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Venkata Subbu's  Instablog

Venkata Subbu
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Investor and commentator
My blog:
Politics and Economy
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  • Is Mr. Bernanke Helping Or Hurting?

    The market works because of the signal carried in prices.

    When Mr. Bernanke pours money into securities attempting to raise their prices, the market naturally reacts by going for the items where money is most easily made, and ignoring other parts of the economy. As margin balances show, the market is even willing to take out money from other parts of the economy to "invest" in what seems to be the most productive investment. Mr. Bernanke is causing the slowdown in the economy and delaying its recovery, rather than boosting it! His actions show that he is acting on his conclusions regarding the 1930s rather than on what he (should?) knows about markets. I think history will eventually compare our times to the 1920s rather than the 1930s.

    The best way to boost the real economy would be to make financial (rent-seeking) investment UN-attractive. Then money would go into other parts of the economy. It is especially necessary to make people wait for the results of investments before paying off on investments. And that is the role of government, to penalize the quick buck, and to ensure that real returns ensue from an investment before an investment pays off. Securitization and insurance from that point of view is a negative thing - regulation is needed to make sure that it is grounded in reality. For example - we need to enforce the rule of NO naked shorts - in all assets, including gold, silver, derivatives etc.

    It is pointless to forbid something that is going to be done anyway. So, rather than making things illegal, a better way is to impose a cost, such as a tax, on returns on an investment that exceed the return on the underlying real economic activity.

    A financial transaction tax effective on investments of less than a year is one way. Similarly, a financial transaction tax should be imposed on any futures or derivative transactions not settled in kind. Shorts and options not covered by delivery of physical shares would be subjected to the tax. Capital gain on shares would be subject to the tax if the percentage gain exceeded the prorated annual revenue increase of the underlying entity.

    Or we can go back to making naked shorts (including via derivatives) truly illegal with real criminal penalties, and abolishing the Fed - making Congress again responsible and taking the political heat for increasing the money supply. Corporations that violate the naked shorting laws should be given "jail" sentences - i.e. they cannot transact any business for the same period of time that a person violating the law would be sentenced to.

    Disclosure: I am long SLV, FCX, SH, ORCL, RAX, YHOO.

    May 03 8:37 PM | Link | Comment!
  • The Future For Google

    One always has to marvel about human nature - and here specifically the instinctive defensive crouch an aging person or organization adopts to protect against competition. Unable to take on a fight directly and win, such a person or organization will attempt to use their experience and political clout to organize the world in such a manner as to disable competition before the fight even begins. This results in a poorer world for everybody, and preventing this behaviour (e.g. see here) is often even beneficial to one who would indulge in it.

    Currently we have Google (GOOG) planning to adopt a shareholder scheme whereby a majority of shareholders will be disenfranchised, in order to preserve the control of its founders Sergei Brin and Larry Page over the organization. This is being justified by an appeal to the long term interests of its shareholders, saying in effect that the founders can address them better if they were not distracted by the short term interests of Wall Street. A Forbes article addresses this in detail, so I will not talk about it further.

    There is another defensive stance being adopted that could be much more detrimental to Google. We are already seeing the effects and they are due to get much worse. Unless this is part of a plan to diversify Google's business, this could get ugly in a hurry.

    As everybody knows, the primary business of Google is pay-per-click advertising. Search is what brings eyes to the advertising, but is not Google's primary business. It does provide part of the sell - advertisers only pay for "interested" viewers - not for all viewers - many of whom have ad blindness and don't even see ads that are on the page they are viewing. Unlike Yahoo or AOL that actually provide content or use email to attract viewers, Google relies on "publishers" to provide content - offering them an easy way to be found and monetize the content they are publishing by sharing the pay-per-click revenues.

    The pay-per-click sell has its downside. Advertisers complain about publishers who click on ads alongside their own content, and Google is forced to install mechanisms to detect "click-fraud" and punish publishers who do it. Publishers who put up content often see a lot of activity on their site, but very few clicks. Large publishers who can generate their own advertising can maximize their revenues by eliminating pay-per-click and/or bypassing Google as the middleman. This leaves the middle and lower tier publisher as Google's main content provider.

    Punishment of an errant publisher is draconian - a complete cut-off of Google advertising to that account. After the fall-off in advertising earlier this year, Google instituted across the board information sharing about accounts; after the spring results it used that to cut off even more accounts - under the belief that this would bring back the advertisers. But what it is really doing is eliminating and/or annoying it's eligible content base. Already one can see a major reduction in the number of sites carrying Google ads.

    What is worse, under the current policies it is now even possible for a random website to cut off the advertising flow to a perfectly well behaved and respectable website, allowing Google's competitors, annoyed publishers, or competing publishers to mount a denial of service attack. I believe this is already happening, and Google's next few rounds of results are liable to bring a nightmare to Google investors.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: GOOG, short-ideas
    Jun 06 10:59 AM | Link | Comment!
  • Baltic Dry Index falls off a cliff
    Anybody notice what happened to the Baltic Dry Index? It seems to have fallen off a cliff!

    Take a look     here
    Jan 18 1:21 AM | Link | Comment!
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