Music Video: Quantitative Easin'

Charles Ferguson on "Obama's Depressingly Rational Decision to Give In to Wall Street"

Academy Award nominated film director Charles Ferguson, who's documentary Inside Job about the financial crisis is currently playing in theaters, has penned an article on President Obama and Wall Street.

When will we stop indulging the fantasy that 'Too Big to Fail' banks are private enterprises?

And if you haven't already seen Ferguson's interview of former Fed Governor Fred Mishkin on his infamous "Financial Stability in Iceland" report, you can check it out here.

Cheap Insurance Against the Ultimate Black Swan

With minds fixated on next week's U.S. midterm elections and Fed QE2, I thought it could be a nice, light distraction to write about the greatest known threat to life on earth.

What is it?

Global warming, infectious disease, and thermonuclear war are some of the more common answers to this question.

However, there is another threat of perhaps even greater danger which doesn't receive nearly as much airtime, or resources devoted to its prevention.

Illustration of an asteroid impact

Former astronaut Russell Schweickart recently penned a NY Times piece on the very real risks posed by asteroids to life on earth. I had the pleasure of meeting Mr. Schweickart several years ago, and he is generally considered the leading advocate for increasing awareness and addressing this threat.

Asteroids -- as any T-Rex fan will attest -- can be absolutely devastating. Strong scientific evidence suggests that 65 million years ago an asteroid of approximately seven to eight miles in diameter struck near Mexico and wiped out the dinosaurs and over half of all species.

It doesn't take an eight mile asteroid to cause significant damage. The 'Tunguska event', which featured an asteroid with a diamater of only 120 feet, leveled approximately 800 square miles of (thankfully) relatively empty Siberian forest. An asteroid much smaller than Tunguska could hit a heavily populated area and cause a loss of life in the millions.

Can Anything Be Done?

There is some good news. We already possess the technical knowledge to prevent asteroid impact. We can detect asteroids that may collide with earth, sometimes up to a decade in advance of potential impact. We also know what to do once we've spotted one that's on a collision course with our planet. One option can be described simply as using a spacecraft to "rear-end" the asteroid. This alters the asteroid's trajectory away from earth.

The bad news is that we are not investing the relative pittance it would take to mitigate asteroid impact risk. Schweickart estimates that it would cost roughly $250-$300 million over the next 10 years to track all asteroids and fully develop the deflection capability. Annual maintenance expense for the program would be $50-$75 million. These figures represent a small fraction of the U.S. federal budget.

Further, international discussions are underway so that the U.S. may not have to foot the entire bill. The below video features Russell Schweickart speaking about asteroid risk and international coordination at a recent European Space Agency meeting in Germany.



So, the choice is pretty clear. We can either spend a few hundred millions dollars and mitigate asteroid risk. Or we can continue to roll the dice risking perhaps all life on earth.

Do we really need to think hard about this one?

Michael Lewis on Hiding Banned Proprietary Trading at 'Too Big To Fail' Firms

An update from author Michael Lewis on how the Too Big To Fail firms (e.g., Goldman Sachs) are maneuvering around what clearly appears to be an ineffective ban on proprietary trading. Lewis:

"A few weeks ago we asked a simple question: Why are the same Wall Street banks that lobbied so hard to dilute the passages in the Dodd-Frank financial overhaul bill banning proprietary trading now jettisoning their proprietary trading groups, without so much as a whimper? The law directs regulators to study the prop trading ban for another 15 months before deciding how to enforce it: why is Wall Street caving now?

The many answers offered by Wall Street insiders in response boil down to a simple sentence: The banks have no intention of ceasing their prop trading. They are merely disguising the activity, by giving it some other name."

I highly recommend Lewis' recent book The Big Short which I wrote previously about here.

Bill Gross: Run Turkey, Run

Bill Gross, PIMCO

A must read from the 'Bond King' which covers:

• Next Wed's Quantitative Easing II (QE2), which instead of labeling as 'printing money' Gross refers to as 'writing checks'
• The U.S.'s broken political system and his recommendation on what to do about it
• What investors can expect going forward

U.S.-China Financial Relations Explained by Saturday Night Live

Auf Wiedersehen iPhone

At the time of the iPhone 4 launch I wrote an unexpectedly controversial article about my reasons for holding off on upgrading my 3GS. Well, my 3GS just went kaput (right outside the 12 month warranty, naturally) so it's time for a new phone.

In my June iPhone 4 launch writeup I only mentioned Android as a possible alternative. However, I've also been quietly keeping an eye on the new Microsoft mobile phone OS, blandly named Windows Phone 7.

I say 'quietly' because until recently anyone caught considering a Microsoft phone product would have received a heap of public (and deserved) ridicule. Microsoft's mobile phone effort is perhaps one of the more well publicized tech disasters. CEO Balmer's bonus was slashed by 50% due to the Kin debacle.

In my case, there were further reasons not to consider Microsoft. Chiefly, I have a Mac computer and don't plan on switching from Mac OS X anytime soon. Windows Phones at present won't sync with Macs. However, amid reports of the temperature cooling in Hell that's apparently about to change.

Still, with the iPhone generally considered the class-leading platform why would I consider switching to something else?

Apple's Innovation Slowdown

As noted in my June article, iPhone 4 failed to generate the same level of excitement as previous iPhones. I believe the main driver of this disappointment is that Apple is innovating at a slower clip than in years past. One of iPhone 4's big selling points was multitasking, which has been available on Android and Palm devices for quite awhile. And Steve Jobs' "one more thing" was video conferencing, a technology which has been around forever (by tech standards) and currently only works over WiFi.

The slowdown in innovation can be observed in other Apple products. Take the recent 13" MacBook Air refresh. Its uses the same Core2Duo chipset as the MacBook Air I purchased two years ago. The Air is billed as an "ultraportable" but there has been no material reduction in its 3 lbs. weight since it was first launched nearly three years ago. And it is still useless as a "laptop" as it continues to get too hot for comfortable use in your lap.

Overall, the pace of innovation appears to be slowing in Cupertino.

While the iPhone Has Lost its Hardware Edge...

The iPhone no longer possess the top-of-the line hardware kit.

Don't believe me? I encourage anyone to put an iPhone 4 with its highly touted "retina display" next to one of Samsung's Super AMOLED screens (e.g., Samsung Omnia 7). To use Steve Jobs' favorite term when describing displays, compared to the iPhone's the Super AMOLED screen is "gorgeous". Further, Super AMOLED crushes the iPhone's IPS tech in power consumption (30%), viewing angles and contrast.

We're also starting to see other hardware innovations leapfrog the iPhone 4's specs, such as faster processors, better WiFi, and other features which are already making the only four month old iPhone 4 look dated.

If hardware inferiority weren't a big enough challenge for Apple, the iPhone is also wrestling with poor design. The much ballyhooed death grip problem has been followed up with reports of increased glass screen damage. In all, it appears that the chorus of iPhone gripes is growing, not shrinking.

What makes these hardware and design shortcomings particularly problematic is Apple's product refresh cycle. Apple's pattern has been to release three versions under the same basic design, which means iPhone users are likely to be stuck with the same design until iPhone 7 (summer 2013).

...Apple's Software Advantage is Rapidly Eroding

Nokia mobile boss's characterization of using Android as being like “peeing in your pants for warmth” in winter is a bit much. However, the iPhone's strongest selling point over Android has been its software. Three strengths commonly highlighted are:

• User Interface
• Multi-touch (e.g., accuracy)
• App store

While Android has made big strides in catching up to Apple's App Store, the overall user experience is still inferior to the iPhone. The opposite is the case with Windows Phone 7.

I had a chance for the first time yesterday to test drive the Windows Phone 7 (on a Samsung Omnia 7). I have to say that the Windows Phone 7 UI rocks! And don't just take my word for it: influential Apple fanatic John Gruber of Daring Fireball agrees.

While Windows Phone marketplace lacks the sheer number of iPhone apps, this statistic is misleading. Microsoft's Phone already has many of the most popular apps (i.e., Twitter, Facebook, Netflix). Given Microsoft's resources I expect that, like Android, it will quickly close the app gap.

Last, has anyone else out there grown tired of the iPhone's cutesy candy icons, which have been copied ad nauseam? If so you'll find Microsoft's Phone UI, called Metro, a breath of fresh air. I'll be the first to confess that this an altogether superficial factor, but it's a factor.

Apple's Stock Price: Where to From Here?

Apple's stock price is bubblicious. The company has been on a tear for years now and the stock price has responded accordingly.

However, as evidenced by Samsung and Motorolla on the hardware side, and now Google and Microsoft on the software side, the competition has not only caught up but is leapfrogging a slowing Apple.

Further evidence on how times have changed: recent discussion of the upcoming 2011 launch of the first CDMA iPhone centered on how Apple needs Verizon a lot more than Verizon needs Apple. Prior to the original iPhone when Apple was seeking wireless carrier partners, Apple spurned Verizon. Apparently Verizon hesitated on Steve Jobs' request for carte blanche control over the iPhone's design and features, leading Apple to partner with AT&T (its second choice). With the iPhone's early blockbuster success Verizon was roundly criticized for its obstinance. But the proverbial Mountain would not to come to Mohammed, and now Steve Jobs and the iPhone need Verizon.

Apple investors may possibly see some modest stock price appreciation from here, but we're definitely in the late innings of the extraordinary run in AAPL.

Here We Go Again: More TARP was "Profitable" Hooey

We're coming up on Wall Street bonus season, rumored to be another record setter. So it shouldn't be too big a surprise to see more propaganda being pumped out on the "profitability" of TARP.

On this blog I generally strive not to repeat myself. However, I hope you'll agree that dispelling the reoccurring attempt to foster a myth of TARP "profitability" is worth making an exception. So here goes: it is intellectually dishonest to try and disentangle the "profits" from TARP from the total government bailout.

The real shame about this particular piece of "analysis" is its source, Bloomberg, which had been doing yeoman's work on challenging Fed secrecy and reporting the true cost the entire government bailout. Check this video out for a previous take from the very same Bloomberg on what the entire government bailout has cost taxpayers. (Note to Bloomberg's Editorial Department: you guys need to get your staff on the same page!)

Oh when of when will we cease indulging the fiction that Too Big Too Fail banks are private enterprises?

Why Do Governments Still Own So Much Gold?

With the gold standard long gone ever wondered why so many countries (and a couple multinational institutions) still own so much gold?

Some foreign leaders have wondered the same thing themselves.

Gordon Brown

Ex-UK Prime Minister Gordon Brown didn't see much point in guarding British gold. While he was Chancellor of the Exchequer he sold almost 400 tons (or nearly half) of England's hundreds of years old gold reserves.

Brown's market timing won't aid any dreams of a lucrative hedge fund consulting career: his sales between 1999 and 2002 at $256 to $296 an ounce were at the 30+ year low. Since Brown's golden folly the value of Au has nearly quintupled. Ouch.

More recently the IMF has been selling its gold in a series of "off-market" auctions "directly to central banks and other official sector holders". Translation: the IMF is keeping the gold in the family, so to speak, selling its gold only to other countries like India. So far the IMF has sold approximately 220 metric tons of gold.

But Brown and the IMF are more the exception than the rule. With prices at an all-time high and growing talk of a gold bubble, no major country (to my knowledge) has made any material sales. Why not?

Fort Knox

Any gold sold could be put to productive use (e.g., pay down debt and decrease interest expense). There are plenty of cash strapped nations right now that could use a few extra bucks. Greece occupies the world's 30th largest gold reserve position, with over 100 tons. Selling some gold could help Greece try to avoid default.

And with the world's reserve currency, what possible purpose does holding all that gold at Fort Knox serve the U.S. (the world's #1 owner of gold)?

Attempts to answer these questions definitively would be speculative, but gold investors would do well to keep an eye on any moves by the big gold owners - countries and multinationals.

Attention Gold Owners: You're All "Jerks"!

Charlie Munger

I'm having a hard time jiving Charlie Munger's well received parable published in Slate earlier this year about the all-to-easily recognizable Basicland (a thinly disguised critique of the U.S.'s current financial and regulatory framework) and some of his recent public statements.

First there was his widely reported comment to "suck it in and cope", aimed at the approximately 25 million unemployed Americans. Now he's fired a derogatory missile directly at gold owners. Skip six minutes into this clip for thoughts from the Oracle of Omaha's longtime business partner on what he thinks about those who own gold.

What's odd to me is that if you agree with the views Munger expressed in his Basicland piece you might very naturally and logically be drawn to invest in precious metals, particularly gold. But in contrast to Ice-T's famous quip, Munger says that when it comes to gold you should hate both the game and the playa.

Perhaps Munger's gold comment is not intended so much for the proverbial man in the street (although that's a bit hard to believe given his audience at the time he made the comment) but more for hedge fund titans and fellow billionaires such as George Soros and John Paulson, both of which hold huge gold positions. Maybe Munger feels his cohort should instead focus on trying to fix the financial system rather than taking advantage of its current weakness by investing in gold to make yet another buck?

A final historical oddity about Munger's comment has to do with a speech given in 1948 by Howard Buffett, a former U.S. Congressman and Warren Buffett's father. Perhaps times have changed, but back then Howard hardly found gold ownership a good reason to be dubbed a jerk. Quite the contrary in fact. An excerpt:

"But when you recall that one of the first moves by Lenin, Mussolini and Hitler was to outlaw individual ownership of gold, you begin to sense that there may be some connection between money, redeemable in gold, and the rare prize known as human liberty."