Sunday, August 31, 2014

As Apple Approaches the Mobile Payments Market

  • Last week, several media sources reported that Apple would introduce mobile payment services when it launches the iPhone 6 on September 9. The device could support near-field communication (NFC), which supports payment transactions by passing the device near registers that support NFC.
  • In recent years, Apple’s U.S. Patent and Trademark Office filings have included many areas within payments and consumer purchasing, including an iWallet.
  • Note: Nokia introduced the first phone to support NFC in 2006, and firms such as SamsungSony and LG Electronics have provided NFC support for several years. To date, the technology has had positive momentum in EuropeChina and Japan, but has been less successful in the U.S. 
  • Success in the mobile payment market will likely requires solutions that are secure, user-friendly, and interact with varied transaction networks.
  • If Apple does introduce a payment service on September 9, it will leverage a 1) a broad portfolio of patents, 2) over 800 million iTunes users and 3) its tight integration of hardware and software. Competition will likely drive innovation from players including AmazonGooglePayPalSquareAlibabaTen-cent, mobile telecom providers and Bitcoin and digital currency offerings.
  • The battle for market share will likely be protracted with advantage driven by: 1) providing a solid customer experience, 2) leveraging a preexisting customer base and 3) supporting a diverse set of technology platforms. 

Sunday, August 10, 2014

Making Bubbles and Income Inequality - According to Two Central Bankers

  •  Last week, during a CNBC interview, Dennis Lockhart, President & CEO of the Federal Reserve Bank of Atlanta responding to a question about increasing income inequality in the U.S. and economic gains flowing to the 1% said -  “as a monetary policy maker, monetary policy can deal with the expansion of the pie, but can’t do much about the distribution of the pie…I’m concerned as a citizen that the trends that we have seen now literally over decades have seen income more concentrated in the top 10% of income earners and even within the 10%, income concentrated in the top 1%.  To the extent, those trends continue, and they could affect the economy by weakening the consumer… I am concerned.  But it is not something as a policy maker that I can easily address.”   
  • Separately, in a July 16 speech at the University of Southern CaliforniaRichard W. Fisher, President and CEO of Federal Reserve Bank of Dallas said, “I believe we are experiencing financial excess that is of our own making” and “the money we have printed has not been as properly circulated as we had hoped. Too much of it has gone toward corrupting or, more appropriately stated, corrosive speculation.”  Fisher also quoted a New York Times article by Neil Irwin that said, “Around the world, nearly every asset class is expensive by historical standards. Stocks and bonds; emerging markets and advanced economies; urban office towers and Iowa farmland; you name it, and it is trading at prices that are high by historical standards relative to fundamentals.”

  • Regarding Lockhart – His comments reinforce the view that the actions by the Federal Reserve address the needs of the financial sector and Wall Street, rather than Main Street and the broader U.S. population.
  • Regarding Fisher – Justifiably, he continues to believe that the Federal Reserve's actions have been too aggressive and may have moved beyond the point of diminishing returns.
  • Regarding market bubbles – valuations many be extended, but investor demand for positive returns could drive markets higher.  However, signs of a weakening consumer or increased global conflicts could result in continued market volatility.

Sunday, August 3, 2014

Argentina, an Electronmagnetic Pulse and the U.S. Economy - From Paul Singer (Elliott Management)

Paul Singer
Last week Paul Singer, the high profile founder of investment firm Elliott Management, shared the following views in his quarterly letter:  
  • On Elliott’s actions against the Republic of Argentina - “it is difficult to estimate the likelihood of a near-term resolution of the debt dispute, despite Argentina’s losing on every one of its flawed and desperate arguments in the courts of law to which it agreed to submit.”
  • On an electromagnetic pulse (EMP) - “EMP fries electronic devices, including parts of electric grids. In 1859, a particularly strong solar disturbance (the “Carrington Event”) caused disruption to the nascent telegraph network. It happened again with similar disruptions in 1921, before our modern power grid came into existence. A NASA studyconcluded these events have typically occurred around once per century. A repeat of the Carrington Event today would cause a massive disruption to the electric grid, possibly shutting it down entirely for months or longer, with unimaginable consequences.”
  • On the U.S. Federal Reserve and Employment - “We continue watching with amazement the Fed’s magic act as it attempts to use quantitative easing and zero interest rate policy (QE and ZIRP) to create apparently healthy economic growth in the face of very poorly designed political, economic and fiscal policies” and “those [employment] numbers are significantly distorted and paint an overly optimistic picture. For starters, workers are not counted as unemployed after they stop looking for work. Retirees aside, millions of Americans have exited the job market in discouragement after extended periods of unemployment following the financial crisis, thus distorting the statistics.”
  • Regarding Argentina - As the government moves toward its second default in 13 years, commentary has focused on the greed of investors and the corruption and poor management by the government.  Unfortunately, the big losers are the citizens of Argentina.
  • Regarding an electromagnetic pulse - It is likely that some government and business leaders are studying the problem.  Plans to prepare for or address the impact of on an EMP are less clear.
  • Regarding the U.S. Fed and employment – asset prices for stocks and real estate have improved in recent years, but the positive impact to the broader economy have been more muted.