Friday, December 20, 2013

A "Space Oddity" for the Holiday Season

Year end is a great time to reflect on the past, consider the future and review many best of 2013 lists. 

"Space Oddity", filmed in the International Space Station, is one of my favorite 2013 videos and provides a unique perspective on our collective journey.  David Bowie said it was “possibly the most poignant version of the song ever created.”

Enjoy the video and have a great holiday season!

Sunday, December 15, 2013

Pope Francis and the Global Economy

When Pope Francis was named Time magazine’s “Person of the Year”, focus increased on his recent comments including:
  •  "Some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world. This opinion, which has never been confirmed by the facts, expresses a crude and na├»ve trust in the goodness of those wielding economic power and in the sacralized workings of the prevailing economic system. Meanwhile, the excluded are still waiting."
  • “While the earnings of a minority are growing exponentially, so too is the gap separating the majority from the prosperity enjoyed by those happy few. This imbalance is the result of ideologies which defend the absolute autonomy of the marketplace and financial speculation. Consequently, they reject the right of states, charged with vigilance for the common good, to exercise any form of control. A new tyranny is thus born, invisible and often virtual, which unilaterally and relentlessly imposes its own laws and rules.
  • Debt and the accumulation of interest also make it difficult for countries to realize the potential of their own economies and keep citizens from enjoying their real purchasing power. To all this we can add widespread corruption and self-serving tax evasion, which have taken on worldwide dimensions. The thirst for power and possessions knows no limits. In this system, which tends to devour everything which stands in the way of increased profits, whatever is fragile, like the environment, is defenseless before the interests of a deified market, which become the only rule.”
  • Financial reform … would require a vigorous change of approach on the part of political leaders … Money must serve, not rule! The Pope loves everyone, rich and poor alike, but he is obliged … to remind all that the rich must help, respect and promote the poor. I exhort you to generous solidarity and to the return of economics and finance to an ethical approach which favours human beings.”
  • Full text of the Pope's comments are available here:
  • It is unlikely that Pope Francis is condemning capitalism or advocating socialism; but rather suggesting that a good idea can be taken to an extreme and unregulated “laissez faire” economics are problematic.
  • His comments may also be a tipping point in today’s era of big money in politics
  • However, change will require increased activism by individuals. Perhaps that is why he is also concerned about the “globalization of indifference.”

Sunday, December 8, 2013

Jobs, Technology and Bruce Springsteen's Advice

Last week, amid several positive economic reports in the U.S., thousands of fast-food workers protested their minimum wage pay - some chanted, “We can’t survive on $7.25” hoping for significant increases.  Note: while these workers are not unionized, the Service Employees International Union, with about 2 million members in the health care, janitorial and other industries, provided support for the protestor’s efforts. 
  • Separately, Amazon’s CEO Jeff Bezos announced on “60 Minutes” that the firm was researching how to use drones to deliver packages.  
  • Google announced that Andy Rubin, who previously led the firm’s Android smartphone efforts, is heading a project to create next generation robots to automate manually intensive manufacturing tasks such as those in electronics assembly. 
  • Apple announced it would use its iBeacon network technology at 254 U.S. retail stores to allow customers with iOS 7 devices to 1) learn about products in the store, 2) obtain updates on orders and 3) interact with sales staff.  
  • Regarding the restaurant industry – As workers seek higher wages, McDonalds and others continue to integrate technology into their processes (via kiosks, mobile devices apps and automated servicing).  The longer-term risk for these workers is not low wages but elimination of their jobs.
  • Regarding Apple, Amazon and Google – their efforts have the potential to improve both the customer experience and operational efficiency while reducing human involvement in many work tasks.
  • Note: while Amazon’s drone idea has been cited as impractical in the U.S. because of government restrictions and navigation challenges in densely populated areas, their use will likely continue to grow in many regions around the world.
  • Bottom linelacking initiatives by policy makers or activism by workers, technology will continue to change the market for both skilled and low skilled workers.  With this in mind, consider the guidance from Bruce Springsteen - “It's just winners and losers, and don't get caught on the wrong side of that line."

Friday, December 6, 2013

Bitcoin Tumbles after News from the China Government and Baidu

Bitcoin’s price fell sharply this week after the Chinese government said it would restrict its use by banks. This action also resulted in Baidu announcing it would no longer accept Bitcoins for payments.  The current price is $722, down from $1,207 last week. However, a Bank of America strategist said Bitcoin’s “fair value” is $1,300. 

  • Bitcoin's viability as a currency will remain challenged until the high volatility of its price swings diminish.

Monday, December 2, 2013

David Simon, creator of "The Wire", discusses the divide between rich and poor in America and how capitalism has lost sight of its social compact.

A thought provoking discussion about  some problems facing the U.S by David Simon, a journalist, author, and creator of The Wire,  Treme and other TV programs. 

David's presentation is about 30 minutes (which starts after a 2 minute introduction).  The presentation is followed by an interview and Q&A session . The event took place at the Sydney Opera House (Nov 2013).

Click here for text excerpts from the speech. 

Sunday, December 1, 2013

Diverse Market Views for Uncertain Times

The comments below are among the diverse views for investors to consider. 
  • Howard Marks – Chairman for Oaktree Capital (letter to clients) -  “Over the last 2-3 years, my motto for Oaktree has been consistent: "move forward, but with caution." I feel the outlook is not so bad, and asset prices are not so high, that it's time to apply maximum caution (or, as they said in The Godfather, "go to the mattresses"). But by the same token, the outlook is not so good, and asset prices are not so low, that we should be aggressive. That's the reason for my middling stance.  Having said that, however, there's no doubt in my mind that the trend is in the direction of increased risk, and I see no reason to think that trend will be arrested anytime soon. Risk is likely to reach extreme levels someday, it always does, eventually – and great caution will be called for. Just not yet.”
  • Alan Greenspan - Former Federal Reserve Chairman (Bloomberg interview) - “This does not have the characteristics, as far as I’m concerned, of a stock market bubble... It could come out that way but I don’t see it at this stage.”
  • David Stockman - Former Director of the U.S. Office of Management and Budget (CNBC interview) - "Central banks all over the world have been massively expanding their balance sheets, and as a result of that there are bubbles in everything in the world, asset values are exaggerated everywhere…It's only a question of time before the central banks lose control, and a panic sets in when people realize that these values are massively overstated" 
  • Albert Edwards – Investment Strategist Societe Generale (research report) - "U.S. profits are now beginning to struggle. Once the profits cycle turns downwards, it tends not to recover. The die is cast … A full-blown profits and investment downturn is most likely to be triggered by Asian and EM (emerging market) devaluations releasing surplus capacity onto the West and crushing pricing power even further."

Equity prices have increased in several markets, but business revenue growth trends remains weak.
Drivers of these price moves include:

  • stimulus by central bankers
  • cost-cutting that increases corporate profits and 
  • corporate stock buybacks that reduce the share count in earnings calculations.  
Improving economic fundamentals will likely require increased investment spending by both businesses and governments.  Until this occurs, deflation remains a risk.