Monday, August 31, 2009

What Else Did Sadamn Hide? When Will Corruption End?

As Gomer Pyle liked to say, "Surprise, Surprise, Surprise!".  Who knew that Saddam Hussein hid his air force in Serbia of all places?  Here is a link to a New York Times article about 19 hidden Russian fighter jets.  link  What other weapons did Saddam hide?  If he was able to hide fighter jets, then he certainly might have hidden some of the "weapons of mass destruction" he was known to have.

Was the congress steam rolled into voting for the war in Iraq?...

Sunday, August 30, 2009

Jobs to China

Did you ever wonder why jobs have moved to China?  Perhaps the 400% increase in taxes on labor in the USA has something to do with it.  If our country were actually serious about reducing the amount of fuel that we import and the jobs that we export, we would raise the tax on fuel and lower the tax on labor.

Here is another chart from Professor Perry (His blog is the first one on my economic list bundle).

Natural Gas Price Down 80%!

Mark J. Perry, Professor of Economics at Michigan, is my favorite blogger (top link on my list).  He does a great job of converting economic news into valuable pictures.  Below is his chart showing an 80% decline in the price of natural gas!....

Saturday, August 29, 2009

Personal Consumption Set to Soar

Personal Consumption Expenditures soar right at the end of recessions.  As you can see from the following chart, the move appears to have started.

PCE took a heck of a plunge during this recession and the bounce back will be equally strong.  What do you suppose consumers are going to buy?

Hint: the trend is already in place....

Thursday, August 27, 2009

WiFi Break Out

WiFi is in breakout mode. Cell phone service providers are offloading as much traffic to WiFi as they can, giving them the ability to sell more monthly plans. Investors should take a look at equipment makers. Also at Clearwire, which has zoomed from around $2.50 per share to $7.69 in only 5 months.

Verizon is buying LTE equipment. Motorola, Lucent, and Erickson are getting orders. Cisco purchased the Flip Camcorder company and expects home made video's to swamp the Internet. GLW will benefit and install miles of fiber optic cables. Have a little fun, the market water is warm and, with a little bumps and bruises along the way, the market will double once and double twice over the next 10 years.

Yahoo Bites Microsoft!

As details of Yahoo's deal with Microsoft surface, it becomes clear that Microsoft is desperate. Desperate to gain a decent share of Internet business. Microsoft has agreed to pay Yahoo a bundle, just so Microsoft can post market share for the next ten years.

Under the deal, Microsoft pays the bills but gives Yahoo 85% of revenues. Yahoo will continue to offer search services separate from Microsoft and the hat trick is that the deal did not include Yahoo international mobile search properties. Indeed, Yahoo just made a deal allowing Google to provide search on British Telecom. The new CEO of Yahoo is to be congratulated for making a shrewd deal. Buy Yahoo!

Google is a winner too. Over the next 10 years, the desk top computer is likely to become the equivalent of the land line telephone. The growth is going to be in mobile services. The deal for BT gives Google another place to grow.

Blackberry just joined most other cell service providers in using Google Web Kit for development . The use of GWK, by most mobile developers is a coup for Google. All of the developers are enjoying huge time savings and the only real loser is Microsoft. The consumer wins big!

In related news, Nokia will offer smartbooks that use a Linux based OS. Does Chrome OS give legitimacy to Nokia or does Nokia's OS give legitimacy to Google? I think both win. Together they show the world that Microsoft is not the only game in town. Google is not the only large company gunning to take out a piece of the Microsoft monopoly. Microsoft is like a powerful old Grizzly Bear surrounded by a pack of hungry dogs. Yahoo just brought blood.

Tuesday, August 25, 2009

Buy Yahoo!

The Big Internet Seven in my book are:


I have listed them in order of investment attractiveness to me. Of course, any guess at what the future holds is always an iffy proposition. There are obvious problems with this list.

1) Facebook is the clear leader in the fastest growing sector of the Internet. It has grown so fast that it has knocked MySpace halfway to the moon, but the shares are not publicly traded.

2) Apple is a heck of a company. It is selling 25% of all music!!! A single Apple store in Manhattan has revenues of 350 million dollars and it sells $35,000 per square foot, compared to the $18,000 per square foot of Tiffany's. Apple is expected to announce a market leading tablet computer soon. It is expected to jump into the lead of the Internet 2.0 mobile computing race. A common problem for Apple and Google is that the market is discounting rapid growth for many years into the future. Apple and Google sell at high price to earnings, sales and cash flow. They both enjoy very high profit margins past growth is huge for Google and off the chart for Apple. The market values Apple more than Google. But give me the choice of owning all of Google or all of Apple and I will take Google, keep the change and be in a safer position. Google has a big ditch to jump in regard to Google Wave. If it is successful, it will give Facebook, Apple, Yahoo and many others a bad case of heart burn. Google's position in regard to reading eyeballs is also a potential huge winner as Youtube is starting to be. Google has been first on my list for four years and I don't see it getting knocked off.

3) Microsoft has all but lost the mobile computing war after just the beginning battles of Internet 2.0. Microsoft's recent successes was the retaking of the netbook Operating System hill, but Google will release its netbook OS next year. Based on the rapid adoption being enjoyed by Android, I believe Chrome OS is going to take a major share of market. Today, Blackberry joined the mobile webkit browser development team. Nokia, Apple, Sprint, Google and many others are on this team. Microsoft continues to offer smart phones but the others have the scale to knock Microsoft out.

4) Picking Amazon over Ebay was a tough call but Amazon is another heck of a company selling at high multiples. Amazon has a big lead in the electronic reader business but, today, details of the new wireless Sony reader came out. The initial price is $399, but I suspect it will be offered with a few hundred dollars worth of best sellers and a few thousand dollars worth of classic books free of charge. One blogger has written about how one would need to buy 30 books to save the reader price. He is missing the boat entirely. The Sony Reader includes the ability to wirelessly check out selected works from selected libraries. The convenience of easy book downloads will make the readers compelling devices to own. Ebay is not just an auction site for household collections. Ebay is an online retailer much like Amazon. I simply like Amazon better than Ebay.
5) Yahoo, in my book, has taken a major leap forward. I believe the new CEO knows what she is doing. I have never stopped liking Google but Yahoo has been favored and unfavored at times. When Microsoft was trying to buy Yahoo, it traded at $43.21 per share. Today, after Microsoft has agreed to do a lot of work for Yahoo free of charge and to give it the bulk of advertising revenues for the next 10 years, Yahoo sells for $15.07! Yahoo is another heck of a company. It has over 100 million email clients! It is the leader in a number of web site markets, including the financial area. During this Bull Market, Yahoo is going to be visited a few zillion times, over and above the times it will be visited as a result of Bing searches.

The businesses of Amazon and Ebay are lower margined businesses than the others. I recommend that you pick two or even three stocks out of the Google, Yahoo, Apple and Microsoft group and one out of the Amazon, Ebay group.

Bookmark this page and comeback a year and five years from now to see how good my educated guess proves to be. My expectations are for rapid growth over the next 5 years. Here are the symbols and prices as of today's close:

Goog 471.37, Yhoo 15.07, AAPL 169.40, AMZN 84.19, Ebay 22.31, Msft 24.64.

Cash for Clunkers -- The Investment Fallacy

The cash for clunkers program is the height of liberal group think gone wild. Our deeply in debt government is borrowing money to buy vehicles that still have economic value only to destroy them. The program is a modern version of the broken window fallacy; the belief that an economy is stimulated by the destruction of property. Of course, if a hurricane destroys houses, many of them will be rebuilt and many a home builder will make good profits. This is nothing but a transfer of wealth from one person to another. This is the second bailout for our auto industry this year. Here is a video of a vehicle, one with new tires for heaven's sake, being destroyed.

In other craziness, the draft of the health reform bill is a complicated mess of over 1,000 pages. Hopefully, independently minded citizens will vote against those who support government gone wild. The good news is that the people are showing that they will vote against the supporters of this madness.

The Investment Fallacy

From the investment point of view, the current idiocy is wonderful. Markets historically climb walls of worry, during a time of discontinuity. Americans are upset with the massive waste they are seeing to the point of taking their eye off the investment ball. We have entered a new and powerful business cycle. A time of low interest rates and high profit margins is leading to a share price recovery and a pending economic boom.

A couple of weeks ago, a fellow said he sees no signs of economic recovery. This is a bit like not being able to see the wonderful views from the mountaintop while still on the valley floor. There is no place to go but up! The signs are everywhere. Today's best example is the fact that the oil to natural gas ratio has zoomed right past the extreme peak it reached as the economy started its recovery from the last real estate recession, the one in 1990-91.

Economically, what does it mean that the price of oil relative to the price of natural gas is off the chart? Who cares?!

I am reminded of the old joke in which the patient says, "Doc, it hurts when I raise my arm" and the Doc says, "Then don't raise your arm"! There is much I could say about the slack in the industrials, materials and mining sectors demonstrated by the low demand for natural gas (a slow down in fertilizer being made to throw on valuable crop land to grow corn to make a poor substitute for gasoline, for example), but the important point is that such a sharp peak in oil versus natural gas portends a boom in the high tech markets.

Another great sign of pending recovery is the rapidly rising prices of mortgage debt. The easy way to see this increase is to notice the price of Fannie Mae and Freddie Mack shares. Of course, the rising value of mortgages is great news for the banks that hold large amounts of mortgages. They will report these gains as pure profit, having written down the mortgages to the previous lows.

So, don't get caught-up in a powerful pity party. Yes, our two party political system is producing the results predicted by George Washington's prescient farewell address. We have serious problems that need to be fixed. What we currently have is a classic case of not defining the problem before trying to fix it. We are having a national debate on health care when we should be having a national debate on how to fix the business-government partnership of greed and its attendant corruption.

The fat cats are making hay while the pity party participants are reading about home foreclosures but not stepping up to the auction to get the best deals they will see in their entire lives! Goldman Sachs is making billions in the stock market while the pity party participants are sticking what little liquid cash they have into a lock-box called the 401-K!

Monday, August 24, 2009

A Chicken in Every Pot -- A Bank in Every Pocket

Herbert Hoover promised "continued prosperity" during his 1928 presidential campaign.  His handlers advertised "A chicken in every pot and a car in every garage".  The slogan quickly became a joke, but a painful one.  

In the latest presidential campaign, Obama promised "Change", but, so far, the changes are not the ones advertised.  Perhaps, Obama's slogan should have been, "A computer and a bank in every pocket."    

Every day, there are another dozen good reasons to put a computer in your pocket.  The battle for portable GPS navigation systems is a case in point.  One vendor has offered its software and service, including turn by turn directions, for $10 per month; another vendor played oneupmanship by offering software and service for a one time payment of $100 before the third vendor came to the party with a one time price of $70.  At $70, the cost/benefit ratio is compelling for hundreds of millions of people and the price will continue to fall!      

The music business is one of many other businesses traveling the same road.  Apple's iTune "store" now accounts for 25% of all music sold and Apple is building a 1 billion dollar server farm in Maiden, NC!  All the major music companies are switching to Internet 2.0 systems-- offering free software and low priced music through pocket computers.  

The "gales of creative destruction" have never produced such sustained wind speeds.  Every job and every life has been or will be changed in multiple ways by these winds.  The "ride" is like sailing in gale force winds; great fun for most but scary for others.    

Without spending time thinking or talking about it, we have all been life long participants in social networks.  Today, these relationships are being digitized.  For example, travel to a store to buy a video game is being replaced with the act of joining a social network where one can play against friends for a moment, an hour or a day.  There are specific digital social networks for almost every activity, from prayer groups to motorcycle clubs to praying motorcyclist.  Employers and college recruiters increasingly make decisions only after reviewing ones "social network body of work".  Historically, applications for jobs or school entrance have been quite detailed, but nothing like the total amount of information people are sharing via social networks.  Believe it or not, the sooner you start building your "social network portfolio", the better off you will be! Think bout it in terms of your digital resume.    

Many of these digital networks are independent from one another, however, the trend is for them to be linked.  Once a person signs in to his "home base network", Facebook, Tweeter, Picasa, Reader, Blogger or whatever, he is automatically signed into all his networks.  Under this process, the person who wants to switch from blogging to viewing friend and family photos does not need to log-in separately.        

In late May of 2008, when Obama was locking up the democratic nomination, the S and P 500 traded at 1425.  The market discounts future events by an average of 6 months and late May was 6 months before election of Obama, which implied massive increases in government taxing and spending activities.  On March 6, 2009, the day after Obama officially announced that health care reform would be his top, the index traded at 683.  Today,  August 24, 2009, the index trades at 1035.  There are many cross currents at work here but the "Obama market decline" of  52% is without precedent.  Furthermore, the market "knew" that the most onerous provisions of Obama's proposals would not pass the day they were announced.  The climb over the past 6 months has been spectacular.  The average dollar invested on March 6, 2009 has grown to $1.51!  Again, the market discounts many things but the numbers posted are for real.

During the years of Internet 1.0, "Online banking!" was the frequent response to: "What is the Internet going to do for me"?  Today, many people use ATM networks to withdraw funds from their accounts, but there seems to be as many bank branches as ever.  Internet 2.0 offers the opportunity for you to put your bank in your pocket, for deposits and withdrawals.  Invest with knowledge and care and you will put a lot of money in your pocket.  

Internet 2.0 has years to run.  Over the next several years, one institution after another is going to metamorphose from an "independent social network" to an "online connected social network".  To avoid the "out of sight, out of mind -- kiss of death", most plain vanilla web sites are going to become interactive.  One small example of why web sites and institutions must connect is the calendar.  If an institution wants its events to be automatically posted to its members calendars, it must be "socially connected".  Consumers will increasingly subscribe to calendar links.  A subscribing consumer will never have to enter the date and time of a meeting or event again.  If the meeting time is changed or postponed, the change will be made by one person for the benefit of many people.

You face a nice opportunity.  You can make use of Internet 2.0 to play video games, to connect socially, to reduce the strains of every day work and life or to laugh all the way to the bank.  Those who invested early and often in Internet 1.0 made multiple fortunes.  Internet 2.0 is going to be more pervasive and powerful than we can hardly imagine.  

Saturday, August 22, 2009

Government Debt --- Double the Trouble?

The older members of the baby boom generation are 62.  Over the next 10 years, in the absence of  major tax law or benefit reductions, Medicare will go bankrupt.  Obama has finally admitted that his plan adds up to 9 Trillion Dollars of new spending!  The current debt of 7.4 Trillion, accumulated over decades, could more than double, in only 10 years, if Obama's programs are passed.  .

In the short run, excessive government spending is being offset by excessive consumer savings.  In the long run, excessive government spending will significantly reduce funding for some really neat private enterprises--the kind that make your life better.

The recession is over because GDP, which is an average of all economic sectors, is growing perhaps at 3.5% or better; weak sectors are recovering and strong sectors are booming.  Capital is rapidly moving from "old business sectors" to "new business sectors".  Instead of building thousands of 5,000 square feet million dollar mansions, America is building multi-billion dollar communications networks, nano-technology factories, and health care research facilities.  The computer network components include millions of hand held computer-phones, billions of down-loaded software programs and all the supporting equipment and facilities.  The production of nano products and genetically based health care products is growing extremely fast from a small base.  All three sectors will ultimately change the way you live.  Indeed, the health care advances will change how long you live.  

To produce these benefits, the market place needs very large amounts of capital.  If the demand for trillions of of dollars of business capital has a head-on collision with Obama's demand for 9 trillion dollars of new government spending, we will likely suffer from a bad case of crowding out.  The failure of the congress to pass very expensive cap and trade legislation and very expensive health care legislation gives me hope.

Rose Friedman died last week.  She and her deceased husband Milton were champions of freedom.  They understood that the political allocation of resources starts with good intentions, but ends in massive waste.   Power corrupts so there will always be the occasional extra purchase of a few 220 billion dollar fighter jets or a few of the $900 toilet seats.  Voters must eliminate as much wasteful pork spending as possible.  

One modern myth is that America is no longer producing goods.  The reality is that we are producing more goods than ever before but doing it ever more efficiently.  The number of American's who work in manufacturing is below 9% for the first time in a 100 years or more.

TV talking heads and stock market gurus beat the drum of economic boom and bust as the consequence of boom and bust in consumer spending.  They tend to make far too much of the fact that 70% of government reported spending is done by consumers.  They don't know, have forgotten or they ignore fundamental laws of economics.  Long ago, economist understood that investment cycles are capital spending cycles.  In regard to consumption, they discount the fact that production creates its own demand!  Say's law, "A product is no sooner created, than it, from that instant, affords a market for other products to the full extent of its own value." (Wikipedia), tells us that the many people who are making money writing software applications for dozens of new products, will spend those dollars on other goods and services.  

A few years ago, the truth of Say's law was admiringly called supply-side economics, mostly by republicans in office, and it was denigrated as trickle-down economics, mostly by democrats seeking office.  Obama's policies are geared to create production by stimulating demand.  The problem is that such tactics are nothing more than a game of robbing Peter to pay Paul.  While I can't blame consumers for accepting some portion of the $4,500 clunker gift from taxpayers, the result in the short run is the purchase of too many cars at the expense of other items.  The most successful software engineers are doing quite well because software is leaping off the shelf with very little money being spent on distribution, but they could be selling more.    

Most people have the view of "what's the harm in subsidizing cars, instead of other products, such as software"?  Rose and Milton Friedman understood the ramifications.  In this instance, Obama's policy makes it less expensive to drive and thus causes more miles to be driven, more gasoline and oil to be consumed and more carbon dioxide to be produced.  Indeed, some of the money that has been spent on new cars would have been spent on new Internet connected phone plans with programs designed to reduce the number of miles driven.  

I am in full agreement with Rose and Milton Friedman in regard to the "government deficit trouble".  I am not greatly concerned about the size of the deficit except for the mis-allocation of resources.  As far as the fear of hyper-inflation, I don't think it matters if our government is responsible for 3 trillion of 16 trillion in spending or if it is responsible for 4 trillion of 16.  As Rose and Milton taught us, inflation is actually a monetary phenomenon, not a fiscal problem.  

The Lord certainly knows that, during the early days of economic crisis, our government "back doored" our banks by severely limiting the liquidity available at banks.  Our government imposed the same draconian "vacuum cleaner" accounting rules that killed scores of banks during the great depression.  After the crisis was in full steam ahead mode, our central bankers then brought in truck loads of "new money" through the banks front doors of selected banks.  The friends of high level officials were saved while the enemies were sent to the slaughter house.  

Because the Fed borrowed money from the treasury to lend to the banks, it's balance sheet shot through the roof;  many pundits saw the rise and were convinced that a great hyper inflation is coming.  (We recently saw one of the greatest inflation rate declines in history.)  If you take a look at total bank loans and leases, you will see that the "normal" pattern is playing out.  Total lending growth is nil because the average investor has been misled into believing that now is the time to pay-down debt.  The reality is that there has never been a much better opportunity to pick up leveraged assets such as real estate.  

I admit that I missed the timing of the recession.  I knew something big was cooking but I expected the big cards to be played after the election.  There is no point to crying over spilled milk, however, understanding where we are in the business cycle grants us great opportunity.  Since the stock market has run-up 55% from the March bottom, it makes sense to be a little cautious but for the aggressive investor, I'm talking about 95% exposure to stocks with 5% in cash.  Margin investors should have cash to add on dips.  

So, government spending need not be more wasteful than individual spending or corporate spending but the bigger the entity the bigger the mistakes.  Under these circumstances, we would do well to severely limit the size of government.  But!  The odds of massive takeover has fallen and each time the odds fall the higher the market goes.  An extraordinary business investment cycle is already underway!  Huge and unknown profits and benefits are going to be realized from investments made.  

Tuesday, August 18, 2009

Apartments Out -- Homes In!

New home construction has increased for five months in a row. However, multifamily (apartment) home construction fell by 13.3% last month! The 1% decline in new starts masks a rebound in single family home construction.

Because the $8,000 tax credit is only robbing Peter to pay Paul, I am not a fan, but as an owner of single family real estate properties, I appreciate all the help from Peter I can get. Home sale figures are due that will likely show further evidence of a strong turn in home sales and even a significant turn in home prices. Please note that fence sitters will be motivated to move once they see rising home prices. The trickle of folk moving out of apartments and into single family homes just might become a flood by the time the tax credits expire in November.

Soaring Real Incomes! Why?

Real incomes are leaping off the tops of charts as consumer prices fall. In 1995 it took more than 30 weeks of average pay to buy the average new car. Today, it takes 22 weeks of average pay to buy the average new car. The Producer Price Index just fell by the largest amount in 60 years! The home affordability index hit an all time record level a few months ago (still at very high levels).

Why are real incomes rising so fast? I've said it before and I'll say it again that the law of substitution is far more powerful than is commonly understood.

Tough times cause people to cut unnecessary expenditures. Some of the things they cut become permanent savings. When an expensive item is cut, a less expensive thing is typically added.
"There is an app for that" is the iPhone slogan. There are 65,000 software applications available for the iPhone. There are fewer Google Android apps but the growth rate of Google apps has averaged 50% more per month for the past 6 months! Listen to an iPhone commercial carefully and you will hear that there is a massive amount of substitution taking place all around the world.

The buzz this week has been about the TOM TOM GPS iPhone app. For $100, iPhone owners can acquire a sophisticated turn by turn GPS system that would have cost $3,000 a five or so years ago. But, it is not the substitution of software for hardware that is most significant. The real savings comes in the miles driven due to better directions. The avoidance of wrong turns saves huge amounts of time and money. As the cost of owning a GPS system falls, the number of owners will increase dramatically and the cumulative miles saved will become a huge number. The price of gasoline will be lower than it would be otherwise because so many miles were avoided.

A research report sent out last week details the savings environmental savings achieved by the downloading of a CD versus the physical production and purchase of a CD. The savings is estimated to be 40 to 80% of the cost of the product! Apple has plans to build a new one billion dollar solar farm because the demand for downloads (apps and media) is so large. Every time Apple builds a billion dollar server farm, I believe Google will build at least two.

US mail volume declined by 20 billion pieces year over year; while Google saw a 46% increase in email users! Yahoo, which has 106 million email customers, saw a 22% increase! Clearly a large quantity of electronic delivery is being substituted for a large quantity of physical delivery. When one listens to advertising supported music on Pandora, instead of driving to a store to buy a CD, the savings achieved are perhaps two or three times the price of the CD.

Electronic delivery has become a huge snowball with a lot of hill left. Electronic delivery is scooping up all the snow, leaving our government in the position of trying to roll the US Mail snowball up hill. The bigger the electronic snowball, the fewer the customers to help push the US Mail snowball. In two or three years, US mail delivery will be down to 3 days a week and postage stamps will cost 64 cents each, making all the more customers leave.

What is difficult for many to see is that spending on postage is falling not rising. The move from 44 cent stamps to 64 cent stamps will be a nominal increase of 45%. But if the volume of physical mail falls by 60%, there will be a net decline in spending. A few days ago, a friend suggested that we would be better off paying extra for mail because good postal jobs would be eliminated. If that philosophy had won in the 1700's, women would still be working long hours spinning thread.

Another amazing thing is how much substitution is now taking place "up the line". AOL, ATandT, Comcast, Incredimail and others are losing email customers to Google and Yahoo. AOL is now the fourth largest email provider after falling from 45 million users to 36 million users. AOL is king of dial-up but dial-up is the Stanly Steamer of the car business. The Stanly was the best of more than 100 steam powered cars but the internal combustion engine replaced them all.
Did the largest wholesale price decline in 60 years make it into your consciousness? Do you appreciate how big the Economic Tech Boom is going to be? All the money saved on fuel will go somewhere; much of it will go into spending on new electronic gadgets and services.

Dave Ramsey has a growing cadre of fans. His disciplined saving approach has merit, however, the investment opportunity available today is huge. Put $5,000 into the right investment today and it will be worth $2 million or more in 10 years. Put an extra $5,000 into saving today and it might be worth $10,000 in 10 years.

Monday, August 17, 2009

"My Dad Will Never Buy a Computer" -- Heart Monitor

Seven years before my Dad passed away, he said he would never buy a computer. The last 5 years of his life, he delighted in using his computer to follow stock prices, his bank account and his grand children. Yesterday, two friends told me that their parents would never buy a computer. My immediate question was "Do they have a cell phone?" This inquiry was quickly discounted because it is hard to appreciate how cheap, different and useful the cell phone of next year will be when compared to the cell phone of today.

Last night, I struggled to come up with the key reason that "no computer people" will succumb. My first idea was that they will ultimately have no other choice. For example, an avid newspaper reader will ultimately face the question, do I get an electronic reader or do I stop reading the newspaper; or, since my eyesight is not so good anymore, do I get a reader with the font dialed up or do I fiddle with a magnifying glass; or, since my eyesight is virtually gone, do I get a reader and let it read to me.

My second idea was the use of a mobile device to watch ones favorite TV programs. It seems that while no one watches "much" TV, everyone watches a lot of TV. Sports fans say they seldom watch TV but, when pressed they admit to watching many games.

If TVs were light weight portable tablets and if one could touch a player on the screen to immediately learn his batting average and all other details, the avid fan might want such a TV. The avid fan of soap operas might appreciate the ability to touch a "story line button" and get a recap of shows missed. And, wouldn't it be nice if mobile TVs were also automatic TV recorders, making all the shows missed available anywhere and everywhere.

This morning, while I was thinking about the difficulty of convincing people that the underway Internet BOOM is huge and compelling, I read about a new app that puts Tom Tom GPS software, including turn by turn instructions on the iPhone. The software costs an extra $100 but three years ago it was common for folk to pay an extra $3,000 to get this feature on a car!

The incredible truth is that there really is going to be an "app for that", where "that" is almost everything. The fellow who is into local weather will install a few instruments in his backyard and download a weather app to his phone. He will know every detail about the weather, including a special notice of significant changes in the barometer. He will be able to share the local weather with others such that very precise TV maps will show exactly where the rain is falling.

One person will succumb for a different reason than the next but all of the reasons will be aided by the reduction in cost. The cost of data delivery has been falling rapidly for decades and the rate of decent has been accelerating. New systems, being deployed this year and next, will cut the cost of delivery by 40% or more. New systems are even cutting the amount of electricity used to send data by 40% or more!. The combination of a falling electronic delivery price and rising physical delivery price is a powerful combination. It means that one person after another is seeing their indifference curve broken through. The person uninterested in acquiring an electronic reader for $199 might be very interested in the product at $49. The secret that the product sellers have no reason to share is that the readers will ultimately be free of charge, in exchange for advertising eyes and subscription revenues.

Lightening Strikes

Just after I concluded that "no computer people" will succumb for hundreds of individual reasons, the thought hit me that the long held dream of most every man is suddenly at hand, the super duper extra powerful remote control. Sure enough, one can find screen shots at of the app that turns your phone into the most powerful remote control ever built, including TiVo functions!
The remote control idea is tongue in cheek, but how about the most powerful video baby monitor ever produced? Or, how about the heart patient who wears a Bluetooth connected heart monitor? Indeed, since we are talking about the elderly and since there are scores of health care applications being written, the probability is high that many people will buy their first computer phone for health reasons. There was a time when the idea of mandatory seat belts was anathema to liberty; can you imagine a time when all heart patients are required to wear transmitters? I submit that a lot of people who say they will never buy a computer will wear a computer!

Please, do not immediately think the above is pie in the sky, thirty years from now, stuff. There are 65,000 applications already written for the iPhone and 1,000 new iPhone app projects were started in July and Google Apps are gaining on Apple Apps. Many applications are being completed in 2 months or less. Only a couple of weeks ago, a study showed that an implanted blood pressure monitor/transmitter saves lives. With this new technology, the patient, doctor and EMT will all know that the patient is having a heart attack immediately; prompt treatment often being critical to survival.

So, the reasons to buy a computer phone range from: 1) I want a super duper remote control and baby monitor, to 2) My old phone is dead and all they sell are computer phones, to 3) My life depends upon it.

Bank Index Hits 8-Mo. High, Up 144% from March

I clicked on a link to share a blog from Mark Perry and my new settings automatically posted his blog to mine. Many thanks to Mark for his excellent work! The posting is linked to his site.

During real estate recessions, like 1990-91 and 1974-74, banks made the "normal" V bottom and almost totally recovered by the time the rest of the market took off. Consumer cyclicals, such as Autos, normally follow the bank stocks up. Ford bottomed at around $1 and now trades at around $7. It has a long way to go to full recovery in the industry.

Bank Index Hits 8-Mo. High, Up 144% from March: "The KBW Bank Sector (BKX) Index is a capitalization-weighted index composed of 24 geographically diverse stocks representing national money center banks and leading regional institutions including Bank of America, Citigroup, Comerica, JP Morgan Chase, Wells Fargo, etc.

The KBW Index closed yesterday (Monday) at almost an 8-month high of 45.53, the highest close since mid-December 2008. From the bottom in early March, the KBW Index is up by a whopping 144.5% (see chart above). Yet another sign that the U.S. financial sector is healing, and another sign of general economic recovery taking place in the U.S. economy and financial markets.

Originally posted at Carpe Diem.

Friday, August 14, 2009

Who Will Win the Browser Wars? Make Yourself Millions!

To hear the pundits talk, the leading software companies are engaged in a "to the death" browser war.  If the pundits are not talking about browser wars, they are talking about the "killer app".  In the real world, it is rare for one software application to actually kill another application.  

There have been and will be winners and losers, not one but many.  Mr. Andreessen, the founder of Netscape, the browser that won several early wars but was then mortally wounded by the Microsoft monopoly, is backing Facebook's "Rock Melt" browser.  Andreessen sold one of his early browsers to HP for a  huge sum, he sold Netscape to AOL for an even larger sum and now his is a major investor in Rock Melt, where he will make another huge sum. While his Netscape browser came very very close to having Google type success, wouldn't we all like to make a few billion off of our "failures"?

Google is introducing a new version of its browser.  The code name for this one is Caffeine.  One can compare installing Caffeine to Junior Johnson putting a new 457 engine in his moon shinning car.  Microsoft recently pulled a Curtis Turner, when it pulled its search engine and replaced it with "Bing".  Maybe if I had said Lee Petty (Curtis Turner's nemesis and Richard Petty's father) more of you would understand the stock car analogy I am trying to make.  The point is that instead of being in a fight to the death, search engine makers are in a race; they are constantly updating their engines because the fastest player wins more trophies.

Microsoft and Facebook occasionally draft off one another.  Google, Firefox, Safari, Myspace and others occasionally draft off one another.  The best racing competitors are willing to cooperate with other competitors when it helps both parties.  Bing put in a turbo charger a couple of weeks ago and was able to add the number three Yahoo car to its team.  The result have been a small but significant move on Google.  Google.  Google has been preparing its response since 2005.  Google is ready roll out a very fast car.  My take is that Google is more than ready to run with Bing.  On the other hand, I must admit that Facebook has arrived at the track with another fast car.  

While we know that Bing is the engine for some of the Facebook inquiries, my take on Rock Melt is that it is like Facebook's new number 43; a fast car with lots of sponsors.  Rock Melt will be centered around its users news stream.  When a Facebook users submits a search inquiry, he will receive very relative search results from all the web sites that are hooked together by Facebook Connect.  This is a big deal.

Pundits have been quick to whine about how much knowledge Google has about our lives.  But, when Facebook users voluntarily post many details about their lives, they give Facebook access to an advertising agencies dream.  The trade off, indeed benefit, for consumers is that they receive a much smaller amount of targeted advertisement rather than a ton of senseless and irrelevant rubbish.  The fact that Google and Facebook know not to bombard me with Tampax ads is a real blessing.

The powerful relevancy that will be available in Facebook "Rock Melt" search gives every web site a powerful incentive to offer Facebook Connect.  A couple of days ago, NBC News announced that it is adopting Facebook Connect on its long list of web sites.  It would be foolish for any company to turn a cold shoulder to Facebook's 250 million users.


Few people seem to be aware of the economic boom that is underway.  Scores of data points are available to prove my point.  This morning, I'll give you four:  1) since the market bottom in March, the world wide stock market is up 55% 2)  US GDP is projected to grow at better than 3% in this quarter 3) China's GDP is projected to grow double digits 4) Nielsen reports that 11.2 Billion Video Streams were downloaded in July!  A 31% increase in one year.  Almost 2 video streams per month for every man, woman and child on the planet!  If 11.2 billion grows at 31% for three years, it becomes 24.6 billion!  No matter how big the "data pipes and the pumping stations", there is going to have to be major construction to handle all the volume.  A major investment cycle is underway.

Much of the new volume is coming through cell connected devices.  Data plans cost a lot of money, typically at least $25 per month.  However, Internet 2.0 for the masses is also on the way.    

The Zune HD, which is the Microsoft answer to the iPod, will be released in a few days.  For less than $300, one can purchase a Wifi enabled media device.  While $300 is not chicken feed, WiFi is becoming more and more available for free.  For example, a few days ago, AT&T and Barnes and Noble announced that WiFi will be available at Barnes and Noble stores free of charge.  The person who cannot afford either broad band service or cell phone service can hang out at Panera Bread, McDonalds or Barnes and Noble and download music and video for immediate or later consumption.  Verizon and ATT are offering small computers for $99 to $199 with the purchase of a data plan while a company in China is offering, sans data plan, a $99 WiFi enabled laptop!  In the near future, laptop computers will be "sold" like cell phones; you will get a decent machine free if you sign up for a data plan.  Furthermore, low end data plans will become increasingly cheap.  Indeed, under a new law, if you qualify for food stamps or Medicaid, you automatically qualify for a free connection.  

The Zune HD which is about the size of a stack of 10 3 x 5 cards, packs the computing power of most computers.  With a Zune, one can do more things than one can do on most desk tops.  One can listen to free FM-HD radio, download music, video's and podcasts, visit web sites and do all the social networking stuff.  Another use for the device is as a VCR.  Hook the device to ones TV and play all the good videos on the big screen in HD format!


The consumer will!  Information is power, low price, joy and sorrow rolled into one.  Browsers give us almost instant access to information.  I hope you enjoy the service and that you make yourself a nice chunk of change during the ECONOMIC BOOM!          

Thursday, August 13, 2009

The Recession is Over -- Productivity Soars

Our economy is growing. It is growing from a lower level but it is growing. The fellow who bought a stock at $100, saw it drop to $50 and then rebound to $75 is still talking about how his retirement kitty is down 25%. The fellow who bought at $50 is enjoying the end of the recession. The fellow who bought at $100 lost 50% when the stock fell to $50 but the fellow who bought at $50 has made 50% at $75. When the first buyer gets back to even the second buyer will have made 100%. If the fellow who bought at $100 managed to buy a little more at $50 then he drove his break-even price down by an significant amount.

Share prices and economic growth are linked like a couple of cows in the pasture, one might be more eager to get to the barn than the other but they will not stray too far apart. The 50% jump in share prices over the past 5 months will show up in stronger economic numbers in the months ahead.

Yesterday, I was challenged by the statement "I wish someone could show me the signs of economic recover, because I can't see any." When I mentioned share prices as a sign, the anguished look told me that I had opened a festering wound. Further discussion revolved around real estate and we agreed that it will take years before a full recovery in real estate prices. Once again, those who buy now will have made great returns by the time others get back to even.

Other Indicators:

Other indicators that the recession is over include the turn in trade and the jump in productivity. Income and GDP are going to grow partly because US exports will rise. The five year decline in the US dollar has made our goods cheap. The unemployed in the USA will benefit from the world wide recovery.

While there are many other indicators, the spike in productivity of 6.4! is a big number. It is the kind of spike that typically comes at the end of recessions. Productivity leads to higher profits and lower priced goods. Good times are on the way! The economic elevator is in the sub-basement but it is headed up!

Wednesday, August 12, 2009

The "I Love Apple" Price Premium

This morning 24/7 Wall Street notes that the market value of APPL is now greater than the market value of Google.  But, I ask the question, if you had the option to buy all of APPL for 148 Billion Dollars or if you could spend 143 of billions to buy Google and retain the other 5 billion, which would you do?

The ultimate conclusion of the writer was that the "market knows".  How silly!  If he believes in EMH (efficient market hypothesis) then why bother to express an opinion?

His logic is that since Google sells for less, it must be because AAPL is worth more.  It must be worth more because Apple has a lock on the iPod, iTune markets and is taking browser share from Microsoft and because Google's business of selling desk top software is a lousy business.

Some of the above is the shooting of a rifle at where the target is rather than where it is going.  The targets in question are moving like doves, not like deer.  It is difficult to shoot a dove with a rifle.

Google will begin the roll out of Google Wave next month but the hype is about the pending announcement of an Apple tablet computer.  Google Books and later Google Wave will make the Apple tablet a compelling device to own but these Google products will not be limited to operating on the Apple tablet.

The 24/7 article ( notes that Google's profit margin is 60% of revenues!  It notes that the margins for hardware are much lower.  Still, Apple manages to make about 30%!

My take is that the reason people are willing to pay more for 30% profits than for 60% profits is "The I Love APPL" premium.  Apple has without doubt produced some neat gadgets.  People are in love with Apple Gadgets.

But, if you want to see market share growth in the cell phone business, you have to take a look at Google.  There were no Google phones 15 months ago.  Today, cozens of manufacturers, including HTC, Motorola and Samsung, are in the process of rolling out Google phone models.

Why is Google having such great success getting phones made?  They are making Apple an easy target for dozens of competitors.  And, while it is true that Google is giving manufacturers "free" software, that is not the biggest of the financial incentives offered by Google. Consumers will save $20 or more per month for life by buying Google phones.  AT&T, Verizon and others do not want their cell phone services to be "dumb pipes".  They want to be the gatekeepers, where consumers are charged extra for no cost services such as text messaging.  A significant percentage of the population is holding out to have access to the web without paying extra fees for proprietary services.

Ralph Waldo Emerson gave us the adage that if you build a better mousetrap the world will beat a path to your door.  Google and Apple are both trying to build mousetraps.  Apple wants us to buy iPhone's because iPhone buyers are likely to buy apps, music, videos and more.  Google is willing to give away software in order to gain access to eyeballs.  Google is a technologically advanced advertising company.  It's products tend to be better but especially better for FREE!

Apple, Sony, Amazon and many others are going to offer some really nice reading tablets.  Apple's tablet will be first rate.  However, the longer term question relates to what media is purchased via the tablets.  If a significant number of consumers read some of the millions of free books that will be made available via Google, these consumers will be exposed to millions of dollars worth of advertising.

Besides, the price history of devices is a story of decline.  Calculators that once cost more than $1,000 are routinely sold for $7.  Pitiful cell phones once sold for $2,000 or more and better ones are now given away free.  50 inch flat screen TV's that once sold for $10,000 can now be had for $900.  Very large hard drives that once sold for $10,000 or more have been replaced by hard drives that hold many times the data, are many times as fast and sell of under $100.  Apple makes good hardware but there is a flood of good hardware coming to market.

The time to buy Google shares is now.  The time to sell Apple shares will be around the time the greatly hyped tablet comes to market.  (The reason to hold Apple as a long term core holding is because of Apple's success in the iTunes market.  Rumor has it that iTunes is about to be made available across multiple platforms, that it will add social networking features and that its payment system will be made useful for buying other "stuff").

Google, Apple and Amazon shares all carry premium prices because the rapid growth in Internet use is about to shift into a gear we have never seen before.  In some ways, the Internet was kicked into reverse by the bursting of the Internet 1.0 bubble in 2000.  It has taken 9 years for the market to recover.  The next 9 years will be a remarkable time in the history of the world.

Monday, August 10, 2009

A Flurry of Activity in the Paradigm Shift!

Dear Friends, you are living through one of the most significant paradigm shifts of all time. Before writing, knowledge was easily lost. After writing took hold, knowledge was kept, but mostly by the few. After the printing press was invented, knowledge was more easily retained and acquired, but it has remained far more expensive than necessary. Internet 2.0 will make knowledge instantly available and cheap to acquire. The world will never be the same.
The early moves up a sigmoid growth curve are slow. Later, various "teams" start to "break away". For example, cars were built for decades before Henry Ford changed the world forever when he started his assembly line in 1914. Before long, other teams joined the chase. Car teams, truck teams, motor teams, tire teams and transmission teams all climbed the product distribution curves together; many a fortune was made.

Flurry, a mobile analytics company, just delivered a detailed report about one of the Internet 2.0 break outs that occurred this year. In the area of application software for mobile devices, over 200 Google Application projects and over 1,000 Apple projects started during the month of July. The compounded monthly rates of growth were 30% for Apple 50% for Google!! In January the Apple/Google distribution was about 90%/10% and in July it was about 78%/22%. Google is catching up quickly even though the current start rate is 5 to 1.

The Apple head start includes millions of handsets in place and more than 65,000 applications. Indeed, Apple sold more than one million 3G handsets the first weekend they were available. The Google phone is only a year old, but version 1.5 is being deployed around the world at break neck speed. China has proven to be a difficult market for many vendors but Google recently made a deal with the largest phone company in China.

The power of some of these applications is incredible. In some instances, a modified iPhone with software can be taken to the hinterlands where it can do the work of million dollar medical machines and transmit the results to where they are needed! Many an American is using their iPhone for multiple mundane uses, but real benefits are being received. I am among the 97% who has not upgraded to a smart phone. I am biding my time. Verizon has announced that it will offer a Google (Android) phone soon. I hope to have an Android 2.0 phone within a few months. While I like the family plan I am on with Verizon, I will switch if necessary.

Facebook--FriendFeed Breakaway!

Another break away has been in progress at both Facebook and FriendFeed. A couple of years ago, analyst Liz Gannes wrote that FriendFeed is a "Facebook news feed for the whole web". Since then, FriendFeed's developers have been in hyper drive. They have proven their ability to innovate at break neck speed. Facebook, which now has more than 250 million users and which is hosting more than 1 Billion new photos per month, just bought FriendFeed!

Marilyn and I will never forget a day back in the 1990's when we mailed a $10,000 payment on a condo. It was just when people were most upset with AOL because extraordinary growth made it almost impossible to get connected from about 3 in the afternoon until 10 at night. Marilyn and I realized that we should put the $10,000 into AOL shares. Instead we made the required payment and entered a fictitious $10,000 purchase in a pretend portfolio. A year or two later we spent $11,000 upgrading our office computers and realized that we should have bought Dell shares instead of Dell computers. By this time the $10,000 of AOL shares had split and risen, risen and split and was valued at over $600,000. We felt that we had to have the computers in our business and once again made a fictitious purchase. After the account valued exceeded $3,000,000 we deleted it. The account was worth over three million dollars long before the big spike run-up that occurred before the crash.

Facebook and Friendfeed are seeing AOL/Dell growth rates. The reason Facebook purchased Friendfeed, lock stock and barrel, was to acquire their software engineers! Facebook is facing off against Google. While Facebook has been adding social network "customers" at hyper speed, Google has been putting together a series of huge puzzles. Recently, with the frames in place, Google has been filling in the centers of the puzzles. Tools are rapidly being added to allow the millions of users of free Google Blogging software to connect with their readers and fellow bloggers in a "social network" way. At the same time, tools are being added to allow millions of users of free Google Reading software to connect with their friends in a "social network" way. More importantly, Google has already announced its planned replacement for email.

The Internet growth over the next few years is going to be similar to what happened with AOL, Yahoo, Dell and others during the 1990's. For example, when the mail service is cut significantly, there will be a stampede into electronic payment systems. PayPal, Google Checkout, Amazon Payments and Apple iTune will all see huge rates of growth.

The All Purpose Reader

The all purpose tablet will be at the front and center of the paradigm shift. Keep your eyes peeled, there are many devices well past the drawing board stage. Due to price considerations, specialized readers are leading the way, but many more sophisticated machines will follow. The flurry of activity is going to last for probably 5 years or more.

The Apple -- Google Reader

The split-up of Apple-Google cooperation and rumors about the coming Apple Tablet continue to get a lot of buzz. As if it has been a big secret, Apple and Google have avoided direct competition while fighting multiple battles against King Microsoft. Now that there are growing cracks in King Microsoft's Castle, and, now that the US Government is taking an active stance to push Net Neutrality, and, now that Apple and Google are starting to dominate certain markets, it is necessary that they battle at arms length from one another. The firms will continue to battle King Micro but they will increasingly be forced to battle one another. When they can cooperate to win, they will.

The Apple Tablet is expected to be a wonderful, multi-purpose, but initially expensive machine. It is expected to be a feature rich big brother to the iTouch. A device that is good for listening to music and watching TV but also a good machine for surfing the web, updating social network accounts, reading books and doing normal day to day communication functions. An important point is that "normal" is about to change and Google is going to be the leader in defining what the new "normal" is.

Instead of sending emails and instant messages, it will gradually become normal to invite friends and family over for a "face to face" visit. Google software and the rapid deployment of 4G Internet speed is going to make it natural for tablet users to do "video talk". The deployment of Google Voice will make it easier to control interruption and even access.

The current Google Reader software, available free of charge, will serve as an Internet Gate Keeper, similar to the way Google Voice functions as a Telephone Call Gate Keeper. Add these gate keeping products to a web connected electronic reading tablet and you have a powerful game changing product. As has been shown by the usage of the iPhone as a Kindle book reader, the demand is for an all purpose machine.

Of course, given a little time, new models of the Amazon Kindle, the Sony Reader, the Plastic Logic Reader, the Samsung Reader, and many others are likely to be all purpose machines. In the near future, with only a touch or two of a screen, the owner of an electronic reader will go from a page in a book to a page on a social network. Speech to text and text to speech technology will make it easy to "send a quick message" before returning to reading. With a wireless, fast, light weight, clear device in hand, why not give it voice and video capacity?

I see no reason why Google Reader would not have books as well as its normal blogs and websites listed for viewing. Google has made 500,000 books available through the Barnes and Noble/Plastic Logic program and it has made 1,000,000 books available via the Sony Reader program. Google is "buying" real estate on these reading devices by offering a source of revenue that is not available from anyone else. The Amazon/Kindle program has over 330,000 books available without the assistance of Google and Amazon offers a free Android app. Kindle books are available on Apple Reading devices and on Google reading devices. Why not? The majority of books are sold at competing book stores. The biggest exception is Christian books sold through church sponsored outlets.

The Sony -- Google Reader

Right after Amazon lowered the price of the Kindle II to $299, Sony announced a $199 reader for delivery in September. While the $199 reader must be loaded via a USB connection to a computer, Sony has announced that their plan to offer a wireless reader that will not be limited to one carrier. Indications are that all the cell phone companies are eager to offer wireless service to readers. The indication is that Sony is negotiating to make a service available via the most dominant of cell phone systems, world wide.

Amazon is probably paying very low wholesale rates to Sprint. The download of Kindle books is quick. On the other hand, a Sony -- Google Reader or an Apple -- Google Reader with minute by minute updates of news, blogs, and email --with or without phone call service-- would likely require a cell phone type of contract per user.

The recent brouhaha between Google and Apple in regard to the Google Voice App was possibly staged. The whole purpose could have been to demonstrate that the days of extra charge for text services are over. It has been a marketing feat for cell phone companies to extract extra payment for text messages. By demonstrating that Google and others can easily circumnavigate AT&T, the mind of the market place has been opened. A great opportunity has been presented to software developers, who can now write software that will save consumers billions of dollars. Yes Billions! Last year, AT&T made more than $30 Billion and Verizon made more than $26 Billion. My guess is that more than 10% of those profits came from extremely high margin text services.

Chrome OS skepticism abounds. Critics enjoy reminding us that IBM, Sun Micro, Borderland, Red Hat and many others have tried and failed to wrestle even a tiny sustainable piece of operating system share. Apple has been the great success story but MS still has something like 90% share. The story in the mobile market place is different. The mobile market is much more fragmented and this is where the growth is. Most importantly, software programs are routinely being written for multiple browsers. The MS strangle hold is being forced loose.

The coming combination of HTML 5, Chrome OS and 4G speed is going to be a game changing event. For example, with the above in place, Google Reader will be able to assemble a complete full color magazine for you daily or even multiple times daily. Instead of having a link to a web page that you might like, you will in effect already have the web page inserted into your personal magazine. Moving around the web and from phone call to book reading will be a seamless experience.

If you have ever made a phone call using walkie talkie technology, where there was a half-second latency factor, and where you could not speak without cutting off the incoming message, you know how annoying such a call can be. In the email and Internet 1.0 world, we have always had to deal with very long delays. We send and email or even an "instant message" and we do not expect to get an immediate answer. The system under development now, in particular the Google Wave system, which will begin a very gradual release to the public in late September, will take the Internet to the next level. As one person types his message, the receiver will see each character print. Using text to voice and voice to text, those who now type slowly will type at conversation speed!

The cohorts that will benefit the most from Internet 2.0 are likely to be the old and the young. The young who cannot yet write will talk to the computer and the old who can hardly see to read will listen to the computer. In the previous sentence, I naturally reverted to the word computer. Again, basic hand held readers are going to morph into power handheld computers!

Saturday, August 08, 2009

Bio-engineered Teeth!

Yesterday, in response to the cash for clunker program and the dying post office monopoly, I wrote the following: In 1911, Thomas Dixon completed "The Root of All Evil", his third novel in a trilogy that attacked populist socialism. History does not actually repeat itself but it certainly does rhyme with itself. Today, US citizens are collectively borrowing billions of dollars and raising future tax requirements by billions of dollars to buy old autos from individuals for $4,500 each. It is wonderful and ironic that "The Root of All Evil" can almost instantly be downloaded onto an Amazon Kindle for only 99 cents or onto a Sony Reader for FREE! Once again, FREEDOM will triumph over socialism! The "Group Think Socialist" incorrectly believe that the purchase of the clunkers will help the environment. In fact, this car buying subsidy will increase the number of miles driven and the gasoline burned for many years to come. On the other hand, the total savings, including environmental savings, from electronic delivery of news and mail will be enormous. (visit to read the entire article) Today, I call forth the ghost of Thomas Dixon in response to socialized medicine. There will never be enough money to provide all the health care we would like. We cannot repeal the law of scarce resources. We can only hope to make the most of the resources we have. If one objectively looks at the trillions of dollars that have been lost and the environmental damage that has been done because of the US Postal Service Monopoly, one must appreciate the silliness of proposing increased government control of health care. (The postal service monopoly would have lasted many more decades if the AT&T monopoly continued.) Our socialist leaning, power hungry, elected officials want to direct the spending of trillions of dollars. Their latest "land grab" is to fix the health care "crisis". The "crisis" that they have created in reality and in perception by throwing money at a financially busted Medicare and Medicaid system and by repeating the mantra that 45 million Americans are uninsured. In the meantime, publicly funded and privately funded research is rapidly discovering health miracles. For the first time, scientist have bio-engineered an organ, a mouse tooth. In only 45 days, they can now grow a tooth from a few cells extracted, engineered and replanted. Before long, growing other replacement organs will be achieved. Yes, eventually, even the human heart. That is, unless the government gets in the way. People are healthier today because the knowledge of good sanitation practices has been spread and because we have discovered treatments and cures for diseases. In preparation for "going back to school", millions of children are getting physical check-ups. Many of them are being seen by nurse practitioners and their parents are paying about one third the "doctor rate". The price of quality medical care will fall if the market is allowed to work. From the investment angle, we should note that at the bottom of the recession, the ten year growth in manufacturing jobs in America was negative 3.7% and the ten year growth in Health Care jobs was 2.4%. Home Health Care jobs increased by 5% and auto manufacturing jobs fell by 6.7% (Pew Research). For long term growth, it is clear that heath care growth will exceed manufacturing growth, but growth and profits often diverge. Ford Motor shares have increased about 500% since hitting bottom. The rebound in auto sales will continue even after the cash for clunker deal is over. During the past three years, the fleet of cars on the road has aged and it will be replaced. Manufacturing jobs in America have declined for one reason only, labor priced itself out of the market. As a result, Ford and others have been forced to jettisoned labor and to substitute capital. The classic rules of economics do not go away. Monopolies, including labor cartels, are seldom "natural", markets adjust. The auto situation is one of higher sales with lower costs, which means fat profits. In a few months, shares of GM and Chrysler will come to market. Brokers will be pushing those shares. The time to buy is now. It will be years before grown teeth will be a service delivered at a profit. If you know of a good way for investors to participate in health care delivery, I'm all ears. In the meantime, I will encourage investors to purchase Ford and other consumer cyclical stocks. The recession is over; the world did not end. The in-trade betting is that the congress will not find the votes to raise the massive amount of taxes that their health care proposals would require. Indeed, the in-trade odds that the massive cap and trade tax proposal in any form is less than 50/50 for passage. The future is bright because innovations are flowing forth. Government imposed monopolies and oligopolies stifle innovation. The change from $3 per minute long distance calls to free long distance calls would never have happened if the AT&T monopoly had been allowed to stand and the price of postage today would probably be double. Sure the change has not been all fun and games. Change is naturally hated by most of us. It is difficult to move outside of our comfort zones, but it is important to keep moving in the right directions as best we can. Keep in mind that in today's dollars those $3 phone calls are the equivalent of perhaps $10 or more. Jack

Friday, August 07, 2009

The Plan is Coming Together

I'm writing this on my gmail gadget. Many separate programs are being pulled together by various new software gadgets. Now that standardization is getting real, hundreds of thousands of gadget software programs will be written over the next 2 or 3 years. We are living through a great paradigm shift! I hope you are aware enough to make the best of the opportunity!

Post Office Demolition -- Brick by Brick -- The Bank Angle

The US Postal Service just experienced a one year decline of 20 billion pieces of mail. Monopolies are not natural; like Feudal Castles, they eventually are breached. By granting and protecting the Postal Service monopoly, our government has allowed an inefficient beast to eat up more than its share of our incomes. This unionized beast overcharges its customers while maintaining small offices that should have been closed decades ago. A beast that robs from the poor and gives to the rich (the politically connected and powerful elite). The rich can easily afford 44 cent stamps, but 44 cents per piece is highway robbery to the poorest among us.

Today, a new iPhone app became available that will allow customers to "deposit" checks to their bank by phone. LINK. To make a deposit, one simply uses ones camera phone, takes a picture of the check and sends it to the bank with the account number attached. In 2006, USAA Savings Bank began offering this service via desktop computers attached to scanners. My guess is that less than 5% of all desk top computer owners use scanners (I'm sure that more than 5% own combination printer/scanners, but owning and using are two separate things.)

The smart phone market share is only 2%, but this market is growing faster than kudzu. In two years or less, a majority of cell phones users will have upgraded. My guess is that in less than a year, there will be more people using the "scanners" in their pockets than people using scanners at home. The pace of demolition of the Postal Service Monopoly is speeding up.

The service has put 700 post offices on its closure list. Of course, our elected representatives will battle to keep some of these open (bring home the bacon to the district even if the little old widow has to pay 50 cents per piece). There is one county in Pennsylvania that has 68 post office locations! (Do you suspect that a local representative was the head of a certain committee?) In addition to the closings, a large number of offices will be converted to limited service locations -- places where you can buy stamps and send mail but where there is no receipt or sorting of mail.

Forrester Research has done a study of electronic readers. The study concluded that reader sales would jump sometime next year when Forrester expects the $200 price level to be breached. The study went on to say that sales would soar a year or two latter when the $100 price level is breached. Forrester is one of the best in the business but they have already recorded a big miss here. Sony has already announced that one of its new readers will breach the $200 level in September. My current guess is that phone companies will offer subsidized readers for less than $100 during the coming winter "reading season".

In 1911, Thomas Dixon completed "The Root of All Evil", his third novel in a trilogy that attacked populist socialism. History does not actually repeat itself but it certainly does rhyme with itself. Today, in the USA, we are collectively raising taxes in order to buy old clunkers from individuals for $4,500 each! Is it not wonderful and ironic that "The Root of All Evil" can be quickly downloaded onto an Amazon Kindle for only 99 cents or onto a Sony Reader for FREE! Once again, FREEDOM will triumph over socialism! The "Group Think Socialist" incorrectly believe that the purchase of the clunkers will help the environment. In fact, the subsidy being offered to buy cars will increase the total number of miles driven from many years to come. On the other hand, the total savings, including environmental savings, from electronic delivery will be enormous.

So, while our government continues to heavily subsidize the car industry (in more ways than one) and while it continues to force Americans to overpay for the physical delivery of mail, the market is both tearing post offices apart brick by brick and reducing our reliance on cars.

Electronic banking is "preparing for take-off". Electronic delivery of books, newspapers, magazines and mail is "preparing for take-off". The consumer savings are going to be significant and the investment returns are going to be fantastic!

Google Growing in China!

While Microsoft is busy trying to catch Google in the USA, Google is building a potentially huge business in China. I'm reminded of the swashbuckler spoofs where the champion uses one hand to fight and the other to sample from the fruit bowl.

Microsoft just inked a deal with Yahoo. To "buy" control from Yahoo, Microsoft will give Yahoo about 90% of all search revenues for the next 10 years. Microsoft has spent billions of dollars re-engineering its search engine a dozen times. By all accounts, the latest iteration is about as good as Google search. The trouble for Microsoft is that search is sticky; consumers will not switch unless they have a strong incentive.

Baidu, with the huge advantage of Chinese government support, holds a dominate 75.7% share in China. Google has fought hard to achieve a 19.8% share. All others combined hold 4.5%.

The hype in the USA about Microsoft's Bing search engine tends to focus on the US market only. When one looks at the global market, one realizes that a three-way battle is heating up. The worldwide search share numbers are: Google 68.9%, Baidu 6.9%, Yahoo 6.5% and Microsoft 2.3%. Combining Yahoo and Microsoft into one gives us Microhoo at 8.8% but Baidu only recently took second place from Yahoo, so its growth rate is clearly faster. Furthermore, Google is about to take a significant leap forward in China. Two of the major Chinese cell phone providers have announced Android based phones. The use of Android software does not assure the use of Google search but, again, while Microsoft is battling so hard in one place, Google is surging forward in another.

The most wonderful feature of Android phones is that they do not force the owners into proprietary services. Last week, Apple suddenly decided to ban the Google Voice app. While Google will do a web page workaround, this action by Apple (surely backed by AT&T) confirms my opposition to buying an iPhone.

Billions of dollars have been spent by Americans on text messaging. What a shame? The cost of text messages to the phone companies is incredibly close to zero and getting closer to zero daily. Indeed, the cost is probable negative in the sense that text messages use up much less bandwidth than the phone calls they replace. Google and other are giving consumers the ability to send free instant messages via the web rather than $5 per month and more text messages. It is easy to see why consumers around the world are increasingly opting for Android based phones. See Here.

The service that will explode over the next several years is text to voice and voice to text translation. Have you ever wished you could remember the details of a phone call? Perhaps a customers order was not exactly clear upon reflection. Perhaps you even forgot the customers full name! Was it Jim's nephew or uncle that should be added to the prayer list? Google is not running around talking about recording your phone calls for you. The reason is obvious. People are already paranoid about Google knowing "too much". There are multiple fears exerting influence here. One of them is the good old basic fear of change, kainotophobia. About 5 centuries before the birth of Christ, Nehemiah battled a strong case of kainotophobia. Link.

We fear the new but when we realize the benefits overwhelm the risks, we move forward. One of the Google Voice features that will grow in popularity until it becomes the new norm, is the recording and transcribing of phone calls. In the future, you will routinely search your phone records as easily as you search the web today.

Yes, Google is growing in China, but, more importantly, Google continues to offer new, free services to you, your friends and your neighbors. Google is in business to make money, but while it invites customers to come for a visit and to stay awhile, Microsoft is busy trying to bully or buy its way into more relationships. Microsoft now owns a small piece of Facebook and a small piece of Yahoo. Microsoft is not going away, but the most dramatic growth will continue to be achieved by Google.

Tuesday, August 04, 2009

Banks Continue to Truck!

On March 5th, a number of banks appeared to be headed for bankruptcy; what a difference a few months can make! Sure, you will find naysayers who continue to believe that we will soon see Armageddon, but banks shares have soared because their future is growing brighter day by day. The lowest price I paid (in friends accounts) for BAC shares was $6.16 but the shares fell all the way to $3.17. Today, these shares traded at $15.64. The brave sole who bought on March 5 has increased his investment 5 times and the economic recovery is just underway. The shares purchased at $6.16 are worth 2.53 times as much.

BB&T shares which traded at $13.32 less than 5 months ago, traded at $23.66 today. Wells Fargo shares has gone from $8.12 to $25.80, a "three bagger"!

As was noted several times in my postings on Facebook, the rally in bank shares and the rally in consumer cyclical shares tend to happen in close proximity of one another. Ford Motor actually bottomed about three weeks prior to the banks and has rallied concurrently. Ford has gone from $1.58, February, to $8.30 today. Wow! already a 5 bagger! Only a few people I know purchased Gannet Newspapers while it was in the $2 per share range but in 5 months, it has jumped to the $7 range.

Ford, Gannet and the banks have a long way to go before we can say that their businesses have fully recovered. The share prices will continue to lead the way. The share prices will peak long before profit peaks are reached, several years from now.

I encourage you to mix in a few "solid bets" along with shares of banks and consumer cyclical stocks. You should be sure to keep some Google shares in your accounts. Google is in the leader in the move from Internet 1.0 to Internet 2.0. The number of ways that you will ultimately use Internet 2.0 is unknown, but there will be many.

Monday, August 03, 2009

Watch Your Back! or Take Advantage!

If you find yourself in a street fight, it is wise to get someone to guard your back. Two enemies can guard one another's back if faced by an even greater evil. A street fight for bountiful Internet treasures has broken out. Gangs and alliances have been formed. Some of the alliances are stronger than others and every player needs supporters, loyal ones if possible. Consumers should find a good seat an enjoy the fight. Consumers will win as an abundance of new, low priced, delightful services become available. Investors should place serious bets because the winners will enjoy profitable growth for years to come. Investors should remember that Ford, GM and Chrysler investors did very well for many years. The fight is not a fight to the death.

Recent news has been about conflicts between Google and Apple:
Google's Chairman has relinquished his seat on the Apple board of directors.
The FCC is investigating Apple and AT&T for not allowing Google Voice on iPhones.
Google Chrome's market share is biting at the heels of Apple's Safari.
The Google Book settlement is being questioned by anti-trust busters.
Apple is providing reading services for both Amazon and Barnes & Noble.
Google has made a million free book titles available through Sony Readers.
Apple's iTunes service is very profitable but Google's YouTube is rapidly building audience.
Google's YouTube service is offering a new source of revenue to local news stations.

Other recent news has been about the conflicts between Google and Microsoft:
Microsoft is promoting its Bing search engine heavily.
Microsoft is giving Yahoo 88% of search revenues for 10 years in order to boost it's search share.
Microsoft's share of search has risen slightly, in addition to the 20% share that Yahoo will add.
Around the world, Google is gaining market share in the fastest growing part of the market--mobile search.
Google's browser, relatively new with only a small market share, has a steep mountain to climb but the owners are shooting to be King of Mt. Everest.
Google's browser goal is to be "the alternative operating system" on many machines.
Google's share of mobile handsets is growing rapidly; Microsoft continues to struggle in this important market.
Europe antitrust busters are considering a browser checkoff poll to bust Microsoft's Monopoly.

The above is only a snippet of the melee that is in progress. Many a player stands with Google when it comes to fighting the Microsoft OS monopoly only to face off against Google in their prime businesses. There are many complex relationships in play. Google is hiring, but, more importantly, thousands of programers can now write for the very broad OpenCode alliance. Under this alliance, programers can "assemble" the pieces of various other programs to build a great new product quickly. The new product can run on various operating systems.

In the social network area, the melee seems to be dominated by Facebook (Microsoft is a minority owner of Facebook) but "Lost Battalions" (like the 77th in WWI) are attacking from without and within. The OpenSocial alliance includes scores of players, lead by Yahoo, MySpace and Google. While there is considerable overlap, Yahoo and MySpace each bring more than 100 million "friends" to the fight. The combined audience is probably bigger than the combined audience of Facebook and Microsoft products but, again, the important fact is that the "little guys" know their realistic chance of a "win" is through the OpenSocial alliance.

The new MySpace mail system is interesting. It should do well. MySpace even appears to have a relatively easy path to the number two email spot behind Yahoo. So here again, you have Yahoo, MySpace and Google joining forces against Facebook/Microsoft in regard to social networks while battling one another and Facebook and Microsoft for email market share. One of the features that gives MySpace a leg up on Facebook mail is the super rapid search services provided by Google. I would not be surprised if MySpace Mail is not retrofitted to work with Google Waves, which is Google's main replacement model for outdated email systems.

Amazon and EBay are the leading Internet retail businesses but here again Google is making it easier for small players to compete. If you have a website, you can easily add a Google Store. If millions of small players take advantage of Google's free "store front" services, Google will have become a major player in retail.

It continues to be amazing that Google can offer so many neat services free of charge. We all know that there is a current or future revenue stream attached to each of these free services. We know that the demand for free service is much greater than the demand for expensive service. So the combination here is fast growth now and fast revenue growth later.

Putting a high powered computer in your pocket is going to gradually change your life. The Qualcomm processors being put in pockets today are more powerful than the average desk top of 4 years ago! If you computer is more than 4 years old, it is not as powerful as the current pocket computer. Chances are that your 4 year old computer does not have GPS and cell communication capacity built-in.

We are talking about a change that is bigger than all the ramifications of moving from a horse and buggy society to a automobile society. I'm very confident that Google's shares will double and double again over time. Amazon, EBay, Apple and other companies are going to see dramatic growth. As the price of providing service continues to fall, the number of services offered will soar. Most of these will be supported by advertising. Google seems to be the only player that fully appreciates the critical role of advertising in the provision of ultra low priced services.