ice

So when Pepsi states that Aquafina is bottled at the "source P.W.S." they really mean "Public Water Source". In other words, it comes from a tap. The company reluctantly agreed to change its labeling today to clarify the origins of the product.

Pepsi will be hoping to avoid the kind of PR disaster that crippled Coca Cola's launch of Dasani in the UK. After skirting the issue for several few days Coke reluctantly came clean and ended up pulling the product from the shelves. (The British tabloids reveled in headlines such as "The Real Sting" and "Coke sells tap water for 95p").

Sneaky Business has established that the brouhaha around Aquafina is not unique in the frothy world of bottled water. Some of the more notable "sources of misdirection" include:

Brand	True Source
Aquafina	Public water source (PWS)
Dasani UK	PWS – Sidcup, south-east London
Poland Spring	Multiple sources, none in Poland
Highland Spring	Blackford, Perth, Kinross – none in the Highlands
Peckham Spring	PWS – Peckham, London
Trump Ice	Wouldn't like to say

The broader issues here, of course, concerns customer relationship management and brand protection. While Pepsi's actions were legal, they eroded the sacred trust between bottler and customer. Once that trust enters a slippery slope the whole ship can run off the rails.

We wish Pepsi well, and raise a glass (of Diet Sprite on PWS ice) in their direction.

Dow plummets, tumbles, washes out; what’s a headline writer to do?

The Dow had a downer today, losing 2.3%. Not one of its best, for sure.

But headline writers had a field day as they dug deep into their kit-bags of metaphors. Following Sneaky Business' observations on Google earlier in the week, we feel obligated to share some of the more dramatic headlines that have graced the web during the last few hours. Sit back and enjoy:

Headline	Source	Sneaky Business Score (1-5)
"Stocks tumble on credit worries"	WSJ	2 – Safe, marginally dramatic
"Washout for the Dow"	CNN	3 – Nice metaphor; images of soggy days at Wimbledon
"Stocks plunge on credit concerns"	USA Today	2 – Come on, you can do better than that
"The time to invest is now"	Leeward Stochs	4 – Inspired attempt to stay on message
"Dow plunges more than 300 points"	CBS News	2 – Surprisingly safe
"Dow disappears from radar. Doomed."	National Inquirer	4 – splendid effort

Now the real dilemma, of course, is what to write if the Dow falls even further tomorrow. Headline writers may be forcing themselves into a corner by describing a 2% drop as a "plunge". Once there they face an ever increasing vicious circle of adjectives that may just mushroom out of control.

We shall see.

Apple earnings surge; Jobs in driving seat

Apple reported earnings Wednesday that were at the high end of wildly fluctuating analyst estimates. Disappointing reports of initial iPhone activations had depressed the stock during Tuesday. However, in typically ebullient fashion, Steve Jobs led the charge during today's call. He called particular attention to the iPhone's breakthrough design, jam resistant screen and its upcoming virtual finger technology (enabling users with large digits to superimpose avatar-fingers of varying sizes onto the screen).

Nevertheless, the results have led some to question the wisdom of placing so much of Apple's future in the hands of one man. Leeward Stochs, an investment bank, estimated that up to $50B of Apple's market value comes directly from Jobs. McBainsey consultant Eric Pfeiffer went one step further claiming that Apple's entire workforce could be reduced to just Jobs and a receptionist with little downside risk.

Sneaky Business recognizes the broader problem of the CEO-centric organization. During our work with some of Belgium's largest multinational corporations we have identified three important strategies to reduce the CEO value dependency:

• Create a dual CEO. As companies transition to a more effective 24x7 operation, the introduction of an alternative "night shift" CEO can have dramatic effects. Over time, as the world realizes that two individuals are actually in place, the second CEO can assume more prominent daytime activities.
• Introduce deliberate mistakes. Carefully planned errors, selected for minimal financial impact, can help to reduce the halo effect of a hyper-successful CEO. A minor overseas gaffe or ill-judged CEO product demo are good examples.
• Spread the persona. Encourage other executives and senior managers to adopt the persona of the CEO. By adopting an identical dress code, mimicking their management style and repeating often used phrases the value of the CEO can be seen to spread further down the organization.

We encourage the Apple board to consider such policies to help reduce its own dependency on Mr. Jobs.

Major IT industry report released, reveals absolutely nothing new

Garrester, a research company, released their fifth annual "State of the US IT industry" report Tuesday with little fanfare. "We interviewed 5,000 managers throughout the country" revealed Garrester spokesperson David Collins, "And frankly we discovered absolutely nothing new."

Analysts at the company were said to be devastated by the news. "We worked solidly for three full weeks" said one under condition of anonymity, "We checked and re-checked our data. But at the end of the day we failed to find one iota of new information."

Pundits from McBainsey, a consultancy, were not surprised by the announcement. "The value of these reports has been trending downwards for some time" said Arnold Chou, "We were expecting them to bottom out sometime soon. We just didn't expect them to flat-line completely."

Nevertheless, David Collins continued to put a positive spin on the findings. "I think this shows us that the industry is slowing down – both in terms of spending and also in terms of thinking. If we in the US fail to generate any new thinking then someone is bound to step in to fill the void".

 

The full report is available from Garrester for $5,450.

Apple earnings expected to exceed expectations - whatever they are

Apple is set to post earnings for its third quarter Wednesday, and already the web is abuzz with excitement. Indeed industry analysts are positively giddy in anticipation, whipping their clients into a forward looking frenzy.

Expectations are running exceedingly high this quarter. So high in fact that nobody is quite sure what they are. Sneaky Business polled a number of analysts, revealing a surprising degree of latitude in their views.

"We expect they will exceed expectations" claimed Sarah Lopez of Leeward Stochs, an investment bank, "To a degree even we don't expect".

Another analyst, speaking anonymously, concurred, "We think they will be at least 30% over, even 40%." When pushed to name a figure the same analyst was surprisingly vague, "It doesn't really matter. Whatever the figure, we believe they will push past it. They have masses of upside potential. Masses"

Apple's ability to surpass expectations may seem like financial alchemy to some. However, we have identified a number of best practices at work that have broad applicability:

• Start low, and manage expectations down. Initial sales estimates of 250 iPhones in the first month were suspiciously low. These figures were then supported by a national target of "1% of cell phone sales in the Palo Alto area".
• Seed confusion; mix with obfuscation. Early warnings suggested that the iPhone would have a battery life of only 60 seconds. Insiders failed to deny the claims, and then seeded further interest with the anonymous posting of a "hybrid" model due out in the Fall.
• Maintain radio silence until the last minute. Apple insiders have been eerily quiet for the past seven days. In fact no-one in the company has answered a phone of any kind since last Tuesday. In addition, Steve Jobs appears to have gone to ground. He is expected to re-appear from his hidey spot just in time for this week's analyst call.
• Save the best for last. In a twist on usual financial reporting practices, Apple is said to be experimenting with a re-ordered income statement. By starting with operating expenses and taxes, Jobs can move his narrative into the more exciting revenue figure and then conclude, with a theatrical flourish, on the bottom line.

Apple reports at 2pm PDT Wednesday; Sneaky Business will provide additional Apple-related insights later in the week.

Murdoch Closes In On Dow; S&P 500 Next?

With the Bancroft family ready to throw in the towel, Rupert Murdoch looks set to gain control of the Dow media empire. At a family retreat Sunday, the Bancrofts employed a variety of decision making techniques including valuation analysis, games of chance and arm wrestling. "We put up a good fight" stated one family member under condition of anonymity, "But in the end $5B carries some weight".

Critically, the purchase will give Murdoch control not only of the Wall Street Journal and Dow Jones Newswires but also the Dow Jones Industrial Average. Murdoch assured investors that he will not interfere with the independence of the DJIA, but his detractors are not so sure. "The Dow just reached 14,000 – and that was a great news story" stated a Bancroft family member, under condition of anonymity, "Who knows what will happen once Murdoch gets his fingers on it".

"This may just be the first part of his endgame" suggested Jennifer Peterson of Leeward Stochs, an investment bank, "The S&P 500 is the obvious next move". Indeed many in the industry worry that such a move would give Murdoch unprecedented abilities to shape and report business news. "He would literally have the capability to move markets" continued Peterson, "Just imagine the headlines".

Murdoch, currently on retreat somewhere in the South Pacific, was said to be pleased with the outcome but denied any interest in the S&P assets. However, he did agree that it was a good story.

Leaking Harry Potter set to make a splash

Harry Potter VII is upon us, whipping up the media into a frothing frenzy. This time around, however, internet leaks threatened to spoil the surprise for millions. JK Rowling, sensing lost sales and diminished profits, encouraged readers to stay well clear of such scurrilous sites.

There is absolutely no doubt that this book will be big, indeed massive. However, this week's shenanigans raise the broader issue of content security in an age of online pilfering. A McBainsey study discovered that over 40% of company presentations are revealed to meeting attendants ahead of time. (Interestingly, the study itself was leaked onto the internet by a burned-out analyst).

Now relief may be to hand. Smear Systems, an Oakland-based startup, is offering next generation auto-redaction services across a variety of media. Their software provides a rules-based system for redacting not only documents and emails, but also corporate video and voicemails. "Our system learns with you", explains CTO Jeff Marsh, "You can even specify levels of redaction for particularly annoying individuals that you work with". The software makes keywords in text unreadable, and places white-noise, or other user-specified MP3 files over specified phrases.

The software is available for download for $1,500 at www. ***&&&!!.com.

Google misses, stock tumbles; or does it?

Google reported disappointing quarterly earnings Thursday prompting CNN to state that the "stock had tumbled". The Journal said more soberly that the stock merely "fell 5% after hours, while the National Inquirer reported that the stock "had completely disappeared".

This brings to our attention the complete lack of uniformity in describing the inevitable ebb and flow of company stock. The twin pillars of stock volatility reporting are the verbs "soar" and "tumble" Closely followed by the verbs "impress" and "disappoint" And occasionally accompanied by the terms "belly-flop", "lurch", "crater" and "implode"

But just how much a stock has to rise or fall to deserve one of these descriptors is highly uncertain. Uncertainty can breed rumor, and rumor can breed innuendo (perhaps with a little bit of contempt). Creating a vicious circle sitting squarely around the shoulders of the company in question.

Sneaky Business believes a standard taxonomy is needed to deliver "apples to apples" comparisons across companies. We provide just such a table below in the hope that some sanity can return to the hyperbole of quarterly earnings reports.

Stock Movement	Acceptable Descriptive Verbs
>50%	Soar, explode, ejaculate
+ 10% to 50%	Leap, rush, jump, bungee
+ 1% to 10%	Float, rise, gain a leg up, swagger
+ / - 1%	Languish, meander, loiter, nap, snooze
- 1% to 10%	Stagger, slide, stumble, lurch
- 10% to 50%	Tumble, belly-flop, jack-knife, fall arse-over-tit
< 50%	Implode, self-immolate, FUBAR

We encourage you all to begin using this terminology immediately.