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I have not been posting as much as usual. It has been a really busy time for me. I have a whole lot of blog posts that I need to release and simply have not had the time. Though in the next couple of weeks things should ease up a bit for me.

What’s new? Well I am writing algo trading routines, that is sort of new. It is actually very very exciting work because I learn how future traders make their money. I now know more about market depth than I think I really care to know.

Another part that is sort of new, but I have not been telling about is that I am now officially a part time developer with an investment bank. I was coy in previous months about with whom my potential part time job was. The investment bank is…. drums roll….  Credit Suisse First Boston….  Woohooo….

I only wanted a part time gig because well, I only wanted a part time deal. I don’t want to work full time for CS. It is a great investment bank to be working for and I enjoy the work quite a bit. It also puts me into contact with the “big boys and girls.”

Though there are some ground rules that I now need to abide by and thus anyone who sends me email or asks for help needs to know my rules.

1. I can only help those clients that are not employed in a financial related corporation, or sector that is on any global stock exchange or related to a company on a global stock exchange and is in competition with CS. The way it was put to me, I can help individual traders who are acting on their own, but not Goldman Sachs nor hedge funds or funds of any meaningful size.
2. I can’t comment on financial institutions or the state of financial institutions. Financial institutions have become a taboo topic for me at a public level.
3. I can’t comment in any form whatsoever on the work I do for CS.
4. I can’t comment on the relationships that CS has with other companies or vendors or clients.

I can completely understand the position of CS. They don’t want me to to say or do things that are not appropriate. They don’t want me to say anything about their internal workings. And they definitely don’t want me to help their competition. All understandable from my perspective. So starting now I don’t comment on the financial landscape… All in all the past couple of months have been pretty exciting working! Though I will continue to comment on other work I have been doing, like XBRL, or Addin Express…. Those have been languishing…

In February I did a simulation of the market. And if you look at how I predicted things, it has turned out to be pretty much on the money. My tops and bottoms are not completely right in terms of values, but pretty close. Closer than I expected.

Along comes RBS and says the following.

A credit strategist from the Royal Bank of Scotland warned investors in a note that the S&P 500 may fall by more than 300 points by September and that iTraxx index of high-grade corporate bonds could soar, according to a report in the Daily Telegraph newspaper. “Cash is the key safe haven. This is about not losing your money, and not losing your job,” the RBS strategist, Bob Janjuah, was quoted as saying.

So I decided to do an update on my simulation and see where the chips may fall so to speak. Since the beginning of the year I have tuned and updated my analysis on the market, and it includes the data from 1950 to now. This means I do have the big crashes of 1970, 1987, and 2000 in the system.

First could the market drop to say 1000 for the S&P? From the simulations yes it is possible. The correlation says it is a strong match. HOWEVER, I have other conditions that say, no that would be an event of greater magnitude than 1970, 1987, and year 2000.

Are we in a situation that is worse than 1970, 1987, and 2000? No, but there is something else that could be happening. What if the shorts start to short the heck out of the market? Could we see a collapse? Absolutely!

What makes me hesitant is that there is a slight difference in the market. From the data the year 2000 pullback was the worst in since 1950. Thus I think a comparison to that time would be appropriate.

The top graph is now, and the bottom graph is year 2000. Notice how both trended in a channel. BUT, look at the location of the black arrows. Those are about the same time period in relation to the stock market correction. In the year 2000 that moment was an extreme collapse. Yet now that period was not an extreme collapse, it was a range. It is that time period that is changing the boundaries in my simulation. Notice in the upper graph that the sell off was very strong, and then was abruptly stopped.

When was that moment? It was when the Fed stepped in and saved Bear Sterns. At that point we had a solid, but slow rally. In contrast, for 2000 that rally was very sharp and swift, only to collapse again. Whenever I run the simulations it is that consolidation that is causing a complete breakdown of the market.

But there is something else going on, and why I think that the market will not collapse. As I write this CNBC did a profile on the investing habits of portfolio managers. What they found out is an extreme divergence where portfolio managers were completely overweight in the sectors transports, energy, and commodities. In everything else they were completely underweight. This is odd and very extreme.

When the market recovers it will be a slow recovery on the S&P because those leading sectors will be lagging, and the lagging will be leading. For the market to completely collapse all sectors will have to collapse, but that is simply not possible from a valuation perspective. Outside of techs such as Apple and RIM most companies like Nokia, TomTom, and Garmin are trading in reduced EPS single digit range. That is an extremely oversold situation. We are oversold because there is an extreme number of shorts on those companies that is driving the price down, down and further down.

And the last thing that makes me skeptical is that the emerging world is still growing and moving forward. That’s why I think RBS is completely wrong.

Ok I have officially turned bearish on Apple. Has the iPhone been a success? Yeah it was ok, but pretty good in general. I turned bearish because iPhone2 is not a cheap deal. The iPhone at 399 was a cheap deal because you could jailbreak your iPhone. And this was the exact reason why people bought iPhones. Youth could buy an iPhone and use it with their existing cell phone networks.

With iPhone 2.0 this all goes away.

In a research note sent to clients today, analyst Gene Munster said his $1 billion market figure is the best case scenario that he came up with, and that at that level, it would add 3 percent to Apple’s 2009 operating income. The estimate assumes that there will be 61.6 million iPhone and 23.4 iPod touch users who would buy at least one item at the App Store during the year. Another post on the same subject, broke it down like this, the iPhone is a razor, and the App store is selling blades, writes Mark Evans. He he went a bit further, too. He said: “love your iPhone but get ready to pay through the nose for it.”

This is the business model that was used for iPhone 1.0 in Europe! And look what happened? Sales slumped!

Cutting the price and ending exclusive deals with telcos will help Apple towards its target of selling ten million Iphones by the end of the year. But at the end of 2007, the exclusive Iphone operators for Britain, Germany and France had only sold 330,000 phones between them, against a European sales forecast of up to 600,000 units.

The iPhone is not cheaper. You pay less upfront, but Europeans are already used to this model. They look at the plans that they have to take and then decide on the phone. With the iPhone requiring a pricey phone plan it will deter many users. In yesterday’s CASH magazine they found out that iPhone users generate 3x the costs that regular phone users do. Good for the telcos and good for the profit margins, but are we not in a recession?

Are we not in a situation where people are cutting back? I think we are and I think many are going to look and inspect twice before deciding to buy an iPhone. This is why I am bearish and I personally don’t believe the iPhone 2.0 will be a success.

What made me look into my bullish Apple call was the new placing of Apple products in a major electronic chain. The chain had given Apple for the past two years premier placing. Yesterday I saw that they gave Apple a second tier placing. They gave first tier placing to Sony, and HP. This made me wonder, will we get a surprise in earnings?

Three factors are making me bearish on Apple; more expensive “cheaper” iPhone, second tier placing, and a slowing economy. After all if discretionary spending is slowing how can one assume that Apple is immune? I have not yet closed my Apple position, but I am getting ready to pull the trigger.

So here is the question who is at fault? Is it demand or is it the speculator? I decided to find this out once and for all what is going on. In Michael Masters testimony he said that the Index Speculator is making things worse because of the calendar spread that is being created. The question though is Michael Masters right or wrong?

One of the things that I like to do is work through strategies on how I could make money. I like doing this because it comes pretty naturally to me. I learned that when in 1995 I was working on a mortgage kernel and helped the business implement the different ways to calculate a mortgage.

I created a PowerPoint slide deck that outlines what I think is a way to make money using an Index Speculator trade. What is interesting about this trade is that it is a sort of piggy back trade and only works because there is demand. Though this piggy back is not a harmless piggy back, but a toll gate piggy back. The trade is made worse by adding the fear factor, and hence this trade must be controlled.

Tom at Neural Market Trends posed the question on how one would build a neural network model of the US Dollar. I added the following comment:

My answer is you can’t. I am dead serious here. There is no real precedent for this since it is a black swan type event. The only thing you could do is do a series of Monte Carlo simulations that walk the path of the dollar and see where you get.

And if that fails throw some dice and see where they end up.

Here is how I see things playing out from some of my past MonteCarlo simulations. Oil eases back slightly the market is squeezed, but the dollar keeps doing its mambo in a range. OR we have an oil super spike collapse of the equity markets and collapse of the dollar.

Right now the psychology is to move into commodities to avoid the dollar drop. I am easing slightly back from my 1.76 prediction, but not much. It really depends on oil.

As Jeff Macke in Fast Money said, “There is only one thing to invest in, oil. Everything else will get destroyed by it step by step.”

Tom replied as follows:

What kind of distribution did you use for your data to come up with this? A normal dist? You have to remember a BSE is an outlier way off in the “long tail” of a distribution.

The reason I asked this question in this post is that for all the gloom and doom of the USD, one day it will rebound and rally. The question is, where it would rebound from and what would be the inputs you’d use to give you signal.

What goes up must come down and what goes down will come up! How’s that for scientific?

My distribution curve is a secret sauce type of thing and hence I will not divulge how I come up with my walk. Though the walk will only get you so far, and as others have replied you could look at macro conditions, interest rates, etc, etc…

I said that the current behaviour of the USD is a black swan event because the drop of the USD is unprecedented. A black swan event is only a black swan event because one needs to broaden the scope of context to understand what could and might be happening.

I think the American Dollar is at the end of an epoch. I am not predicting that the world will search for a new currency. On the contrary I think the world will be pricing things in terms of baskets. Companies will attempt to maximize profit, while minimizing potential losses due to currencies. Thus no single currency will be the main actor.

If this is indeed the end of an epoch then the question becomes has there been a currency situation where an epoch ended? Indeed there has, namely the British Pound. If you go to the website Measuring Worth you will find the exchange rates of the British Pound to the USD from 1791 till now.

In 1791 one British Pound equalled 4.55 US Dollars. Today one British Pound equals 1.97 USD. Thus between 1791, and 2008 something happened. The big drop of the British Pound to the USD happened in years 1948 to 1950. What you should notice is that the drop was quite big and all of the sudden. Very similar to the current drop of the USD. Some of you historical buffs will remember around that time the gold standard was in question. Though I do not think it was the gold standard that caused the problem.

What caused the problems were the years 1939 to 1942 as Britain became bankrupt from fighting World War 2:

During the 1939–1942 period, the UK depleted much of its gold stock in purchases of munitions and weaponry on a “cash and carry” basis from the U.S. and other nations.^{[citation needed]} This depletion of the UK’s reserve convinced Winston Churchill of the impracticality of returning to a pre-war style gold standard. John Maynard Keynes, who had argued against such a gold standard, became increasingly influential. Nevertheless, his theories were rejected in 1944 Bretton Woods Agreement, which established the IMF and an international gold standard based on convertibility of the various national currencies into a U.S. dollar that was in turn convertible into gold.

Does this sound familiar? What is bankrupting America right now? This is not a questioning of the decision behind the war on terror and war in Iraq. Remember that Britain did not have a choice on whether or not to fight in World War 2. What I am saying is that I think the Iraq war is bankrupting America and it is the straw that broke the camel’s back. Of course many will say, “hey it was the Fed and their cutting of interest rates.” Yes, exactly how the gold standard at the time caused a major disruption. BUT, the gold standard disruption was a sideline compared to the bankrupt Great Britain.

A little while back I made a prediction that the USD to Euro would drop to 1.76, and from having written this blog entry that looked at the bigger context I don’t think I will be wrong. Does this mean that the American economy will nose dive, and America will become bankrupt? No, not at all. If you look at the British economy it is very vibrant and alive.

What is different is that the British Pound is not a major currency, just like the USD will not be the major currency. Great Britain is a powerful force, but is not the dominate force, and that will happen to America as well.

But, and read me very carefully here. I am very bearish on the USD, but I am not bearish on the American economy. As has been seen in corporate earnings the weaker dollar is very good for the American manufacturing base. Many companies are looking very hard at relocating to the US for building products (eg BMW). This is good for America because America will move away from its financial tendencies and towards manufacturing. And this is good for America because average people will get good paying jobs and be able to live that American dream again.

So back to Tom’s comment:

What goes up must come down and what goes down will come up! How’s that for scientific?

I personally don’t believe for the near or medium term that the dollar will rebound. Maybe in 40 to 50 years sure, but not now, nor medium term.

What if I told you that the reason why oil and commodities are high is because there is a positive re-enforcing feedback loop going on? I have been saying that it is the speculators. But what if something bigger is going on?

What if what we have is a twist on The Power of Nightmares (Video)? The documentary focused on the idea that two dissimilar, but opposite forces both get what they want without actually talking to each other. In other words you get a feedback loop that helps feed the fire on each side.

The reason I thought about this is because of a recent discussion I had with my brother. My brother has lived for the past 4 years in Russia and has worked throughout the former Soviet Union during that time. He speaks fluent Russian, he lives about 350 KM southwest of Moscow, has a Russian girlfriend and likes Russia. I am building the context that my brother is local.

Yesterday I gave him a call for a specific reason and I decided to ask him how the oil crisis is hitting Russia. He told me that gas has never been cheap to start off with. In his area he told me that the litre of gas costs about 28 Rubles. That translates into 4.42 cents per gallon of gasoline. You folks who are sitting in the US are probably saying hey that is what we are paying. Yes, but remember this is Russia where most people don’t earn very much money.

I asked him how people cope with this? He replied they use natural gas in their cars. It’s about 25% of the cost of gas. Curious I asked how people heat their homes, after all heating oil must be quite be expensive. His response was that they use coal. In Russia coal is a cheap medium to heat your home, and there is plenty of supply. In his opinion they did not export coal because it was not worth the money and CO2 “unfriendly”.

Then it hit me, what if this is a twist on The Power of Nightmares plot? Because today on CNBC I heard a trader talk about how there is not enough coal in the world and that countries like India and China are consuming more than there is. Sound familiar?  The panic of coal…

Yet my brother who is in Russia says that there is plenty of coal and not worth the export. What if the traders started talking and saying, “oh oh oh the sky is falling not enough coal and not enough coal but lots of demand…” That would work to the benefit of countries like Russia and make it worthwhile to export coal at a premium.

What I am talking about is a collusion of forces where a rumour is propagated without the complete truth. Would it be to the benefit of commodity producers to suppress the nightmare scenario?

To be able to propagate a nightmare it would imply control of the supply. With oil we have that situation since NOBODY knows the exact supplies. Add the fact that in the last several years the dictators of this planet have taken control of all the oil fields and you have the perfect storm. After all Chavez has oodles of communist programs to support. What I find especially telling is that Dubai is opening an oil futures market.

The Dubai Gold & Commodities Exchange will launch trading of crude-oil futures on Tuesday, a timely move given the astronomical prices for oil and talk of U.S. regulation of speculators in the commodity markets

Now that is convenient…  As the speculators are getting scrutiny another exchange opens up.

Assuming that this is the scenario, who are the winners? Oil producers, and speculators. Who are the loosers? Big oil, and anybody who has to buy and sell the oil or the commodities.

So is this a Power of Nightmare situation? I say yes. And people like Boone Pickens are not helping the situation! He says “sky is falling, sky is falling…” Will this nightmare ever stop? Good question…

Let’s say that I am right and this is a power of nightmare scenario, what does this mean for the price of oil and commodities? I am going to be bold and make a prediction oil will not reach 150! Oil might reach 140, but it will drop back. I am making this bold prediction because 150 would ensure mutual destruction of the two actors and nobody wants that!

There was a bit of spike in Ford, and then today the bombshell was dropped.

Ford Motor Co. today said it might not achieve its goal of profitability in 2009 for its troubled North American business unit — citing higher commodity costs and the sour U.S. economy, which is causing gas-sensitive customers to move more quickly out of large trucks and SUVs and into more fuel-efficient cars and crossovers.

Ford, its too late, you are road kill! In June 2007 I said the following things Ford should do.

1. Focus on the new engines that use ethanol or diesel. I know that Ford is doing great work with alternative fuel engines.

This would have been both good and bad. Diesel motors would have been good because they get amazing fuel economy. Ethanol, well that is another story.

1. Stop focusing alternative fuel engines on the wrong car types. Let’s be real about this, SUV’s are dead! Yes they still sell, but unless the car makers have a real solution, in ten years anyone driving an SUV will appear like those folks who drove the “boats” of the 70’s. (Eg 1970’s Cadillac)

NOW, with oil at 135 USD they are planning to cut the pickups and SUV’s. Absolutely brain dead!

1. Dump Jaguar! Get rid of it. It is bleeding you dry and there is no love for Jaguar in the market. People who would buy a Jaguar would be more tempted to get a BMW or Lexus.

Ok you did this and gave it to Tata, who will make use of it.

1. Focus on Volvo! Volvo has this new model called C30 and it is amazing, but it needs some marketing kick. This car is not that expensive, but is environment friendly and is the perfect car for those 30 something couples that want to make a statement on safety and the environment, but still want a roomy car.

Yes where is this? Volvo has some great cars…

1. Focus on the Mustang! The Mustang is an icon, EVEN here in Europe. People buy the Mustang because it is a Mustang. So make those who buy the Mustang feel proud to drive an icon! The Mustang is about muscle. I will give you an example of how Alfa Romeo made me feel special when I bought one of their racing machines. Upon delivery in the show room floor they covered the car with a blanket in a special room surrounded by racing memorabilia. Then as I took ownership they “unveiled” the car and made me feel like I am becoming part of their racing heritage. Yes corny, but I loved my racing machine and have fond memories of the car. Give that corniness to Mustang owners! 

Yes focus on this…

1. Focus on the cross-overs. Put all of your marketing muscle into the cross-overs. The cross-overs are the future market. I predict in the future people will move into a car specialization mode. This means they would drive something like the Smart to work, but need something else for the remainder of the time. That something else is a cross-over.

Duh, NOW you are doing it..

1. Outside of the trucks I would drop the remaining vehicles. Yes drop the SUV’s, drop the Taurus, drop whatever else. Yes it sounds dramatic, but for Ford to get back in the game they need to be aggressive and focused.  Volvo has the sedans or station wagons that sell, so Ford does not need to compete with itself selling inferior vehicles.

I stay by keep the pickup because there are still people that need pickup’s and Ford needs to innovate in this arena.

Overall I feel Ford is dead, they are reacting too little too late. Renault, Tata, Fiat, and GM are going to beat them at their own game. Thus Ford will have little support outside the States, and little support in the States.

If you want to invest in a car maker invest in GM. I am quite bullish on GM! I actually believe GM has its act in gear.

Here are some more details (1,2):

Masters is unconvinced. Addressing the argument that ethanol production has resulted in less food production, he points out that “Index Speculators have stockpiled enough corn futures to potentially fuel the United States ethanol industry at full capacity for a year.” In addition, speculators are currently sitting on enough wheat futures to supply every American with “all the baked goods they can eat for the next two years.”

…

Speculative activity in commodity markets has grown enormously over the last several years. From 1998 to 2008, the share of long interests - that is, market positions that benefit when prices rise - in commodities held by financial speculators has grown from one-quarter to two-thirds of the commodity market. In only five years, from 2003 to 2008, investment in index funds tied to commodities has grown twenty-fold, from $13 billion to $260 billion.

…

This growth raises justifiable concerns that speculative demand - divorced from market realities - is driving food and energy price inflation and causing human suffering.

And as the radar article says:

Large institutional investors, you’ve been warned.

I would add… Investors you’ve been warned…

Folks STOP BEING IN DENIAL! Finally SOMEBODY big says it as it is!

“Index speculators’ trading strategies amount to virtual hoarding via the commodities futures markets,” Michael Masters, a former hedge fund trader, told the committee in prepared testimony.

And he goes on…

“Institutional investors are buying up essential items that exist in limited quantities for the sole purpose of reaping speculative profits,” he said.

What have I been saying? I have been saying buying commodities is akin to flipping houses! Michael Masters even goes on to say that the speculator is creating as much demand as China! Think about it folks!

The market has been making excuses, excuses and more excuses! First we started with the main cause of the high price of oil? It’s the American market they consume so much.

WASHINGTON, May 20 (UPI) — Foreign oil imports fell in the United States in the first quarter of 2008, the U.S. Energy Information Administration said.
Foreign imports fell to 57.9 percent of the country’s consumption, down from 58.2 percent a year ago.
The trend is pushed by high oil prices, biofuel production mandates and improved fuel efficiency in cars, the Financial Times reported Tuesday.

What was the market response? Higher oil! Why? Next excuse, the dollar is weak and therefore oil must go higher to make up for the lost revenue.

Quote said on CNBC: For every percentage in weakness in the dollar there is a 4 percent increase in the price of oil.

What was the market response when the dollar strengthened? Higher oil! Next excuse, its not the dollar, nor the lower American demand, but its foreign demand!

Paraphrasing Ross Perrot Junior on CNBC: “The fair price of oil is in the 70’s. The problem is that the price of oil is not actual demand, but future demand as I was reminded by an Indian friend of mine.”

What was the market response? Higher oil! Why? Next excuse, its the fault of the backend where the price of crude is trading at very high levels indicating future demand. (Backend futures mean futures 5 years or so from now).

Quoting Boone Pickens: There is 87 million barrels of demand, but only 85 million barrels of supply per day. Its that simple, not even related to the US Dollar.

It is that simple, REALLY? Let me explain. Imagine you have 87 people that need shelter, but only 85 can find shelter, does that mean two people stand in the rain? And if so what happens in the next day? Are there still 87 people, and only 85 that can find shelter? Because if that is the case then there are really 89 people who need shelter. You get the math that this would lead to an exponential explosion.

Ok let’s roll this another way, the market is only 87 people and there is only 85 places of shelter. This means at any point in time 2 people will have no shelter. How does the market respond? They build more, and those that get shelter start hamster away and maybe take an extra place.

There is one excuse after another, but it all boils down the fact that these high prices are killing the economy. Yes I have harped quite a few times on this topic, but it is because I see the lack of understanding by most people on the economic ramifications. That is why I refuse to go long in commodities out of ethical reasons. Yes it is my ethics, but I see the economic ramifications.

Anybody who speculates in oil (via USO) or commodities might like the gains in your pocket book, but you don’t see how you are killing the economy.

AMR was the worst, dropping 14% on the Big Board after CEO Gerard Arpey said the industry “was not built to withstand oil prices at $125 a barrel.” Most airlines have hedging programs in place, but many hedge, at best, about one-third of their fuel cost, leaving them still exposed to the surge in costs. (AMR paid $2.74 per gallon for jet fuel in the first quarter, but prices have risen since.)

Those people who are without jobs are going to have to figure out how to eat tomorrow. Clap yourself on your back! Many argue hey this is capitalism! On CNBC they had a debate with a senator who was introducing legislation to tax the oil companies.

He replied, “When these high prices hurt people from going about their daily lives then it is the role of government to step in.”

I dislike government, but when you start hurting the average person you are going to get government involvement whether you like it or not! And when the government intervenes it is usually the capitalist that gets it first! That’s why I don’t agree on speculating with commodities since you are saying, “I want my money before somebody eats!”

For example look at what Senator Lieberman says:

But Lieberman said accessing the strategic petroleum reserves is not the solution to the nation’s energy problems but “it is a form of temporary relief.”

Instead, the Connecticut senator said index speculators are “partly responsible for hurting a lot of individuals and businesses.”

“I think it’s important to limit the options that people have to maximize their profits, because a lot of us end up paying through the nose,” he added

So take your profits today or you are going get your profits taken from you. EVEN the almighty Rick Santelli has conceded that MAYBE, JUST MAYBE there should be restrictions put on speculators! Tells you quite a bit no!

Though not all is bad, and I am starting to invest in companies that are going to be the future. Like Renault-Nissan that are in conjunction with the Israelis are a 100% electric vehicle. Or how about Tesla Motors?

All I can say is Go-Go Renault and Israel! And this is not future pie in the sky technology. They are talking about rolling this out in 2010, and 2011. This will finally break the backs of the oil conglomerates, and speculators!

I am trying to get my head around this alternative deal that Microsoft is proposing.

“In light of developments since the withdrawal of the Microsoft proposal to acquire Yahoo! Inc., Microsoft announced that it is continuing to explore and pursue its alternatives to improve and expand its online services and advertising business.  Microsoft is considering and has raised with Yahoo! an alternative that would involve a transaction with Yahoo! but not an acquisition of all of Yahoo!  Microsoft is not proposing to make a new bid to acquire all of Yahoo! at this time, but reserves the right to reconsider that alternative depending on future developments and discussions that may take place with Yahoo! or discussions with shareholders of Yahoo! or Microsoft or with other third parties. 

At first I thought WTF? Has Microsoft become that impotent? The scoop is that Microsoft would work with Yahoo in some type of joint venture involving search advertising. It makes you to wonder what they have in mind. Joint venture? Transaction? Is this not a bad way to get into the search advertising field?

I decided to walk the dogs and think hard about this deal and what Microsoft has in mind. Then it struck me, that this situation is eerily similar to something that happened way back. Ok, folks sit back and relax and listen to the story of how Microsoft got a kick butt SQL Server Database.

Way back when, Microsoft wanted to become a bigger company. They created an operating system, developer tools, and Office productivity tools. Though they wanted to be treated like a real company that could deliver server side products. At the time everybody thought Microsoft and server = joke! Microsoft was the company responsible for the three finger salute that allowed people to reboot their machines. Surely one jests when thinking about Microsoft on the server side.

Microsoft made it an issue to become competitive in the database arena since it was the hot technology. For reference this was around 1990 to 1992. At that time SQL databases was cutting edge and the defacto way to store data. Before this people used BTrees. Corporations like Oracle, and IBM DB2 were king. Microsoft on the other hand had a 16 bit operating system while working on the first version of Windows NT. The headwind that Microsoft had around that time was the exact same headwind Microsoft has now.

So Microsoft was on the warpath for acquisitions. They bought FoxPro around 1992, but that was a desktop database. Microsoft still needed a server side product, and they found nothing. Microsoft was BEHIND the gun and they needed a plan. The result was that in 1992 they decided to form a partnership with Sybase and created a Microsoft SQL Server database based on IP from Sybase.In the beginning this venture seemed odd and only helped Microsoft to a degree.

What makes that situation similar to now is that Sybase like Yahoo is not king of the hill. Then it was IBM, and Oracle, now its Google. Then Sybase had good technology, but needed help, like Yahoo now. Then it helped Microsoft step into the SQL Database arena without costing billions. And now it would appear Yahoo can help Microsoft step into search advertising with a professional product.

The rest is history and now SQL Server is an extremely rock solid product that has the accolades from many in the industry. Looking at the deal from this light it actually is a win win for all parties concerned without having to go through a battle of control. Yahoo gets to keep its independence, and Microsoft gets technology it wants. Win win… If Microsoft stock sells off, consider it a long term buying opportunity.