Monday, February 04, 2008


My daughter, Whitney, just received a letter from the NC State Employees Credit Union that holds her mortgage. Her loan is a variable rate loan that floats every two years. The rate is 2.5% above the 1 year treasury bill index. The current rate on this index is 2.3% which means that with no change in rates, her loan will be adjusted to 4.8% (probably rounded to the nearest 8th) at its next adjustment date which is 14 months from now. The credit union has lowered its initial rate to new borrowers because the credit union has CASH, CASH AND MORE CASH. The credit union wants to make some loans. The new borrowers will pay .75% more up front but they will save 1.00% for two years. It is a good deal to give up $75 per $100,000 in order to save $200.

The credit union wants to be fair to those who secured loans within the past two years. Therefore, it has offered to modify loan agreements in exchange for the .75% up front. Money, money and more money everywhere.

The public is running scared. The public has refused to add money to stock accounts but are instead piling up funds in "safe accounts". They are about to miss on a great opportunity. One of the reasons the public is running scared is that they believe the housing-mortgage market has "frozen up". The fact is that money is available for "traditional" home loans, the kind where a down payment is required.

Friday, I suggested to my brother that he should start several more new houses. He agrees that his houses are once again very affordable. The big decline in interest rates has lowered the mortgage payments by 15% and in some cases by 20%, THERE IS A 20% OFF HOUSE SALE! The fact that there are a lot of unsold condos at Miami Beach is not the end of the world but not even a beep in the history books.


Morgan Stanley is reported to have upgraded "all of the airlines" this morning. As you know, I begin to get nervous when the "big boys" make bold announcements, but the numbers from CAL for the month of January were a continuation of progress, occupancy up and non-oil costs down! The media made a big deal out of the fact that OPEC did not bend to the will of George Bush and increase oil production. Once again, the truth is not in the story written. This is the time of year when OPEC considers reductions in production because the heavy use winter season is over. The spring and fall are low use periods and even the heavy driving season is weak relative to the heavy heating season in the northern hemisphere. China is suffering through the coldest winter in 50 years and shortages in electricity but this too shall soon pass.

It took a long time for the turn to come in airlines. I have admitted that I thought the turn would be relatively easy. If you are among those of us who stuck it out, congratulations. The airline profits will be strong for the next several years. If there is going to be mergers, they need to happen quickly. The Bush administration would likely support consolidation but a strong economy or a new president are enemies to consolidation. DAL still has its sights on NWA, which would create the largest airline in the world. The pundits say the deal will come within two weeks or not at all. This sounds like "pressure hype" but there is an element of truth. The problem is that CAL, DAL and NWA are all members of the strongest international alliance. If there is to be a merger, CAL would prefer to combine with NWA. The loser will be left to take UAUA to the dance. UAUA is the bigger airline but it is also the most difficult partner.


Exxon reported profits of 40.6 Billion Dollars. The company made such big profits because they took the tremendous risk of finding oil in places like Angola and Venezuela. Venezuela nationalized Exxon's property. Both Venezuela and Exxon lost money on the nationalization. The fact is that Exxon has the skill to extract difficult oil and Venezuela owns difficult oil. Production in Venezuela has fallen for the past several years and the people are suffering through an economic disaster. In the mean time, Exxon is criticized for making huge profits. Mark Perry notes that Google reveals that the ratio of post about Exxon profits exceed the post about Exxon taxes is 33 to 1. The fact is that Exxon paid $30 Billion in taxes. The fact that this money came out of consumers pockets at the gas pump is the fault of those who imposed the high taxes, it is not the fault of Exxon. Anyway, the sum of income taxes paid by half of all the people in America was less than the taxes paid by Exxon! Furthermore, 50% of the people paid 3% of their income in taxes and Exxon paid 41%. It is easy to bash the big American corporation but that does not make the bashing correct. Had the taxes been dramatically lower, the American people would have paid substantially less for their gasoline. Companies are always going to invest up to the point of unsatisfactory returns. Lower taxes would have lead to more investment, more production and lower oil prices. The total price of oil would have been reduced by the lower taxes and by the increased supply.


While Motorola is reported to be in a scrabble to exit the mobile handset business, it is rumored that Dell will buy the spin-off and then join with Google to sell a new mobile supper computer. Garmin has an "i-phone clone" for sale. Of course, its strength is in its GPS mapping system but it has a lot of "bells and whistles" including the touchscreen (haptics) features similar to the i-phone. It is further reported that Apple will soon announce an i-phone of faster speed, lower prices and advanced features.

Billions and billions and billions of hand-held, Internet, computers will be sold over the next 5 years. The best products will jump out the door. So far, Nokia is winning this race. Nokia has set new records for rolling out a product and having it adopted by the masses. No matter who wins the hardware race, the big winners will be the companies that use the devices to sell trillions and trillions and trillions of dollars worth of services.


MSFT has offered a 40% premium to YAHOO shareholders. "They" say the bid will be raised. It is said that Google has tricks to play. For example, Google might offer to subcontract with Yahoo to provide its search services. The offered contract to give Yahoo huge profits and to leave MSFT mired in the mud it has been stuck in for the past 10 years.

MSFT is a very profitable and a very powerful company. MSFT missed the online market turn big time but it has since spent billions to carve out a niche. The addition of Yahoo would make MSFT and Google the "big two". Due to anti trust considerations, it would seem that opportunity would exist for others to join forces to create the third big player. This all assumes that the anti trust people will let MSFT buy Yahoo and it assumes that Google will be unsuccessful in derailing the deal.

In any event, mobile search is going to be huge. Mobile search will morph into a lot more than search. Once the computer knows that you like to stop at XYZ gasoline station and when it learns from your car computer that your gas tank is low, your hand held will remind you of the low tank and the low price of gasoline in the area. The convenience store-gasoline station will pay fees to also inform you that your favorite beverage is "on sale".

No one can forecast the future accurately. Who knows how powerful the mobile Internet will be? Those who say the potentials created by the Interstate Highway system bought land at strategic exits and they made fortunes. Sure, a lot of construction companies and car companies prospered greatly from Interstate Highways, but the big money was made by those who "provided Interstate services". The INTERNET INTERSTATE IS UNDER CONSTRUCTION! The faster and easier the international communications, the more sense it makes to "arbitrage labor cost". As reported earlier, the total employment cost of a data entry clerk in America is about $34,000 per year and the cost in India is about $1,900 per year. "THE END IS NOT NIGH!"

CASH, CASH AND MORE CASH! Cash for home loans, cash for hand held computers, cash for businesses to borrow profitably!