Conspiracy of Optimism

By Bron Suchecki, on August 7th, 2009

Love this comment on a Zero Hedge article:

As near as i can tell forecasters don’t forecast anymore than analysts, analyze or reporters, report. What they do is cheerleader. They all are all engaged in the conspiracy of optimism. Which leads to delusions of prosperity.

Seriously if loose monetary policy and rapid asset inflation were the route to economic prosperity, Argentina would be the richest country in the world by now.

On another matter, I find it interesting how misinformation/misinterpretation is propagated on the Internet. Example is the Adrian Douglas piece The Alchemist, which lodges itself in people’s minds in simplistic terms, as evidenced in this comment on a Seeking Alpha article:

Delivery of futures contracts in gold and silver is allowed in bullion or GLD and SLV.

The statement is refuted by another commenter kohalakid. I would also recommend Tom Szabo’s Exchange of Futures for Physical (EFP) Explained.

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Leave a comment   Financial Markets   , ,  

The Scandal That is the Indian Police

By Ajay Shah, on August 6th, 2009

The most basic public good of all, which should be the first priority of the government, is law and order. If you think of the principal-agent relationship between citizens and State, citizens would want to tie down the State to first focus on law and order, and deliver results on law and order, before embarking on mission creep. One of the unhappy consequences of India’s socialist adventure was a breakdown of this principal-agent relationship, and a loss of focus on this core function. See a recent column by Avinash Persaud in Financial Express.

Today, Human Rights Watch has released a top quality and incredibly depressing report on India’s police. (Via Nandkumar Saravade). We need to reorient government — as in financial resources and top management time — towards the police and judiciary.

Also see Bibek Debroy in Indian Express, and my blog post on the Bombay attacks.



One comment   Politics and Government   , ,  

Pending Home Sales: Longest String of Monthly Gains in 6 years

By Eldon Mast, on August 6th, 2009

On Tuesday, the National Association of Realtors announced that the pending home sales index for June jumped 3.6 percent. The gain is the fifth such monthly gain in a row and represents the longest string of surges in six years! Year-over-year comparisons also now show improvement — up 6.7 percent since June of 2008. In fact pending home sale contract levels are registering their greatest activity since June of 2007 — two years ago.

The consensus forecast was that the index would increase only 0.7 percent. In fact in a Bloomberg survey of 35 projections everyone was surprised by the strong jump. Forecasts had ranged from predicting a 1.2 percent drop to a estimate of a 3 percent gain.

Tuesday’s report from the national association follows the July 23 release showing home resales in June rising for a third straight month. That was following by further good news on July 27th when data showed that sales of new homes soared 11 percent in June, the most since 2000.

In early June we made the claim that recovery had started for this US growth cycle. All of June’s housing data now supports that claim as well.

Another big surprise to most economists will be the strength of the recovery as measured by GDP growth in Q3.

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Leave a comment   U.S. Economics   , ,  

How To Spontaneously Combust – There Is An iPhone App For That

By Trace Mayer, on August 5th, 2009

One of the most recognized, innovative and valuable brands in the world, Apple, is under assault.  Apple has long been known for its fanatical followers, innovative solutions like a graphical user interface or the mouse and stylish products that meld hardware and software to create the best user experience possible.

With several successful product launches, the new Snow Leopard operating system which quickly rose to #1 on Amazon being available for pre-order and iPhone sales being up 700% over last year which contributed $1.69B to revenue the company looks to be doing well fundamentally.

Many within the cult of Apple are developers who build applications for the iPhone with over 65,000 currently available in the App Store.  These are developed at no cost to Apple while the developers hope to have them pass Apple’s arbitrary and discriminatory review process for inclusion into the App Store where significant revenues can be earned.  The applications add significant functionality to the iPhone and provide for a better user experience.

But with the stock price rising to about $165 the P/E has soared to 29 and it appears that speculative fervor may be beginning to boil.  Fundamentally Apple’s profitability is inextricably linked to its brand and its venerable brand is now under assault from some of its most loyal (formerly) followers.  After all, the opposite of love is not hate but apathy.

EXPLODING IPHONES

The TimesOnline reports, “Apple attempted to silence a father and daughter with a gagging order after the child’s iPod music player exploded and the family sought a refund from the company.”

The iPhone started hissing and then spontaneously combusted flying 10 feet into the air.  I have been unable to find a functioning hyperlink to the exploding iPhone app in the App Store though, sorry.  Despite Apple’s environmentally friendly advertising this is not the first example of a iPhone posing a serious health hazard.  There are many examples which can be found using Google.

AT&T – THE BRAND DESTROYER

I remember watching Steve Jobs announce the iPhone.  I was incredibly excited and made the decision that I would buy it.  When I found out that there would be an exclusive agreement with the notorious AT&T I simply held my nose.  AT&T’s core competencies include (1) damaging the customer and (2) destroying shareholder value.  For example, over the past two years since this millstone was hung around the iPhone’s neck the share price has fallen from about $42 to $27 or 35% decline.

Having been an iPhone user since they were launched and I even waited in line for hours at launch day.  I think the device is that is great (it has not exploded yet and burned down my house or car) but the relationship with AT&T has been absolutely horrible and over-priced.  AT&T does not add-value they destroy value.

One of the strategic reasons for the iPhone was to be an introductory product for Apple.  People who had never bought an Apple product would purchase an iPhone and then after a positive user experience go on to purchase a MacBookPro, etc.  Since the iPhone release Apple’s market share for smartphones, computers and operating systemss has been rising.

Most new users probably have a good experience with the iPhone so long as they ignore the massive debacles that happened during activation, do not mind being required to purchase the iPhone in an AT&T or Apple store and not online, the serious dropped calls issue and other problems.

Then there are the tethering restrictions which really, really annoy me as I travel often and if I could access the Internet with my laptop through my iPhone’s $30/month unlimited (only on the iPhone) data plan 3G connection then the user experience would be that much better.  Overall, this is all extremely frustrating for a luxury product where the cheapest monthly plan is twice what my friend pays for his cell phone.

AT&T is the likely culprit when it comes to the tethering restrictions.  Why?  So AT&T can attempt to charge more.  In fact, AT&T is the likely culprit for the activation issues because it did not want iPhones sold and then jailbroken and then used on a different cellular network.  Just blame AT&T for everything that goes wrong.

And if AT&T is not the culprit Apple should still try and shift as much blame as possible to them.  But ultimately Apple made an exclusive agreement with AT&T and therefore only so much blame can be shifted before Apple’s brand begins to be degraded by associating with brand destroyers.

GOOGLE VOICE

Another Internet behemoth is moving into the cellular market.  Google Voice, currently available by invite only, is one of the greatest innovations for handling voice communications I have ever used. To ease the burden on American solders “Military staffers with .mil addresses will receive Google Voice invites within 24 hours after requesting them”.

Want to integrate Google Voice and the iPhone in order to greatly simplify your life?  There was an app for that.  On 27 July 2009 TechCrunch reported about all Google Voice applications being excluded from the App Store.  It seems ‘a reliable little birdie’, probably through Twitter, told John Gruber of the Daring Fireball that AT&T is the chief instigator of blocking which software can and cannot be used on the iPhone.  The move has sparked many customers, developers and even the influential TechCrunch blogger and early adopter Michael Arrington to ditch the expensive and luxury iPhone.

Being in the catbird’s seat the Google spokesman throws all the blame for a sub-optimal user experience on Apple:

We work hard to bring Google applications to a number of mobile platforms, including the iPhone. Apple did not approve the Google Voice application we submitted six weeks ago to the Apple App Store. We will continue to work to bring our services to iPhone users — for example, by taking advantage of advances in mobile browsers.

Even the regulators are annoyed with their user experience being disrupted and the Dow Jones reports, “The Federal Communications Commission has launched an inquiry to AT&T Inc. (T) and Apple Inc. (AAPL) over the rejection of Google Inc.’s (GOOG) voice application for the popular iPhone.”

BRAND DAMAGE

Apple is taking marching orders from AT&T to degrade the user experience of their most loyal and lucrative customers.  Currently, Apple earns $4.8B on $32.5B in gross revenue compared to Dell which earns $2.5B on $61.1B in gross revenue.  It is Apple’s brand and their focus on the user experience that is a significant factor in the better margins.  Additionally, Apple sells premium products that are more expensive.

Apple should learn a lesson from Dell’s past mistakes.  I found that Simpson’s video on Apple Hell which must be modeled after Dell Hell which got started by a single little blog post by Jeff Jarvis who later recounted,

But the most telling moment came in a blog post by Toronto venture capitalist Rick Segal, who overheard a bank teller in his office food court saying, “I was going to buy a new Dell but did you hear about Jeff Jarvis and the absolute hell he is going through with them?”

Apple ought to get this situation of exploding iPhones and their relationship with the brand destroyer AT&T under control before they have an absolute PR nightmare on their hands.  It is a lot easier to sell another expensive luxury product to a happy customer than attempt to acquire one through intrusive advertising via failing mediums like television, magazines or newspapers.

The 29 P/E ratio is largely contingent upon the ability to acquire new customers at double digit growth rates, sell expensive luxury products and maintain high margins.  All of this when there is nothing positive about the fundamentals of the American economy and there is another massive market crash coming.  An expected 1.5M unemployed seeing their unemployment benefits cease by year end.  They are going to continue cutting any extra expense they can.

If this idea virus that Apple is intentionally degrading the user experience begins to spread it could turn into a full-fledged epidemic.  AT&T spends millions on advertising an who believes them?  Likewise every negative blog post that is written, email that is sent and conversation that is had causes damage to Apple’s brand and erodes shareholder value.

CONCLUSION

Apple has a tremendous brand and has been able to monetize it to create shareholder value.  Google also has a great brand and is working hard to leverage it to provide a better user experience.  On the other hand, AT&T is a giant brand destroyer and has targeted Apple with its Death Star.

Apple’s current P/E is contingent upon virile growth but they are making the same mistakes Dell did which prompted a community to gather and commiserate which spread the idea virus that Dell treated their customers poorly.  That stigma still has presence in the social zeitgeist.  All of this in the midst of not just a recession or even depression but The Great Credit Contraction.  I would stay away for now.

What is Apple thinking?  Caveat venditor.

Disclosures:  No position in Apple or AT&T.  Long Google.



One comment   Business   , , , , ,  

Don’t Be Surprised By Robust Growth in Q3

By Eldon Mast, on August 5th, 2009

On Tuesday, the National Association of Realtors announced that the pending home sales index for June jumped 3.6 percent. The gain is the fifth such monthly gain in a row and represents the longest string of surges in six years! Year-over-year comparisons also now show improvement — up 6.7 percent since June of 2008. In fact pending home sale contract levels are registering their greatest activity since June of 2007 — two years ago.

The consensus forecast was that the index would increase only 0.7 percent. In fact in a Bloomberg survey of 35 projections everyone was surprised by the strong jump. Forecasts had ranged from predicting a 1.2 percent drop to a estimate of a 3 percent gain.

Tuesday’s report from the national association follows the July 23 release showing home resales in June rising for a third straight month. That was following by further good news on July 27th when data showed that sales of new homes soared 11 percent in June, the most since 2000.

In early June we made the claim that recovery had started for this US growth cycle. All of June’s housing data now supports that claim as well.

Another big surprise to most economists will be the strength of the recovery as measured by GDP growth in Q3.

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Leave a comment   U.S. Economics   ,  

Dispatches from the Front Lines of the Real Estate Wars – Part 2

By D H Smith, on August 4th, 2009

I have mentioned my misgivings with the Case-Shiller 20 City Real Estate Index before, but everyone now hangs on it monthly and I have had to get on board too.

I have also mentioned that I am a real estate agent in New Jersey with access to the MLS data here, and a keen follower of the trends in local markets.

Case-Shiller was reported on Tuesday this week for the latest month (May). The news was all positive, confirming a four-month improving trend. The index rose one-half of one percent from the April reading, the first rise since 2006. Prices were higher in 13 of the 20 cities surveyed. The year-on-year statistic was 17.1% lower, but that is the first reading better than -18% in several months.

I don’t believe anyone wants to forecast a big uptick in prices — a V-shaped recovery — but a lot of people are making the bold call that the residential market is at a bottom. For anyone who may have caught the bottom, congratulations! You know the hardest thing to do is to time a market bottom so precisely.

Lately I notice a lot more inventory “under contract”. The Case-Shiller data sent me to the MLS to do my usual selling rate to inventory analysis and find out whether macro data confirm anecdotal experience. Do they ever. What I found is that the months of inventory in the local markets I follow has absolutely crashed. In the spring, we were at 10-11 months to clear the active standing inventory. Currently it is more like 5-7 months. Five month’s inventory is comparable to the sellers market of a few years back. Wow!

Is there any reason to think the more active market is a blip rather than a trend? I can think of two. One is the action of the $8000 first time home buyer credit, which expires at the end of November and will not be extended. If you want to capture this, you’re running out if time. The other is the regular action of the calendar — every year sales pick up in the spring and close in the summer so that children can be situated in their new school districts for autumn. So let’s keep an eye on this to see whether it has legs or causes disappointment later on.



Leave a comment   U.S. Economics   ,  

The Low Level Equilibrium of Indian Finance

By Ajay Shah, on August 4th, 2009

There is a fascinating editorial in Business World, which worries that Indian finance has `become moribund, and … no longer promotes either growth or competition ‘ which ends with:

To the question about what is to be done, there are no easy answers. It is necessary for wise people to reflect, to sit together and deliberate, and to rethink the entire system. But the question is, where are the wise people? The government has encroached on all the repositories of intellect. It has politicised the universities, and its funding has given it patronage that has emasculated research institutes. Democracy is supposed to have one great advantage over dictatorship — that it creates space for divergence and debate, that it keeps boiling a cauldron of clashing positions from which the truth can emerge. It is this diversity of opinions that the country needs today.

Also see this column by Ashok Desai in The Telegraph on 28th July. Among other things there, he says:

My findings are based on a cursory analysis of easily available banking statistics. So much more could be inferred from the masses of statistics accumulated by the Reserve Bank of India. All it needs is a good, elementary economist. The RBI employs economists by the hundreds; the finance ministry gives generous grants to many more. But their minds are focused on higher matters; looking at easily available figures and calculating simple ratios would not occur to them. So we continue to have one of the world’s best documented and least analysed banking systems.

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Leave a comment   International Economics   , ,  

An Upsurge in Concern About China

By Ajay Shah, on August 3rd, 2009


Leave a comment   International Economics    

Grassroots Strategy for Mobile Phone Based Payments, Sighted in Africa

By Ajay Shah, on August 3rd, 2009

Today’s mobile phones are as powerful as the computer used in Apollo 11 for the moon mission. So how can India’s 400 million-plus mobile phones/NASA computers transform access to finance?

Many people have been talking about the potential of mobile phones to revolutionise payments and ultimately consumer finance. Chapter 3, `Broadening access to finance’, of Raghuram Rajan’s report puts a considerable emphasis on the role that mobile phone companies can have in improving financial inclusion, even though they are not traditionally seen as financial firms. [Also see].

One breakthrough came on 30 June 2009 when the RBI authorised 17 banks to introduce mobile banking services, enabling customers to carry out fund transfer between banks and accounts.

And there are signs that banks are innovating. For example, there’s a Citibank pilot project, reported in the Business Standard a couple of weeks ago, that enables credit card customers to use their mobile phone for payments.

But these are only small steps. The RBI guidelines are still quite conservative, and the Citibank pilot is only for six months and for customers in Bangalore.

What about the hundreds of millions of unbanked people in India who have mobile phones?

A brilliant idea that is used in Africa, where mobile phones are used for money transfers, could be important in India. It’s great for unbanked people, because it doesn’t require a bank account or even a bank. And it enable small transfers to be made to help friends and family, say with school fees, medical expenses or loan repayments. It requires no cooperation from the government.

Here’s how it works, for person A to send $5 to person B

  1. Person A buys a $5 top-up card for his mobile phone from a street vendor or phone kiosk and scratches the card to reveal the top-up code.
  2. Instead of keying in the top-up code, Person A sends it to Person B as an SMS message.
  3. Person B receives the SMS and takes her phone to a local phone kiosk, and sells this top-up code to the local trader.
  4. The local trader inserts the top-up code into his own phone to verify that the $5 top up is valid and pays Person B (a bit less than $5).
  5. The local trader can then sell calls on his phone or use the credit for his own private use.

Essentially, a secondary market in top-up cards has been developed that enables small money transfers to be made quickly and easily.

This informal money transfer system has proved so popular that these top-up cards are now sold among the diaspora in London as a handy way of remitting money to relatives. And Western Union is now planning to roll out a mobile money scheme in Africa to avoid being left behind.

Banks here are also keen to explore the opportunities that new technology provides. Yet regulators remain cautious of the potential of mobile phones for transforming access to finance.

While the legal and regulatory issue wait to be resolved, it would be an interesting experiment to see if an informal transfer scheme, along the lines of the one described in this blog post, would work in India. It would also be interesting to hear comments on what other solutions people are using already to make the most of their pocket-sized Apollo-11 quality computers.

These are small steps, which are a grassroots effort at overcoming problems. The big leap will come when the mobile finance sector is opened more fully to competition and innovation.



Leave a comment   International Economics   , , ,  

Does Cash-For-Clunkers tell anything about Healthcare Reform?

By D H Smith, on August 3rd, 2009

On Thursday night the government announced it was suspending the Cash-For-Clunkers program. In my twitterstream I reacted as follows:

dhsmith24 Cash for clunkers suspended w/i a week. What the heck are these guys doing? And they want to run #healthcare?

The doubt this #fail creates is real enough, but there is more, and Hugh Hewitt has expressed it best:

Just as with the tax credit for new home purchases, consumers altered their behavior when presented with an opportunity. Democrats thus have received a second example of an iron law of economics: People respond quickly to significant cash incentives.

The Democrats never get this. They never believe economic actors respond to incentives. There are alway massive unitended consequences of their great economic projects because they are constitutionally unable to work through all the implications of these projects. Democrats are working on a root-and-branch restructuring of the U.S. healthcare system that cannot work as they have currently proposed, they have passed a Cap and Trade energy restucturing plan that may more correctly be called the China Opportunity Act of 2009, and they think they can raise taxes on producers without limit. In every case they totally fail to reckon with the fact that producers will produce less, arrange their affairs to minimize the tax, or in the limit just bail out — “Go Galt” in the emerging parlance.

But the people are sovereign, this is what they voted for, so all we in the reality-based community can do for now is speak out against things we know cannot work and hope they can be changed in process.



Leave a comment   U.S. Economics   , , ,  
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