Commodity Prices

Three views on ridiculous commodity prices these days, from Krugman...

Running Out of Planet to Exploit - New York Times:
"The first is that it’s mainly speculation — that investors, looking for high returns at a time of low interest rates, have piled into commodity futures, driving up prices. On this view, someday soon the bubble will burst and high resource prices will go the way of Pets.com.

The second view is that soaring resource prices do, in fact, have a basis in fundamentals — especially rapidly growing demand from newly meat-eating, car-driving Chinese — but that given time we’ll drill more wells, plant more acres, and increased supply will push prices right back down again.

The third view is that the era of cheap resources is over for good — that we’re running out of oil, running out of land to expand food production and generally running out of planet to exploit."

Global Commodity Inflation

David Ignatius - Perils in The Price Of Rice - washingtonpost.com

With so much turmoil in the financial markets (both globally and domestically) I feel as though I'm missing so much. Here's one that you just can't not consider in every economic related conversation you have. Global commodity inflation. It's rice over there (and sure it will come here), but Americans will settle for oil "complaints today.

And indeed, expensive Cuban Cigars (when the embargo lifts). And what else is a commodity, technology? How does that inflate, or does it, and have I now deviated from my thesis.

Best Quote from Ignatius' piece:

Independent truck drivers in Pennsylvania, New Jersey and other states staged protests against high fuel prices this week. What do they have in common with rice consumers in Vietnam and soybean buyers in Indonesia and pasta aficionados in Italy? More than they probably think.

Content Distribution

hulu: Watch your favorites. Anytime. For free.

If you haven't heard of hulu, you will, give it some time. I think it will change everything TV/online marriage related. Hulu is a joint venture between FOX and NBC that allows you to go watch your shows, news, sports, or movies online with "limited commercial breaks." We've all seen this set up on NBC's web site or the CW's and whoever else is doing it, but hulu is taking the clearing house approach.

All that's missing as far as I see is TARGETED ads. That is, hulu should make me register, which I'm sure they will, it's still beta, and then my commercials won't be for feminine hygiene products or something else that no matter how great it is, I'm not going to buy it.

In the end though, Hulu changes TV and advertising, first slowly, then watch out. See Google with respect to Web search, maybe not that big, but "domain altering" for sure.

Brooks Breaks the Credit Crunch Down

The Bailout Artists - New York Times

Brooks always does a great job of presenting a very complex topic in a very simple to understand manner. Essentially, he is discussing the role the government should play in facilitating a free market. Is it a free market if the government facilitates it? I say so, and as much as I believe in Ann Rand style objectivisim when panic and irrational behavior positions to do deep economic damage the government should take steps to bring everyone back to reality.

In Brook's words:

We do seem to have reached some Bernanke-era consensus. In normal times, the free market works well. But in a crisis like this one, few are willing to sit back and let the market find its own equilibrium.

Krugman's Face-Slap Theory

The Face-Slap Theory - New York Times

I've been enjoying Krugman's ongoing comparison of FED actions really being ways to face slap the business marketplace. I think too often people think that the FED is this holy body of policy makers when in reality they control interest rates by control the amount of money they loan banks in the short term, like over night or for about a month. This in turn allows the bond markets create the actual rate. Sure, things like HELOC's and credit cards a based on the FED's prime rate, but that happens because the bond market allow it.

What's concerning when reading a column from a very well respected economist like Krugman is that he is legitimately concerned that the face slaps might not work. Rescission is one thing, maybe a healthy side of a long growing economy, but depression, that might be another story. Interesting times are these in the financial world.

Audio: The Strangest Secret

The Strangest Secret, Earl Nightingale

3/8/08

Earl Nightingale’s audio presentation of the Strangest Secret may be one of the most profound things one can experience and at the same time began the “motivational self-help” movement so many years ago.

He starts by explaining how man has stopped thinking. Then he defines success as “progressive realization of a worth ideal.” and explains to achieve this “we must control our thinking.” It is that focus on one solid foremost goal that allows one to achieve that which he desires. Those concepts are hugely powerful. To understand success and then understand how to achieve it is the key to enjoying life. Everything else is taken care of when these ideals are held strong and steady.

Notes:

• The Trouble is conformity
• Man who succeeds – “I’m going to do this and then does it” he decided to do it, deliberately.
• The key is to have a goal.
• We become what we think about. “Believe and succeed”
• Decide what you want
• Each of us is the sum total of our thoughts
• We are where we are because it is where we want to be, admit it or not
• “We must control our thinking”
• Why do you go to work? Successful people are working to a goal and doing what they want to do.
• Focus is key, you can’t wish for 100 other incompatible things equally and as strongly
• “As ye believe so shall it be done unto you” – Jesus Christ
• Make a goal card and carry it for each block of 30 days
• Look at the abundance around you
• Stop and think about what you fear, replace it with a positive goal
• Five of yourself more
• Go with this goal for 30 days; go as hard as you can. Act as though it were impossible to fail
• Goal Cards should have the sermon on the mount on one side and the goal on the other
• Don’t worry
• Success is in direct proportion to our service

David Ignatius - Wall Street Bank Run - washingtonpost.com

David Ignatius - Wall Street Bank Run - washingtonpost.com

Ignatius does an amazingly concise job of summarizing the problem in the Credit market right now. Banks aren't trusting each other and valuing a grouping of 10,000 home loans is near impossible. Further, the bail out is coming from the sovereign wealth money.

What I want to know is what do we think happens next? Naturally all speculation, and I think the American Economy will remain the most resolute innovative actor in the globalized marketplace, but boy, there is a lot of money in these credit markets.

Yelp

I think Yelp is a pretty amazing site. To like it, use it and enjoy it, it has to have a developed user base in your city. The concept is simple, user generated content that rates business and gives "tips" and tricks. In my view, so far, yelp has done a good job of keeping content fresh and hasn't become, or at least not visibly succumbed, to advertiser manipulation.

But, what makes yelp work is how intuitively one can search by neighborhood. I sort of found myself picking between it and UrbanSpoon, which is also great. Ultimately, the little tips and tricks the yelpers are sharing are what makes yelp a little better. Indeed, I've got the bookmark to a great mobile search widget on my iPhone.

Techcrunch takes a look at Yelp's most recent funding (not quite profitable yet kids) and it's future competitors, which I agree, will be Google Local and Yahoo Local.

Yelp Raises $15 Million Fourth Round, Rumored Valuation $200 Million

Kessler on the Future of the Investment Banks

As always, Andy Kessler gets it, he called the last bubble and I think with his experience in Silicon Valley and on the Street his musings are pretty accurate. Goldman is going to do something, they beat subprime for all intensive purposes. Great "future headline" stuff. Do you by some GS, or maybe C is at a low?

Cut:
Andy Kessler: WSJ: What's Next for the Banks

My view is that firms that successfully combine banking and investment banking will walk away with the prize, by being able to offer a full range of services to clients -- short-term loans against assets or receivables as well as bonds and equity for long-term projects, the kind of underwriting and trading that requires large amounts of capital. The inevitable consolidation that should have occurred after Glass-Steagall (the 1933 law that separated banks and investment banks) was repealed in 1999 had been on hold while everyone chased easy profits. But now the shakeout is here.

Goldman Sachs will own a bank, maybe even Citigroup (Goldman's $85 billion market capitalization might be able to swallow Citi's $125 billion value) and strip it down to what it needs. JP Morgan should reunite the House of Morgan by merging with Morgan Stanley, and become a full-service powerhouse. But JP Morgan could buy Merrill or Lehman or Bear Stearns instead. Bank of America will merge with who's left. But don't count out others who have done well with capital. Fortress Investment Group, despite a rocky IPO a year ago, has a powerful real estate arm that could own loan origination and servicing and enough assets to buy its way into the banking or investment banking business. Same for the Blackstone Group.

Capital flows a lot more fluidly around the globe these days. Expect consolidation to start now. The real winners on Wall Street will be the ones with huge stockpiles of capital who listen to the market, and who are fleet of foot enough to smell out and deploy their capital creating instruments that global growth companies need, rather than false profits from eating their own sausage.

The Big Five?: Goldman CitiSachs, House of Morgan, Bear of America, Fortress Lehman Lynch and Blackstone Suisse.

Article: The Dollar's Ways Well Explained

David Ignatius - The Discipline Of the Dollar - washingtonpost.com

Ignatius does a fantastic job of explaining what is going on with the dollar, why it is so week, and what Adam Smith might forecast.... and Jim Cramer as well.

Article: Still Doing Well

The Gloomsayers Should Look Up - New York Times
by Ben Stein

Most people enjoy Ben Stein's writing and perspective. He wrote a great one on the front page of the Sunday NYT Business Section today. He does a solid job of simply explaining the whole "subprime" "credit crunch" what ever you like to call it and at the same time point out that our economy is doing pretty ok after all of that. Sure, maybe harder times to come, but we'll be ok.

Mansions and Shacks | Redfin Seattle Sweet Digs

Mansions and Shacks Redfin Seattle Sweet Digs

Think the real estate game isn't changing to adopt the concept of an online realtor? Bill Gates posted a sliver of property on Redfin.

Wow.

Blog: Google Providing Real Time Quotes

Official Google Blog: China in real time

Only the quotes are for Chinese securities. It is disappointing that they still can't offer real time quotes for American securities, the petition is still with the SEC. It is pretty ridiculous that the "man" still wont provide real time data to everyone, I bet that changes for good in the next 5 years.

Blog: Loans

If you're really really interested in how home loans work, are originated, sold on the secondary market, etc., there is a great post here.

Consequently, looks like mortgage rates, for folks with decent credit, are falling back down to reasonable levels. Quite the summer spike up around 6.75% and now back down to 6.00%, but yeah, don't even think about ARM's, they are priced not to sell with rates the same as the fixed.

Articles: Subprime, Credit Crunch, etc.

So many developments, so fast, and so much more data needed, but today presents the first few articles that takes stock of everything going on.


First Ignatius of the WaPo does a nice job summarizing the subprime situation and throwing a bit of caution out there.


Then some through analysis from the Economist Magazine that paints probabilities of the road ahead. 60% chance this can be contained by monetary policy, 30% chance recession, 10% drastic global recession.

And finally the NYT takes it local looking at the subprime and housing bubble impact on home owners. Long one, I just skimmed it, but got the gist, house don't sell, price going down, ARM resets, can't move, can't sell.

Book: Success Stories

Success Stories, Robert Kiyosaki
8/26/07

Kiyosaki puts together a collection of 22 stories of people that have followed his Rich Dad principals and achieved financial success. Backgrounds range in age, walk of life, social class, etc., but all decided to focus in learning real estate or business investment or both. Indeed, the stories are motivational. Principals that are continually reinforced are being ok with failure, and through due diligence.

A story I noted was Michelle LaBrosse who had program management experience and desired to get her PMP (Program Management Professional) Certification and in the process wrote a course that she sold to others. Her business grew to the largest PMP training program in the industry.

The book is worth reading for motivation and to spur further study of topics found interesting.

Book: Wall Street Meat

Wall Street Meat, Andy Kessler
8/23/07

The book autobiographically takes the reader from Kessler’s leaving Bell Labs and beginning as an analyst for Paine Webber and then on to Morgan Stanley. It can almost be called an expose of the investment banking industry as technology entered the market. It is a quick and easy read that, like all of the Kessler work I have read, has many lessons to teach. The concept that everyone on Wall Street is meat is pretty founded. Wall Street provides the world access to capital and can never be replaced. The worlds smartest are there constantly looking for the next way to make a buck. If you want a glimpse of what Wall Street was like up until the internet bubble popped this tells the story fairly well.

Interesting to read this as the “credit bubble” is in the middle of popping, yet again, I’m sure Wall Street will reinvent its self. Another thing I noted was how, like anywhere, personal networks provide access to everything, from information to boxing tickets.

Blog: Credit Markets

I don’t pretend to be an economist, but the current effect the credit markets are having on the economy is simply fascinating.  As always, the market seldom behaves as expected.  The idea that so much debt was leveraged in such a seemingly safe way is tremendous.  This is what I have gathered:

Debt was cheap and improperly assessed as high grade.  That is, loans that might default were viewed as loans that wouldn’t default.  Much of that was based on the assumption that housing prices would rise.  Regular folks were getting interest only loans and other mortgages that allowed them to buy more house than they would have been able to with conventional instruments such as a 30 year fixed rate loan.  Many people were doing that and the real estate market was able to increase prices faster than a more conventional credit market would have allowed.  The result is inflated housing prices.  Now, I don’t think we have really heard how much this permeates the commercial real estate market, but certainly we’ll see in the coming months.

Simultaneously, hedge funds have been leveraging (borrowing money for) huge positions as to make small profits, but many times over, on seemingly sure thing, historically validated, trades.  As the ability to borrow money (form the credit markets, again) decreased because of sub-prime concerns positions had to be covered to prevent further losses.  Hence the market plunges.

Now central banks step in and dump money into the economy.  From my “globalist view” that is great because it make money cheaper for growing economies, but as any pundit will tell you, that devalues everything to create liquidity.  Fundamentally, more money in the system facilitates economic growth at the possible risk of inflation.  (I had to brush up my economics and did it here) Of course, increasing the money supply doesn’t have any effect on the rate of delinquency of those maybe not so sure not to default mortgages.

So what I would imagine comes next:  Clearly housing prices have to correct.  Some people that need to refinance adjustable rate mortgages are going to have to do so with their home’s value appraised at less than they paid for it and they will be unable to get new adjustable rate or interest only mortgages.  People might have to see their homes (at a loss) or risk defaulting on their mortgage.  Perhaps the same will occur in commercial real estate.  Simultaneously, the “new reality” in the credit markets will make hedge funds less able to borrow money to buy companies which will inject less money into the stock market.  I think the economy is strong, but at the same time, the possibility of a recession certainly seems reasonable, it just seems like there will be less money to invest in businesses and therefore grow the economy.

The most conservative (credit doomsayer) blog I read is MarketTicker.  I think a lot of his predictions are valid and if you’re interested in this sort of stuff it seems like very informed analysis.

Book: OPM

OPM: Other Peoples Money, Michael Lechter
8/11/07

OPM is a book about finding money to fund a venture. Instead of finding
a great business deal and saying "I can't afford it" you learn here that
you just have to find the right stream of capital. Funding sources are
many, but the book begins by reviewing why one would need funding and
typical ways businesses go about getting it. For starters, simple
stories that show how a business' present and future value is calculated
are told. That is followed by brief explanations of business plans and
financial statements that would be prepared to get funding. The major
sources of funding for both small to medium business are discussed and
include: Friends and Family (Seed Money), Angel Investors ($500k-$1M),
Venture capital ($1M-$50M), Banks, Joint Ventures, Strategic
Partnerships, and Licensing.

Throughout the book securities laws are reinforced and the importance of
having a good lawyer ensures that all are in compliance with them. The
book provides a great 300 page overview to a subject that could fill
many volumes. As part of the Rich Dad series it is simply a taste of
what is out there and as one becomes more interested in a specific
source of funding more reading and research would be required. This
makes sense as it would be unlikely that someone would be seeking Angle
and VC funding at the same time.

Article: 6 Stocks

6 Trends to Bank On
From Fortune Magazine, Aug 07
By Tom Gardner, Motley Fool

6 Trends and stocks to go with them:
1 - Digital Gadgets are here to stay (Dolby Labs, DLB)
2 - We're going to need oil for awhile (Unit Corp, UNT)
3 - Everyone is eating out all the time; buy the oven maker (Middleby
Corp, MIDD)
4 - In the south, they are still building homes (MDC Holdings, MDC)
5 - Medical Records are going to go electronic (Quality Systems, QSII)
6 - Adventure Sports are here to stay too (Volcom, VLCM)

All these are long holds, at least five years. Really, I should say
short holds at five years.