A rainy Saturday in Los Angeles seems like a good time to put down some random thoughts.
The SOPA Battle
So SOPA is dead, and as I said earlier in the week, it was a fatally flawed piece of legislation. But before the Free Culture crowd gets too self-righteous, please consider your new hero and spokesperson, Kim Dotcom.
Kim’s a fun loving guy with 30,000 square foot mansions in three countries, a fleet of Ferraris all made possible by selling stolen content from artists around the world. A bunch of the musicians I worked with in the 1960′s and 1970′s, who made wonderful records that are still on everyone’s I Pod, have seen their royalties cut by 80%. Not enough for a retired 70 year old to live on. American’s are truly stupid when it comes to discussing this issue. The one thing we make that everyone else in the world wants to get a hold of–our music, our movies, our video games—the knuckleheads on the copyleft want to fight a death match to make sure they are free to the whole world. Of course these same people don’t mind paying an arm and a leg for their German car or their Japanese TV. Continue reading →
You all know I have been an extreme economic skeptic since I started the blog. But today’s market felt something like the classic capitulation than only comes when the stupid players are selling everything. Stupid people come in two classes. First, those who are not paying any attention and wake up to a quarterly retirement account statement and realize they are down 40% for the quarter! Like this idiot from Hollywood who just started selling his banking stocks.
Michael Cerenzie, a film producer, told The Times he had been selling out of his million-dollar position in banking stocks and was looking to invest in companies specializing in natural gas and energy.
“This isn’t going to come back,” he said of the recent stock market losses. “This is going to be a long one. We are not going to see returns like we did in the past.”
And second group is the over-leveraged hedge funds who have $billions of redemption demands and $billions of margin calls. Continue reading →
The Dow sold off 500 points this morning. Traders say the world is now focusing on a global recession. This is better than the crisis of confidence we have been suffering through for the last 30 days. The Europeans have guaranteed their banks, the Asian banks are generally in good shape and the Paulson plan should secure most big U.S. banks. Once the banks begin to trust each other, TED spreads will decline and normal credit should flow, though at a reduced level. That’s OK because the global recession will need to reduce capacity, so there will be less need for credit. There will be fewer malls, car dealerships, restaurants and other retail outlets. On a macro level, if we can get past the confidence crisis, then at least investors can evaluate companies on the fundamentals. If you can buy GE at 8 times earnings with almost a 6% yield, then that looks cheap to me, given that their portfolio of alternative energy (wind, solar, geothermal) investments is very forward looking. Obviously Warren Buffett thought so.
Where credit will really be needed will be for the huge ET investments that Pickens and others plan to build. As long as the market price signals are clear, so that solar and wind can compete, investment will flow to them. Silicon Valley is pouring millions into the early stage companies and the same virtuous cycle we saw in IT will apply to ET.
Back in February, I warned that this economic slump was like a slow motion car crash. Today, as the Dow fell 358 points, it is dawning on investors that we are in for a long recovery. One of the big problems is that the Fed is very sensitive to the politics of an election year–the conventional wisdom being that an interest rate hike might make life for Republicans even more miserable than it already is. George Bush Sr. never forgave Greenspan for raising the Fed Funds rate in an election year. Doug Kass said in his morning note “the consumer would be more helped by reining in food and energy costs than he would be penalized by higher short term interest rates.”
The Republicans are in a pickle (to quote one of our correspondents). They represent the investor class, who probably make up 85% of the 16% of the voters who say the country is on the right track. When they look at their brokerage statements in early July, they are going to be just as pissed off as the rest of us.
The market misinterpreted Sprint’s dismal report yesterday and punished all of the Telco’s. We are entering a Wireless telecom duopoly (Verizon and AT&T) in which the network effects and the power to offer the big handset maker’s newest gadget, trumps all. Sprint, running two completely separate networks (Sprint and Nextel) is left to spending millions to advertise a commodity product. This is a case study in creative destruction in which their costs are exceeding their profit margins. Their only way out is to hope that some cable company is so desperate for the triple play offering (TV, Broadband and Wireless) that they buy the company before all the customers defect. Sprint cannot keep losing 700,000 customers per quarter and hope to survive. AT&T and Verizon will just get stronger, because even in the recession people will give up their landline and cut back on restaurants before they surrender their cell phone.