RickRussellTX

If a Boom Is Coming, Will a Bust Follow?

It's refreshing to see a cogent analysis that doesn't beat the neo-Keynesian drum of spend, consume, debt over and over again.

Bio-Rad Sparks Video War Among Lab Supply Companies

That was unquestionably the best mass spectrometer advertisement I've ever seen.

USG: Supply Is High, Demand Is Low and Pricing Is Still Improving

Solid analysis like this is rare in the business press. It's definitely refreshing to read a piece that is grounded in sound financial concepts and an understanding of the company's core business, rather than some opinionated "BUY!" or "SELL!" recommendation. And look, no voodoo technical analysis either!

$800 Billion: Too Much? Too Little? Yes.

"For one thing, much of the stimulus takes the form of tax cuts, and the part of this that gets saved will not contribute to demand and thereby enter the stream of spending and income."

I call FUD on that one. Consumer saving allows banks to lend to businesses and consumers, easing the credit situation and keeping interest rates low. As long as they don't use the money to buy vastly overvalued market-traded assets (HINT HINT), the money very much stays in the economy and enters the demand stream.

Wells Fargo has been upselling me on the benefits of more savings for many months, and I suspect they are lobbying all of their customers this way in an attempt to build and maintain cash reserves and make more money available for lending.

Seagate Crashes

Note that they are also suffering serious technical problems with their drives including outright failure and poor performance:

techreport.com/discuss...

In addition, their attempts to correct the problems have been rife with QA issues, resulting in more failures and more disasters:

news.cnet.com/8301-179...

www.vnunet.com/vnunet/...

Still Blaming the Market Victims

"Our nation as a whole makes very little that is of lasting value."

I think this is the key point. Efficient production of highly desirable goods is the surest way to gain comparative advantage and economic success. It's worked for Japan, Taiwan, South Korea, and now it's working for China.

And the only effective ways for the federal government to influence the efficient production of desirable goods are to (1) improve efficiency by subsidizing infrastructure -- the kinds of projects that no single company could build by themselves, like power plants and bridges, or (2) improve the goods, by subsidizing education, research, etc.

Still Blaming the Market Victims

"Our nation as a whole makes very little that is of lasting value."

I think this is the key point. Efficient production of highly desirable goods is the surest way to gain comparative advantage and economic success. It's worked for Japan, Taiwan, South Korea, and now it's working for China.

And the only effective ways for the federal government to influence the efficient production of desirable goods are to (1) improve efficiency by subsidizing infrastructure -- the kinds of projects that no single company could build by themselves, like power plants and bridges, or (2) improve the goods, by subsidizing education, research, etc.

My Economic Plan

Yeah, I cannot see how eliminating fractional reserve banking fixes any problems. If anything, it dramatically worsens liquidity problems -- look at the national bank system before the Federal Reserve existed. If depositors took out money, the bank had to demand immediate payment on loans. It makes sense in theory, until you find out that the letter of credit you sent to the lumber mill just got pulled. Do we really want to go back to the days of couriers carrying gold and paper currency to pay for business transactions? Without the ability to rely on short-term lines of credit, that is what will happen.

My Economic Plan

Yeah, I cannot see how eliminating fractional reserve banking fixes any problems. If anything, it dramatically worsens liquidity problems -- look at the national bank system before the Federal Reserve existed. If depositors took out money, the bank had to demand immediate payment on loans. It makes sense in theory, until you find out that the letter of credit you sent to the lumber mill just got pulled. Do we really want to go back to the days of couriers carrying gold and paper currency to pay for business transactions? Without the ability to rely on short-term lines of credit, that is what will happen.

Origins of the Economic Crisis in One Chart

I think that blaming oil or war for the economy is rather like blaming wind for the collapse of the Tacoma Narrows bridge. The system was sensitive to stress because of the many bad structural decisions and utter lack of risk assessment by several major financial services corporations and banks.

It is certainly true that years of war have left the government impotent to address the problems.

The Not-So-Smart Smart Money

My reading exactly. I got back into the market again, after being out since Dec. 2001, precisely because I think the downward spiral of the markets and the credit crisis are related. Tighter lending restrictions means that funds and corporations with short-term holdings need to convert them to cash for operations and debt payments, which results in several rounds of panic selling.

I suspect we'll hunt around these lows for another 9-18 months before returning to the usual uptrend. In the meantime, I'm going to be scouting for bargains.

Bailouts: The Moral Imbalance

I'm going to tease some truth out of a response that I otherwise don't agree with:

"These mortgages are worth 95 cents on the dollar if held"

The question is: is this actually true? That actual mortgage default rate may turn out to be about 5%. I've seen competing figures of 3.75% to 4.5%, but the worst may not yet be behind us, so let's assume 5%.

In principle, then, 95% of the mortgage assets can be valued at their stated value, while perhaps 5% will have a value below their stated value. In some case, far below their stated value, but in most cases, perhaps 30-70% their stated value, since the properties will be sold and the proceeds divided among the mortgage-backed security holders.

However, that assumes that home prices stabilize. If they do not, won't defaults go up? Few people will be willing to pay for a $500000 mortgage on an asset that is worth $300000 or less, and for them it may make sense to walk away, deal with the credit problems, and get back on an even footing in 5 or 7 years. I have a relative who defaulted on a mortgage -- BADLY, by just walking out and refusing to check her mail -- and she repaired her credit and was offered a new mortgage in 4 years.

The fact that young wage earners are essentially priced out of the home market in many regions is a suggestion that liberal mortgage policies (and let's face it, fraud) created an artificial elevation in home prices. Home prices are directly related to mortgage rates and liquidity. If rates go up or liquidity is permanently reduced (or both) then home prices will truly adjust downward.

That's why these assets are so toxic. Sure, 5% looks like a realistic number now. Realtors I've talked to say that about 30% of home recent buyers are in bad mortgages *right now*, at current home prices. What if the final number is really 50%?

Of course, we may not have a choice. The person who made off with the money -- and the person who was least culpable in this disaster -- was the home seller, who didn't commit fraud or put anybody in a position of taking on a bad mortgage.

Google's Chrome Sounds Like 1970s Pressure Cooker

The business model for Google is "a vibrant, healthy Internet full of well-designed applications". They realize that, in order to sell advertising, they need to attract the maximum number of user eyes away from newspapers, television, etc. and put them in front of a computer screen. Maybe people sit in front of Google applications and services. Maybe not. Google will try to be the advertising broker in any case.

Also keep in mind that, as the tools to support interactive Web sites get better, Google will actually be able to sell services directly for green cash money. Public and private sector organizations are increasingly converting to hosted Web applications for e-mail, calendaring, CRM, ERP, etc. Google already has fingers in that space and they have made some key sales, and a fast, very stable Web browser can only make those applications more appealing.

I don't know if they will try to implement unique features in Chrome and use those as a selling point for the platform (Microsoft tried it with IE, and it was pretty roundly criticized). But even if they stick to "industry standards", if they do a better job than the competition -- better performance, fewer browser crashes, etc -- that may be enough to get folks to convert.

Look at it this way, you could have made *precisely* the same argument against Firefox, which was released in Nov. 2004. Only four short years later, it's at 20% market share (almost all at the expense of IE: www.computerworld.com/... ), a feat that was widely viewed impossible. Children and grandmothers are using it, because their computer-savvy friends are telling them that it's less vulnerable to malicious software.

Unlike some others, I don't see the Web browser bringing a natural end to standalone applications. Honestly, that's silly. Look at Google Docs, for example, and compare it to any 1990s version of MS Office, or even OpenOffice. The online offerings are short on features by a huge factor, and it will be years or even decades before browser-based offerings compete directly in that space. Ultimately, there will (and should be) healthy competition in at least two major classes of applications: standalone apps coded for each platform, and Web-based apps coded for the browser.

Google's Chrome Sounds Like 1970s Pressure Cooker

Let me break it down for you very simply.

On a Web site, there are two ways to generate content that is dynamic and interacts with the user:

(1) Every time the user does anything, submit a request back t the Web server and send new information back to the Web browser, or

(2) Run executable program code inside the Web browser itself that interacts with the user, sending updates back to the Web server only when necessary.

Google realizes that we are at a crossroads. The first crossroads was at the end of the dot-com bubble, when people started coding software designed to run on the Web browser's Javascript interpreter. That gave us rich applications like Gmail and Google Docs and Flickr.

Now we are at another crossroads. Web developers realize that if they want to code really fast, highly interactive applications (say, video editing), they must rely on a nonstandard technology, such as ActiveX (which is nothing more than executing a Windows program in the browser), Java or a plug-in like Flash. The degree to which each of these technologies can integrate with the Web browser is different -- ActiveX is tightly integrated with IE, but it's platform-locked to Windows. Java and Flash are great programming environments for various tasks, but they are essentially separate programs that run outside the browser, and do not really interact with the Web page at all. Java and Flash are also dependent on the whims of Sun and Adobe, respectively. And all three have serious implications for computer security, since they all allow the program code to run within the user's operating system. Java is pretty well locked down (and uses the same sandboxing model that Google is proposing), but Flash and ActiveX are security nightmares.

So, Google decided to develop their own solution designed to address the performance concerns of Javascript, the Web interactivity concerns of Flash and Java and the security concerns of ActiveX and Flash (and to a lesser extent, Java).

Will they pull it off? For many users, the fact that Google applications work better in Chrome may be enough to justify the switch. I spend a significant portion of my life in Gmail, Picasa and iGoogle.

Questioning Obamanomics

Putting aside some of the more extreme estimates out for the cost of the wars, it's a fair bet that extricating ourselves from foreign conflict would save on the order of $200-$500 billion per year.