Balaji Viswanathan

Apple: iPhone Apps Are Getting Cheaper

This data is only for April, I see a consistent pattern looking at the previous 4 months of data:www.businessinsider.co...

This page also tracks some of the app price drops: www.148apps.com/price-.../

Either this becomes like the Internet where everything sided towards becoming free or it just destroys the value of the platform by turning away potential developers.

What Does India's Future Hold for the World Economy?

Hi,
I neither claim nor believe that India will pull the world out of this recession. I claim that a combination of factors coming out of India and a few ohter regions will cause significant pressures in a lot of markets. Wat I saw on the ground is a real change that didn't exist even 4 years ago. This change in the ground level takes years to accumulate up and show in the macro statistics. And that would rise the possibility of a commodity crunch that we saw last year. Maybe oil will not go up to $150, but the commodity prices will be much more expensive relative to the wages. So, if the average wages in USD drops from $15 to $10 and oil price stays the same, it is equivalent to having oil get 50% more expensive.


On Mar 06 11:50 AM User 224899 wrote:

> Although India has the potential to influence world markets, it appears
> to have let down all the analysts who predicted a big influence from
> the Indian component of "Chindia". There has been an impact on the
> fertilizer market, but nobody is betting any real money on India
> pulling the world out of a global recession.
>
> One has to wonder if a huge nation with 100's of millions of stunningly
> poor people and dozens of nation-fragmenting language barriers can
> have any sort of concerted, organized agenda that projects in any
> meaningful or consistent fashion into the global market.

How Will Radical Change in Gold Markets Affect Gold Prices?

Wikipedia article on investment says: "Investing is the active redirecting resources from being consumed today so that they may create benefits in the future; " I think in that sense, gold is an investment.

However, as you rightly point out gold is not an investment in the sense of stocks or bonds. In a sense it is as much investment as home - both of them are consumption goods with some speculative factor.

I go with Milton Friedman (and you) and don't support a pure gold standard. But, one good thing about gold standard is the discipline it brings to the regulators. It provides an unbiased indicator of spending and currency dilution. I hate following a schedule or waking up at a designated time, but some times getting a discipline and habit helps. Same thing applies in Macroeconomics. We want choices and don't want to be too restrictive, but at the same time have some structure helps - gold does this for currency.

I would go in for a hybrid, where central banks partly use gold standard in normal economic conditions, but in recessions or other emergency periods they are allowed to relax the standard.


On Mar 04 02:38 PM Asquared wrote:

> As usual, a very thorough analysis Balaji. I’m going to just comment
> on a key word you use to see what yours or others thoughts are. You
> mention the word investment. Is it possible to “invest” in a commodity?
> I know it is semantics, but I’d say the more appropriate word is
> speculating. An investment to me means that the asset earns something
> and has appreciation potential. Gold has a negative earnings characteristic.
> You need to insure it and store it whether it is in a vault in some
> ETF or in your basement safe. The price change appreciation potential
> seems like it can only be based on a demand in the future that is
> greater than supply versus today’s conditions. The supply, unlike
> other commodities, never shrinks. Every ounce mined is still with
> us today. Clearly, if financial Armageddon is upon us, future demand
> could overwhelm supply. But, will we really be so uncreative as to
> try the gold standard again? Seems like much of the Great Depression
> (at least according to Bernanke) can be attributed to being ON the
> gold standard. Getting off of it allowed countries to come out of
> their economic funk. Why would be go back to a failed system w/ that
> knowledge? I mean, I guess I wouldn’t put it past our congress to
> try it again, but logically, we shouldn’t. Thus, “investing” in gold
> can only successfully be done if you believe in the greater fool
> theory, and you get out before everyone else realizes you’re a fool.

The Case Against Gold

Bruce,
You make a point that gold will go down because the consumers don't have money. Annual gold production is of the order of 2000 tons, and at today's value it will be in the ball-park of $50b. This is the entire amount of gold produced. Compare this to the trillions of US treasury that has been issued. Even if 1% of regular treasury buyers move into Gold that can flood the gold market and I have the data that it is already happening. As I wrote in my article today, the market is undergoing a radical shift moving away from Jewelry buying customers to Bar& ETF buying investors. You didnt account for this shift. $400 might be a big thing for customer looking for food, but not so much for an investor who has thousands in other instruments and wants to use gold as a hedge.

Given this shift, I would say gold is still good for short to medium term investors, but long term investors (who wants to hold for more than 3 to 5 years) should consider profit booking whenever gold reaches near $1000 range.

Could the Dow Fall to 1600?

Those are very good points Robert. I didnt account for inflation because the inflation roughly cancels the dividends from the stocks. The normal dividend yield is between 3 to 8% and that more than accounts for the inflation. So, my reasoning was that the growth in market cap after reducing dividends is more directly comparable with the growth in chained GDP value.



On Mar 03 12:53 PM Robert H. Heath wrote:

> timhope is right. You're using the real GDP in chained-2000 dollars.
> Here's the link to nominal GDP.
>
> research.stlouisfed.or...
>
> Nominal GDP grew 53.4x from 1949 through 2008. In 1949 GDP was $267.3
> billion. In 2008, it was $14,264.6 billion. That's a 7.0% compound
> annual increase.
>
> Real GDP has grown 3.4% over the same period, a 7.1x increase.<br/>
>
> Inflation accounts for the difference, having grown 3.8% per annum
> over the same period (This is CPI-all urban. PCE deflator data does
> not go back to 1950).
>
> The fact that the DJIA tracked GDP prior to the 80's and then diverged
> probably has more to do with monetary policy in the two periods than
> anything else.
>
> A few more cautions about this sort of analysis.
>
> There are a number of disconnects between the level of a stock market
> index and the size of its home economy.
>
> 1) You mention the influence of international trade. That is surely
> important over a time series when companies become more global, earning
> profits overseas that do not show up in home country GDP.
>
> 2) Using a stock market index for this analysis will almost surely
> mislead.
>
> It makes some theoretical sense that the total VALUE of traded stocks
> might have some constant relationship to the size of the economy
> over time, but you should look at the market capitalization of the
> companies in the index, not the index itself (subject to the following
> additional qualifications)
>
> 3) The DJIA is a particularly poor index to use for this sort of
> analysis as it consists of only 30 stocks, and is price-weighted
> rather than market cap weighted. Far better to use the S&amp;P 500
> or the Wilshire 5000.
>
> 4) Even adjusted for market capitalization, stock market indices
> (especially the DJIA with only 30 stocks) may exhibit "survivor bias"
> over long periods in the sense that poorly performing companies whose
> continued inclusion would pull the averages down are generally replaced
> by companies with brighter growth prospects.
>
> 5) The total value of publicly traded stocks (vs. privately held
> businesses) can change over time, reflecting the relative attractiveness
> of being public vs. private or the development of advanced markets.
> So for example, In 1950, Ford Motor Company was still a private company...
> It did not go public until 1956. So while there is probably a stable
> relationship between the total value of all businesses, -- public
> and private -- and GDP, you may be missing a variable if you look
> only at public values vs. GDP.
>
> 6) Corporate profitability can vary substantially over long observation
> periods, especially if there are changes in the tax burden falling
> on corporations vs. individuals.
>
> 7) Dividend policy can change dramatically over long periods, usually
> in response to tax rates on dividends vs. capital gains. Unless your
> index is rebased for dividends, significant changes in dividend payout
> ratios will lead to tracking error between the index and the profitability
> of the companies within it.
>
> I'll stop here.
>
> Even with all the disclaimers above, I'll re-run the analysis using
> nominal (not real) GDP.
>
> The Dow started 1950 around 200. As mentioned above, GDP has increased
> to 53.4x the 1949 level. 53.4x 200 = 10,680.
>
> That's not my price target for the DOW and please don't misread this
> as a bullish recommendation. But I'm not to worried about seeing
> 1,600 on the Dow soon.
>
>

Explaining Inverse and Leveraged ETFs

Daniel,
I have tried a few times shorting SKF and it worked for me better than going long in UYG. A couple of times, I went short in both UYG and SKF and exploited arbitrage opportunities during the period of heavy volatility in September. But, then after the short ban from SEC, I found this strategy tough. I then focused a bit on shorting DIG.

These days I'm avoiding UYG altogether and playing only with SKF - if I want to short it, I buy puts, and if I want to long - I sell puts.

Explaining Inverse and Leveraged ETFs

SolarBear:
Feel free to translate, as long as you attribute the source and link to the SeekingAlpha page.

The 50% upside is an interesting question. It depends on whether the 50% down happens in one moment (market closes at 10K and reopens at 15K) or it happens in sequence of steps over a long period of time. Ideally the ETF would have a curve resembling 1/x and hence would not go to 0. Just on the upside, it will be decelerating on the downside too if the market goes up slowly. Take a look at DUG when oil doubled from 2007 to summer 2008.


On Nov 09 04:49 PM SolarBear wrote:

> Hi Balaji,
>
> Thanks for your explaining. One question for the inverse ETFs, what
> if the index rallys up more than 50%? Although it's kind of impossible,
> after 3xETFs appear, maybe we can see something very "insteresting&amp;...
> I just wonder if the NAV of the inverse ETFs (even leveraged ETFs)
> could be negative due to the huge volatility of the stock market.
> Thanks.
>
> By the way, I am thinking about translating some good articles into
> Chinese and post it on my blog. May I quote your articles in my
> blog?

Exploring the Exploding Costs of Education and Medical Services

The professor's salary is still less than a wall street banker, a doctor or a mid level manager in a technical firm. We have to understand that a Professor has to undergo 10+ years of education, then slog hard for 5+ years as an untenured Assistant Professor, before earning that much. If the Professors earn too low, then you won't have qualified people applying for faculty positions and that will pull down the quality of the entire education system.


On Nov 10 06:56 AM Mowog wrote:

> Gracious! If the average professor earned $60K in 1992, what is it
> now? Considering the number of fluff faculty and course, some serious
> staffing trimming looks overdue. I've heard one problem in academe
> is that professors aren't retiring; they prefer to hang on as professors
> emeritus earning fat salaries and teaching few classes. Ending tenure
> would help bring college costs down, which is what is happening in
> Japan, where the number of incoming students is dropping (and will
> continue to do so for years).

Explaining Inverse and Leveraged ETFs

Barg:
1. DXO is an ETN and these have a slightly different behavior from ETFs. ETF is a fund with a Net Asset Value, so you could theoratically liquidate the fund and pay out its holders with that value. ETN is like a bond where the issuer will try to match up the returns of the underlying index, so it depends on the credit worthiness of the issuer, not just on the underlying.

2. ETF prices are controlled by the market forces and kept in line by their market markets who can issue new stocks or redeem existing ones when buyers or sellers increase, with layers of transactions beneath them. Also the arbitragers keep working on to maintain the price levels tracking the underlying by shorting or going long as necessary.

Yahoo finance has an introduction to ETF:
finance.yahoo.com/etf/...

Explaining Inverse and Leveraged ETFs

Hi Juan,
You are correct. That was a slip from me. However, when I drew the graph for XLF and IYF they lost the exact same amount in the last 8 years and have been moving lockstep the last 6 months. Overall the margin of error was just around 1%. So, that doesn't change the numbers here, but still should have been clarified.

What to Look for in Friday's Jobs Report

Here is my response to this article on what kind of a focused fiscal stimulus it should be:
econjournal.com/2008/1.../

We have got to really make sure that those who have worked hard to earn the money don't get cheated by this doling out of money.

Hedging the Price of Oil

Buying such long term futures makes sense for a lot of companies even more than near term futures. Southwest used such long term futures to make good profits for a long time (till the previous quarter). If you are a big airline, you know you need oil for a many years to come and if you are big oil producer you know you will produce for a long time to come. Both these companies would want to reduce the risk for their shareholders and there lies a need for the market. The main purpose of futures markets is not to serve the traders but to help the connect the consumers and producers and for many of these parties only long term futures makes sense.


On Nov 05 09:28 AM Fred Banks wrote:

> Interesting. I just finished explaining to a gentleman that there
> is no liquidity in the oil futures market for contracts with a maturity
> of more than 6 months, and often less, and now I read in the above
> that it is possible to buy futures for 5 years.
>
> Somebody said that there is a fool born every minute, but I think
> that every second is more appropriate. Don't they teach people anything
> at all in those store-front universities on Wall Street or Rodeo
> Drive.