Tuesday, April 01, 2008


The US Senate has reached an agreement on how to pass a housing mortgage bailout bill. Once again our politicians created a big problem and have now jumped on their white horses to save the day. They were on their white horses when they passed the bills to encourage banks to lend like crazy and now they are on their white horses to bail out these borrowers. The good news for investors is that the prospects of this new bill will be positive for the markets in the short run.


The import index dropped to 45 while the export index climbed to 56.5. Any number below 50 shows a state of decline below normal and any number above 50 shows expansion above normal. The 45 reading was the lowest since the mid cycle turn year of 1995. The spread between the two was the biggest since the bottom of the 1990 recession. Brian Wesbury has reviewed these numbers and maintained his first quarter GNP estimate at 2%. No recession here! The lagging inflation index number was very high at 83.5 but the gold price action, falling from over 1,000 to below 900 lickity split shows that inflation concerns are melting away.


The GigaOM site reports that CISCO router sales are jumping. Management claims that by 2011, the equivalent of one billion DVD's will be sent online per month. Just in the past 9 months, high speed router sales have doubled.


Google continues to be willing to sacrifice short term profits to build huge future businesses. The latest "news" about declining clicks is nothing but a function of moves made by Google to increase market share down the road. In another development, Google is reported to be "moving in on" Amazon. Amazon offers a number of computer services for fees. Google is beginning to offer some of the same services at the Google price (free of charge).

No one can be sure if Google really expects the government to allow the use of spectrum between TV channels for a new wireless Internet network or if Google is simply using this space as a negotiating tool to further open up private wireless networks. Never the less, Google has the support of MSFT and many others in its petition to open up this "white space". This space holds the promise of bringing down the cost of cell phone and wireless Internet service by substantial amounts.


The land areas of countries have in a state of constant change for millennium. The last major redrawing of maps was done after WWII but there have been many other redraws since. Today, we are in the middle of a redrawing of maps without changing the physical boundaries. The Ukraine, a former state of the Soviet Union is about to become a member of NATO. Iraq is well on its way to being a democratic republic. Even Cuba is showing signs of change. The early changes in Cuba are changes to permit individual freedoms. For example, last week the citizens gained the right to own cell phones. Once the freedom cat is out of the bag, it will be difficult for the leaders to put it back in the bag.

The drawing of maps is typically a huge event. As mentioned in an earlier post, Seward bought Alaska for 1.9 cents per acre. Only in hindsight has America realized the wisdom of this purchase. The redrawing of the maps is often done at the expense of blood and also for the benefit of preventing future bloodshed. Russia has once again invited Iran to sit down with the group of 6 nations to discuss its nuclear program. The US continues to offer both carrots and sticks to Iran in the hopes of reaching a negotiated truce. Iran continues to support armed conflict in Lebanon, Iraq and Palestine. The negotiations about nuclear power are entwined with the attempt to negotiate a lasting truce in the region.

I am confident that many of the Americans who protest the US presence in Iraq have little understanding of the total picture. I certainly do not understand the nuances of US geopolitical strategy. To some extent, it is necessary to trust our leaders. I am often reminded of what it is like to have every decision made by a Church committee second guessed by Church members who have not been involved in the decision making process. Once a committee is elected, it is most often best to let them do the job to the best of their ability and to stay out of their way.


Our senate leaders have reached a compromise. The result will be a bill to help restructure defaulted mortgages. As is usually the case, by the time the government solution arrives, the problems will be largely behind us.