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  • Bill Gross: It's The Zero Bound Yield Curve, Stupid!  [View article]
    What about real investment of capital into real businesses? Those are not bound by the yield curve and have over time, always offered more return. The real risk of low interest rates is the same weakening of the system that occurs in an immune system that is not challenged by pathogenic epitopes. You need recessions to drive out the bad businesses so the stronger competitors with long term planning can thrive and grow more easily. The immune system needs to be challenged to keep up the balance between autoimmune and the immune systems, and to prepare the system for a truly challenging disease.

    I am describing a longer term risk than what you are positing, but they are related. Pushing too much capital to quickly into the markets makes the moral hazard a much greater threat to stability. One of the reasons why rates have stayed down so low for so long is many investors are keeping large percentages of negative yielding cash in their portfolio. The Fed has had a much wider space to maneuver in with the high number of individuals who are "prepping" for financial disaster.

    My own common sense expectation is the Fed will raise interest rates slowly over the next 2 years until yields hit the inflation mark. If that happens, and our Congressional leaders pull their collective heads out of the sand by limiting Federal deficit spending, we may well wind up in a Goldilocks solution to the 2007 crash. Any increase in interest rates by the fed over the next 2 years will raise pressure on Congress to get the long term financial picture fixed. The deficit will grow if the economy slows and interest rates on Federal Bonds rise. "Savers" will benefit from this change, and poorly managed and or high risk businesses will fail. The yield curve will also get steeper, if the long term expectations are not unrealistic. The huge amount of debt on Wall Street companies will be cushioned by the extremely low rates at which they were originally offered to the public. Bond owners will be punished by higher interest rates because there is not much room for inflation to drop without creating deflation.
    Nov 3, 2015. 10:02 AM | 5 Likes Like |Link to Comment
  • Why Apple Still Leads In Mobile Devices Over Microsoft And Google  [View article]
    Very good points for someone looking to get in now!
    Oct 7, 2015. 12:54 PM | 3 Likes Like |Link to Comment
  • Why Apple Still Leads In Mobile Devices Over Microsoft And Google  [View article]
    I went to look at Apple's chart to see what you are talking about and sure enough 3 years ago was a peak with the price dropping by 50% after Steve Jobs death. Try doing the same thing with earnings growth over the last 3 years? I think you might see that the market is not always rational in it's pricing in the short term. The earnings for Apple in 2015 are 161% higher than they were in 2013 for the first 3 quarters of this year.
    Oct 7, 2015. 12:52 PM | 7 Likes Like |Link to Comment
  • Why Apple Still Leads In Mobile Devices Over Microsoft And Google  [View article]
    Perhaps the use case they are shooting for is commercial retail systems. iPad pro out of the box is more secure than a windows or android system. This is the fundamental feature that people like Target are looking for. IBM knows that no one wants to pay for their expensive outdated register systems. They want to sell the cloud behind the iPad. This is different market than most home users. Getting a tablet that costs 1/3rd as much as an IBM register that has a built in battery back up is not a small consideration for retailers. Going from there to retail on a mobile device would be much easier than trying to solve the mobile problem for your application on a windows or android system.
    Oct 7, 2015. 12:33 PM | 4 Likes Like |Link to Comment
  • The #1 Stock In The World, Part II  [View article]
    My favorite stock has been and remains Aapl. A dividend paying stock that earns 2% on your money in dividends, grows 25% a year in value and increases dividends to match. Add over 25% of it's cost in cash or treasuries and you get a blue chip with no matching peers. Since 2012 it has gone from $110B in cash to over $200B
    while buying back another $90B in stock at PE of 12.86. The interest on the loans to buy this stock is less than the dividends would have cost. The best part of that cash is it can be used as backing for loans that Apple's suppliers get to pay for their equipment. So Apple can afford to make expensive parts without having to own their own factories, take the risk on their balance sheet, or spend as much money to make the parts.
    Oct 6, 2015. 04:21 PM | 1 Like Like |Link to Comment
  • How The Market Is Betting On The Federal Reserve's Decision To Raise Rates  [View article]
    I am having a hard time with simple numbers. 38 of 78 Economists sounds like a minority to me. I don't see any way they can justify raising rates until the budget standoff gets solved.

    Congress needs to do it's part: greatly simplify the tax code, raise marginal rates on all earners over $75,000, and raise the standard deduction. The net result should be a fairer tax code, and a 5% increase in revenue. The expenses should be reduced by 10% so we can begin to dig out of our debtors prison. A one time tax break for bringing Corporate earnings back to America at 10% tax rate. Alternative minimum Corporate tax rates should be set at 10%. If individuals have to pay alternative minimum taxes then Corporations should too. The only area of the federal budget that should not get cut is research and development.

    None of this is going to happen, but if we had any leadership at all, it would be the right way to go. Even if you plan on being a crook in Congress, you should recognize that your host is in danger of dying. Clean up the current mess and you will have decades of thieving to enjoy before the next mess needs cleaning.
    Sep 10, 2015. 10:25 PM | 2 Likes Like |Link to Comment
  • Major Reasons Why The S&P 500 Is Officially No Longer In An Upward Trend  [View article]
    Too much money is chasing too few assets. There is no inflation because the money is in the hands of the wealthy, and the banks. In the 1970's average people got regular cost of living increases, and inflation as a result. This raised the initial cost of loans, and lowered the carrying costs. As long as the money added to the economy is in the form of higher bond prices, you will not see inflation take off. The only real driver of long term economic health is technological innovation and labor efficiency. One of the biggest drivers of this for the last 40 years has been computer chips and telecommunications tech in general. There is a pause that is happening between new technology and older silicon based computing. This is reducing the gains that had been accruing because of faster computers.

    Much more fundamental changes are in the offing now. New manufacturing methods, stronger lighter materials, specialized materials that transform energy from waste to useful forms, photonic computing, lower energy costs, lower transportation costs, lower labor costs are all on the near term horizon.

    Over the next 10 years we will see a deep recession but the fundamentals for long term growth, and a cleaner, safer, more productive world have already been laid down. If your investment horizon is over 10 years you should find companies, and products that you believe in and invest in them. Gold or a mattress pad full of cash may seem safer, but in reality they are going to make you poorer.
    Aug 24, 2015. 02:42 PM | Likes Like |Link to Comment
  • In The Midst Of The Mayhem, A Small Positive Sign For Semiconductors  [View article]
    Can you put the iPhone demand in perspective by quantifing the percent of the overall market that 230 Petabytes of DRAM would represent? All I could find on Google was a chart showing approximately 1,150,000 300mm wafers per month as an estimate of supply. Estimating 4 mm2 for the area of one Gbyte gives you about 500 per wafer. I am guestimating so a more informed estimate would change this significantly. If I am close then it sounds like Apple will be buying half a months worth of the worlds supply, rather than a quarter of a month. Assuming only 2 suppliers and you might be seeing Apple amounting to a month and a half to 2 months worth of production for those 2 suppliers. Buying 4% of the world wide supply rather than 2% does seem like it would be pretty decent jump.

    Other factors affecting DRAM supply: could Micron and Intel's new memory replace the DRAM in phones? or reduce demand for DRAM in server farms? Both of these are power constrained computing systems that would greatly benefit from the reduced power and lower standby power needed to run the newer product.
    Aug 24, 2015. 01:13 PM | 2 Likes Like |Link to Comment
  • Phillips 66 - Buy This Refiner During The Crash  [View article]
    My only real concern over this company is not near term. Oil will recover some of it's near term price and that makes this company undervalued by the market. My real concern is the potential for the Oil market place to be disrupted by lowering costs for electric batteries and solar power. There is a regular increase in efficiency for solar and a regular increase in charge density, speed of charge, and a drop in costs for manufacturing batteries driven by the increasing scale and new battery designs. What happens to oil when it is the new coal? Coal is still being used by industries around the world, but it's use case as a fuel and heating source has lost market share for decades.

    I want a fire and forget investment that is safe for the long term and has organic growth prospects. A glut on the supply side market does not bode well for this sector. Currently we are seeing world wide growth pushing demand up, but supply has outstripped demand because of better drilling and oil field utilization technology. Twenty five years ago oil was found by looking for specific geologic formations and drilling in a hit or miss fashion. Now we have the technology to map specific oil locations to drill directly to a specific location and to increase yield by fracking rock formations. It is no accident that the Saudi's and the Iranians are doing everything they can to sell what oil the have now, before the demand curve drops due to competition from electricity, and higher efficiency engines. Moving from a 35% efficient engine to a 65% efficient engine would decrease world wide demand by itself. Losing even 25% of the fuel market to electricity would make this much harder to survive. I am even discounting the increased likelihood of next generation nuclear power, inexpensive biotech oil, or fusion. Those technologies are certainly a real possibility in the next 30 years.

    If my investment timeline was 5 years, then I would consider this a pretty good bet, but after that I would not want to be in the oil sector. The willingness of the Saudi's to pump oil at much lower prices to keep market share speaks volumes to the reality of the situation I am describing. The Iranians, likewise, have been willing to cut a deal with their nuclear program when success is less then 10 years away. Why would such different producing countries change political policies from the last 30 or 40 years if there were not a compelling reason? For them the pressure is much greater because a permanent drop in value would make their long term economic picture much bleaker. These policies can be seen as insurance for the worst case scenario.
    Aug 24, 2015. 12:41 PM | 2 Likes Like |Link to Comment
  • Intel Inside The iPad Pro?  [View article]
    I find myself in the middle on this discussion. I can imagine Apple adding another option: an x86 intel processor that can run Apple's iOS as well as OS X. Apple has a big enough system to pay Intel to custom design a chip for them. The first version would probably be a standard x86 processor perhaps with an Intel modem as a second chip. Intel need's Apple's volume to pay for the exponentially increasing research and development costs of each new die shrink. Intel is already selling its mobile chips at a discount price to other companies. Why wouldn't they make the same offer to Apple? There is no other mistake that Intel has made that cost them as much money as refusing to make the iPhone chip because they didn't like the margins. Apple has sold over 2 billion iOS devices. Even with a profit of $15 per chip that is serious money. It also would have made the last year of a high end FAB much more profitable. The fixed costs of development would have been spread over another $300 million units per year. Intel and Apple do better when they support each other.

    Intel is particullarly sensitiive to a slowing process development because their profitability is tied to the higher performance of their chips. If their lead shrinks from 2 years to 6 months or less the then they will lose much of their pricing power. They are also much more at risk of being replaced when a new type of computing. Competing technologies have a better chance of matching costs and performance of silicon when it is no longer a moving target. They need to find a new process to drive future innovation, and that is no small thing.

    The real data supporting something different on the iPad Pro is the slow development process. If all Apple was doing was making a bigger screen or adding a stylus then why would it take more than 3 years to develope this product? We are almost into 2016 and the iPad Pro has been a rumor for at least 2 years. It was probably in development for years before the rumors started. Intels new technology that will allow wireless computer screens may also be a piece of the puzzle. This is not something that Apple would duplicate all the effort on. If you look at USB, and the Lightning connector, you should know that Apple supports new research from Intel. They are not trying to make a new firewire connector that will never penetrate the market.
    Aug 24, 2015. 11:05 AM | Likes Like |Link to Comment
  • Something Is Still Ridiculously Wrong  [View article]
    Is it unreasonable to guess at the cause of the disconnect you are describing? The first change I would describe is technology driven. The ending of Moores Law and the Ghz wall in silicon are 2 major factor hurting all of the technology sector. Pricing power in technology has been driven by the 2 year cycle of silicon transistors dropping in cost by 50% and increasing in speed by 50%. The PC market hit the 2 Ghz wall in silicon in 2004. Since that time improvements in speed have been on the order of 10 to 15% every 2 years. The knock effects of that change have been masked by the continued improvement in low power silicon on mobile devices. Those devices hit 2 Ghz in the last year. What happens to the wealthy producers of this technology when both the cell phone and the PC reach this block? Sometime in the next 5 years we should see a growing weakness in the whole silicon industry. Energy prices are also dropping because of more competition and less money growth chasing more supply. This is true across several energy sectors. Food prices have gone down because of the reduced competition with energy. Other commodities are being recycled and lower energy reduces cost for extractors. This picture is not bad news for owners of cash , but it is bad news for owners of capital and sellers of labor.
    Does anyone dispute these structural changes are making debt more painful?
    Aug 13, 2015. 12:49 PM | 2 Likes Like |Link to Comment
  • Apple's Next iPhone: A Bellwether For Growth Momentum  [View article]
    Perhaps a better implementation will make it a more important feature.
    Aug 10, 2015. 02:02 PM | 1 Like Like |Link to Comment
  • Apple: The Shift To Asset-Light, High-Margin, Middlemen Businesses  [View article]
    It is also important to understand how much less of a burden a $600 purchase is then a $6000 to $60,000 purchase. I am comparing the iPhone to a car, but my main point is that entry into the market is only impossible for the bottom 30% of the income earners in the world. If the product allows you to conduct business with greater ease and perceived value, then you are going to make the capital outlay and buy a high quality phone. The other market that Apple is continues to penetrate much more strongly is the used phone market. Android phones lack software updates. They age very quickly and become less satisfactory devices over time. Apple has a relatively expensive device that someone can buy at $600 and sell for $300 after 18 months. That makes the cost of ownership $200 per year. That is really not something that any business person would be unable to afford. The cell phone plan it self is at least $30 a month. So the most important effect on your quality of service is less than half as much as the service itself. $20 cases that insure your phone will not be broken or damaged easily are quite common.

    Apple's ability to penetrate this market is only going to grow over the next 5 years. 40% of the cell phone market plus, 25% of the computer market, plus 25% of the smart watch, plus 15% of the software market, plus 15% of the electronic services market, plus 10% of the creative products market, equals an economic giant. All those figures are based upon dollars spent in the market not devices purchased. They are basically half way there in the current situation. Adding in future products and you are looking at 20% annual growth for the foreseeable future.

    $200 billion in cash is being discounted because the market believes Apple will never find an economically viable usage for it. Meanwhile, Apple's stock stays at a PE lower than the market averages and that money is buying back stock at an interest cost lower than the reduced dividends paid out!
    Aug 1, 2015. 04:28 PM | 6 Likes Like |Link to Comment
  • Break-up debate stirred up on Procter & Gamble's earnings call  [View news story]
    The elephant in the room is how the internet has changed pricing. There is no longer a reason for someone to buy expensive soap, or diapers or what ever. When people are no longer seeing their income growing from either the workplace or their savings accounts, then they have to do something. With the weakening of Television Ads there is less irrational pricing which means lower profits for P&G.
    Jul 30, 2015. 02:08 PM | 2 Likes Like |Link to Comment
  • Apple: Not All Vertical Integrations Are Created Equal  [View article]
    I think you are right about this except that the reasons are more rational than you seem to think. This is about large traders locking in their profits, and reducing their risk. These are the same people who took a blood bath in Blackberry and do not want to see a similar story from Apple.
    Jul 30, 2015. 01:47 PM | 5 Likes Like |Link to Comment