Is the Fed About to Go Nuclear?

"We cannot stress enough how strongly we believe that a cliff-edge may be around the corner, for the global banking system and for the global economy. Think the unthinkable." 

- Andrew Roberts, Credit Chief, Royal Bank of Scotland (RBS)

(Note: this article is aimed in particular at individuals that are not as familiar with concepts such as quantitative easing, inflation, deflation, and what all this talk of 'printing money' means. These concepts can appear complex and intimidating, but they are not beyond reach of non-economists. Further, they are incredibly important to everyone. My hope is that you will take the time to learn more about this important topic and click through to some of the background info links I have included.)

The latest installments from the Telegraph's Ambrose Evans-Pritchard, who has been dutifully chronicling and predicting quite accurately the unfolding global financial crisis, suggest the U.S. Federal Reserve may be about to double down on its massive money printing campaign.

Housing: Could Strategic Default Turn Into a Full Blown Movement?

By now many people are aware that the housing sector is showing renewed signs of trouble.

In May, traditionally a time of the year when home purchasing activity picks up, both existing and new home sales tanked. And this is happening in spite of the fact that mortgage rates are at their lowest point since the 1950s.

Nearly one in four homeowners is "underwater" on their mortgage, meaning they owe more money than their home is worth. As detailed by the New York Times more and more homeowners are electing "strategic default", which is when a home owner quits making his/her mortgage payment even though s/he has the financial means to continue paying.

Video: Niall Ferguson Forecasts a U.S. Fiscal Crisis Similar to Greece's in 2-4 Years

I'm a big fan of Professor Niall Ferguson's work, so it caught my attention when Niall recently went publicly on record with a timing forecast for a U.S. fiscal crisis:

Alan Greenspan Explains Why Investors are Running to Gold

As Congress considers approximately $200 billion in new stimulus, Alan Greenspan sounds the alarm that America spending beyond its means cannot continue indefinitely, and that there are severe consequences if this continues much longer.

Meanwhile gold is currently trading at an all-time high of $1,262/oz.

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Why Deflation is Good News for Gold

Today the U.S. Labor Department released its May Consumer Price Index report, considered a key inflation barometer. There was a 0.2% decline in CPI in May, the largest decline since December 2008's 0.7% decline. The May report also comes on the heels of a 0.1% decline in April. Back-to-back monthly declines in CPI may be a warning signal that deflation is gaining a toehold.

Yet today the price of gold, which in theory should tank in a deflationary environment, is rallying up 1.5% to $1250/oz as I write this. What gives? And how could deflation be good news for gold bulls?

Does the Euro's bounce signal all is well?

The Euro, after failing to crash through the $1.18 level, has bounced up over $1.23. Pinched short sellers and the financial press are openly wondering whether this signals that all in Euroland is well.

It appears that Europe's "shock and awe" $1 trillion rescue package has bought a respite from the "wolf pack". In particular, the ECB's unlimited, cheap three-month loans to banks through the end of summer should keep the financial system lubricated.

How long will this work?

BP Spills Coffee

Some much needed comic relief from the Gulf oil spill tragedy.

Thoughts on iPhone 4 and Android

To be sure, we pretty much expected this year's iPhone announcement to be a yawner compared to prior years.

Much of the yawn is of course attributable to the highly publicized Apple employee party foul leak of an actual iPhone 4 prototype. That, combined with Apple's pre-announcement of some of the new OS features like multitasking, was always going to make it difficult for Jobs to deliver the same "wow!" factor as he has in the past. But to boot Steve's normally flawless presentation suffered from WiFi trouble. Liz Gannes of GigaOm, speaking on behalf of the many iPhone owners frustrated by AT&T's network issues called Job's WiFi trouble "poetic justice".

Yet iPhone 4 managed to make a splash with its appealing features. The new hardware (screen resolution, build quality) sounds rock solid. And I personally really like the emphasis on making the iPhone a better portable camera/video recorder. Extra battery life is always nice. The iPhone and Apple have a lot of momentum, and I expect iPhone 4 to sell well. And it will sell even better if it finally becomes available on Verizon.

But like other reviewers I was expecting at least a few more positive surprises from Apple with iOS than what we heard yesterday. Much of what Apple has done with the new OS is Android catchup (e.g., multitasking). And this might be the least exciting "one more thing" in Jobs keynote history: Face Time, the video calling feature. While video conferencing is new to the iPhone, it's a relatively old and familiar technology. And for now FaceTime only works on WiFi. Many times when I'm around WiFi I have my laptop and would prefer to use that for video conferencing because of the larger screen size.

One of the takeaways from iPhone 4 is that Apple may be struggling to make the same "insanely great" attention grabbing iPhone technological leaps as it has in the past. This doesn't bode well for Apple's product or stock price momentum, which is already in heady territory.

I would also add that some part of the iPhone's appeal as a status symbol has definitely been lost. This is in part due to the ubiquity of the iPhone, but also due to Apple's own iPad becoming the new must have gadget to show off.

Overall, iPhone 4 is a nice evolutionary update. But I don't plan on upgrading anytime soon from my iPhone 3GS. A big reason is I'd like to wait a little while to see what Android has in the pipeline. Android has rapidly closed the gap with Apple to the point where their respective OSs and hardware are close to parity, in my opinion. And the speed at which Android's software and hardware is advancing is impressive compared to Apple.

What Do Sand Castles and This Weekend's G20 Meeting Have in Common?

The irony has been plentiful today. First the ECB's "Euro Run" video game and now this:

WSJ's Real Time Economics blog noticed that this weekend's G20 meeting is taking place adjacent to a sand castle building competition.

From RTE: "Maybe it’s coincidence. But just maybe, some imp in the Korean government was trying to send an existential message by holding the Group of 20 finance meeting — aimed at erecting new structures to protect the world economy — adjacent to a sand castle-building competition."

"Euro Run" - The European Central Bank's New Video Game

From the Hard to Believe news desk we have the ECB's video game ironically titled "Euro Run".

It appears targeted toward young people familiar with Mario style games. Perhaps this is Trichet's gentle vocab intro for kids to explain what's currently happening to the Euro.

I suppose it's nice to see that while the ECB is failing to stem the current crisis at least someone over there hasn't lost their sense of humor.

Volcker: "The Time We Have is Growing Short"

While former Federal Reserve Chairman Paul Volcker may have been marginalized by the Obama administration and during the recent financial reform legislation, he's still speaking out.

An excerpt: "Any thoughts—any longings—that participants in the financial community might have had that conditions were returning to normal (implicitly promising the return of high compensation) should by now be shattered."

Euro: Next Stop $1.18

"You simply cannot talk like this in these markets,” Timothy Ash, head of emerging market research, Royal Bank of Scotland, in reference to the comments made by Hungarian political leadership Thursday and Friday.

The Euro just broke the $1.20 mark.

The drivers: Along with the unfolding Hungarian budget fudging and PR debacle referenced by the above quote, there has been a significant increase in Credit Default Swap prices for both France and Germany, suggesting that concern is extending from the periphery into northern Europe.

Note the Swiss Franc is rising vis-a-vis the Euro and Forint as reports have emerged that Switzerland's central bank is standing on the sidelines for now.

With the $1.20 support level breached it's hard to see how $1.18 won't be touched soon.

Euro: How Low Can It Go?

''It turns out we weren't seeing the light at the end of the tunnel after all, but a train with a big light on it coming towards us'' -Dr. Suki Mann, Societe Generale

"The Fitch note drives home the apparently unsolvable contradiction in which the Spanish economy finds itself. To maintain debt solvency Spain must squeeze public spending: yet this policy undermines the chances of recovery which itself causes further loss of confidence." -El Pais

Today CNBC's feature headline Remember Europe? Investors Turning Their Focus Elsewhere grabbed attention. But are investors simply shifting their gaze because they can't bear to watch the inevitable European train wreck? The hits just keep on coming.

Today the Euro failed to hold $1.22, closing near session lows at $1.2161. The European Commission is now putting pressure on Hungary, which was bailed out by the EU and the International Monetary Fund in 2008 and is still “in a very delicate situation”, according to European Commission President Jose Manuel Barroso. And the TED spread is still on the express elevator up.

I just reread an Ambrose Evans-Pritchard's article dated January 4, 2010 covering his predictions for 2010. Right down to the protests in the Greek streets he's pretty much nailed it, although some of his bolder predictions such as Japan going bust have not yet come to pass.

Fast forward to May 30, 2010, and commenting on the situation in Spain Evans-Pritchard says "this can end only in two ways."

"Either Germany tolerates massive monetary reflation by the ECB or Spain will be forced out of EMU, setting off a catastrophic chain-reaction through north Europe's banking system."

The Euro has already dipped over 20% vs. the U.S. dollar this year. Shorting the Euro has become a crowded trade, but events and the market are signaling a further downward move. If the Euro can't hold $1.20 in the near-term look for a quick break to the $1.18 range with an increasing probability of dollar parity before the summer is out.

Review: Google Voice and the iPhone

Google Voice (formerly called GrandCentral, purchased by Google in 2007) was release a little over a year ago. CNET and TechCrunch, among others, already did a nice job covering the relaunch of this service. The focus of this review is provide an updated overview of Google Voice 1+ year on and a personal account of how the service works with an iPhone.

What is Google Voice? 

The free service has a number of useful phone features. Perhaps the headliner is the ability to pick a new phone number (in whichever area code you prefer) that when called will simultaneously ring your other phone numbers (i.e., home, work, cell, etc.). People trying to reach you don't have to guess whether you're at work or on your cell and dial you multiple times.

(Now right away you might be saying that the switching cost of a new phone number makes Google Voice a non-starter. TechCrunch previously reported that number portability was coming to Google Voice by the end of 2009. And Mike Arrington somehow got his number ported to Google Voice. However, as of this writing porting is officially unavailable.)

To illustrate how Google Voice's main feature works here's how I currently use the service:

When someone calls my Google Voice number both my cell and home phone ring. This gives me the option to take a call on my home phone line when I'm home, thereby ensuring better call quality and reducing my cell phone minute useage. Or if I'm not at home my cell phone will ring allowing me to still take the call. It's that simple, and in my experience this feature works really well.

For the growing ranks who only have one phone number (their cell) Google Voice still has a couple other features that make it worth a look.

Google Voice and Chrome

I spend quite a bit of time on a computer, and Google Voice's fantastic integration with Google's Chrome browser has led me to make Chrome my default browser. Chrome allows click-to-call dialing for most (but not all) phone numbers on the web. Here's an example:

Say you're using Yelp to determine where you want to order takeout dinner. You're in the mood for a cheeseburger and fries, so you click on the phone number of Barney's Hamburgers. Google Voice goes about connecting you to Barney's without your ever having to dial the number. After clicking on Barney's number you're presented with a popup window asking which phone you'd like to use (i.e., home, cell, etc.). When you select which phone, Google Voice rings you at that phone. After you pick up Google Voice next connects you to Barney's. Presto. You're fingers never had to touch a dial pad. 

There are a couple small issues. One minor change I would like to see Google make here is to allow users to set a Chrome phone preference so you can skip the extra click step of selecting which phone Google Voice dials you at. I've also noticed a consistent delay between how quickly I can make consecutive Google Voice calls. If after making a Google Voice call from Chrome I immediately click to dial another number, the call won't connect. I need to allow usually about 1-2 full seconds before placing the second call. This is a minor annoyance and may be an issue specific to my phone service provider (Comcast) or my landline phone model (Panasonic KX-TG7431). And as noted earlier, occasionally I encounter a phone numbers on the web that I cannot click-to-dial, probably due to how the phone number is formatted. In that case I either copy and paste, or type the number into Google Voice web page to initiate the call.

Other Features

You can also use Google Voice to send free text messages, which I can also write more quickly and accurately from my computer keyboard. Unfortunately, incoming text messages to your Google Voice number are forwarded to your cell phone, which eats into your monthly text message allotment. So another change I'd like to see made is to allow you to have text messages sent to your email or Google Voice inbox instead.

Google Voice also transcribes your voicemails so that, in theory, you can read them as emails or text messages instead of listening to them. In theory because the accuracy of the transcription service leaves a lot to be desired. I've found this feature to be most useful for visually scanning to determine whether the vmail is a quick "Hi, call me back" type message, or a lengthier vmail that requires careful listening.

A few more of Google Voice's many other features include:

• Google Voice also allows you to keep a record of your vmails, like you would saved emails
• Call screening
• Do-not-disturb - one click to turn off the ringer for all your phones
• Switch phones mid-call (for times when you need to head out the door and transfer the call to your cell)
• Recording calls (useful for journalists)
• Listening in on vmails as they are being recorded
• Share voicemails (forward them like email)

Google Voice on the iPhone

On the whole, Google Voice offers some impressive phone features for no cost. But how does Google Voice work with the iPhone? First, some history.

Last July there was considerable controversy when Apple rejected the Google Voice app for the iPhone. As John Gruber pointed out at the time it was not entirely clear whether this was simply Apple doing AT&T's bidding, as both companies stood to benefit by blocking Google Voice from the iPhone. The FCC launched an inquiry into the matter, which remains ongoing. Later Apple and AT&T issued a joint statement that the decision to not approve Google Voice for the iPhone was 100% Apple's. To this day, however, the Google Voice app is still not available in the App Store.

After declaring that Google Voice was coming to the iPhone "one way or another", in January of this year Google released an HTML5 'web app' version of the service. Because it is accessible from the iPhone's web browser it cannot be blocked by the nebulous App Store vetting process.

Overall the web app version of Google Voice is useful, but has some significant drawbacks. You can place the Google Voice icon on your iPhone home screen so that it can be conveniently accessed just like any other iPhone app. It has a dial pad similar to the iPhone's built-in dial pad (Google Voice has an extra prompt to initiate the phone call). You can also play your voicemails, which uses your unlimited data plan instead of your anytime phone minutes.

However, I don't always use the Google Voice web app to make outbound calls or send texts. The reason is because it is a bit more cumbersome -- and definitely slower -- than using the iPhone's built-in address book and texting. This is because web apps by their very nature can be a little to A LOT slower than the iPhone's in house apps. The delay on WiFi is a minor nuisance, but when I'm on 3G or in particularly EDGE the wait is unbearable. With the iPhone, I'm more often than not calling someone from my Favorites list. To get to that list all I need to do is double click the iPhone's button and I'm there instantaneously. With Google Voice I first have to wait for the dial pad to refresh as there is no way to set the default home screen to be my address book or inbox. Next I need click on Contacts and wait for that page to refresh.

What is result of using both my cell and Google Voice numbers to communicate? In a word, confusion. After getting a Google Voice number I asked people to delete my cell number and only call or text my Google Voice number. But people are still using my cell number because they know I'm still reachable on it. And how do they know that? Because they periodically receive a call or text from my cell number because I can't stand waiting for the Google Voice web app to refresh.

I've heard that Android's integration of Google Voice is "seamless", and I'd like to give it a try. Does seamless Google Voice integration be reason enough to make the switch from an iPhone to an Android phone? That I'm not so sure about. A number of Android phones are getting great reviews, and it will be interesting to see how Apple's 4th generation iPhone compares to them.

In terms of the market opportunity, only 1.4 million people have a Google Voice account (of which 570,000 use it every day) according to an FCC filing from November 2009. Even with better iPhone integration I wouldn't expect dramatic Google Voice growth. Enabling porting numbers could help but until then the switching costs of a new phone number too high for many people. In addition, many of Google Voice's features are probably overkill, if not overwhelming, for many users.