The Big Picture | March 2006

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Senate Battleground States

Friday, March 31, 2006 | 05:15 PM

Interesting map via WSJ on the Senate races. It looks like the Senate will stay under GOP control, while the House is more up for grabs

click for larger graphic

Myhrvold on Patents

Friday, March 31, 2006 | 11:54 AM

in Intellectual Property

Following up yesterday's Patent discussion, I noticed that Nathan Myhrvold, who spent 14 years as Microsoft's chief technology officer, had an Op-Ed piece in the WSJ yesterday on Patents. Myhrvold explodes the myths about the danger "patent trolls."

The section I had found most intriguing was this:

"Large tech companies do amass significant portfolios, but often not directly related to their business model. If a rival company asserts a patent, a company like this plays defense and threaten the asserter's products right back. While "defense" sounds benign, what it can mean in practice is having enough patents that you can steal from anybody else with impunity. Between big companies this works like a powerful shield, much like the doctrine of mutually assured destruction with nukes. But the shield is impotent against universities, companies without products or independent inventors. Owners of large defensive portfolios hate that. (emphasis added)

That's a pretty straight forward indictment by someone who knows, right from the heart of the tech industry.

Myhrvold continues:

In the 14 years I served as Microsoft's first chief technology officer, I saw this firsthand across the ranks of the computer industry. Tech companies work extremely hard to use state-of-the-art technology, and either be first to market or a fast follower -- all else falls by the wayside. Big tech companies are happy to hire the best people from rivals, universities and small companies. Their employees attend conferences and study technical papers to stay on the cutting edge. But they pretend that the patents on the technology in those papers, or from universities or small companies, don't exist. Many of the largest tech companies have a standing policy that engineers are not allowed to read patents or check whether their work infringes. Why bother to look, if you know you'll find lots of infringement? Besides the cost, it's a distraction that might hurt time to market. Their strategy is simple -- damn the torpedoes, full speed ahead.

And the problem with this is . . .?

The trouble is, this cavalier attitude toward the law runs afoul of the rights of legitimate patent holders and the big tech companies know this. Rather than pay out a small fraction of their huge profits, they're fighting a campaign to weaken patent laws for the little guy. Some of this has taken place in Congress under the banner of "patent reform." The eBay case aims to achieve the same ends in the courts.

It's hard to go to Congress or the courts and admit that you're one of the richest companies in the world, have huge profit margins and infringe lots of valid patents held by honorable people . . . but you don't want to pay them. So naturally, these companies paint a different picture. They claim that patents are low quality; yet there is no objective evidence of this. They claim patent litigation is exploding; but the actual figures show just the opposite. There are fewer patent lawsuits than copyright, trademark or other major forms of commercial litigation. (emphasis added)

I think Myhrvold paints a pretty compelling picture -- but then again, I am biased.

Source:
Inventors Have Rights, Too!
NATHAN MYHRVOLD
WSJ, March 30, 2006; Page A14
http://online.wsj.com/article/SB114368437650611883.html

At the Margins

Friday, March 31, 2006 | 07:14 AM

in Commodities | Economy | Retail

How significant has the rise in energy costs to households been over the past 5 years?

The answer might surprise you.

New data released by the commerce department shows that Energy costs have risen nearly 50% as a percentage of a household's spending. That is significant -- its up to more than 6% from 4.2% a few years ago -- but its far below prior peaks.

Floyd Norris notes that while the increased fuel costs have a bite, they haven't derailed the economy:

"The energy cost figures, while up, are far from unprecedented, which may help to explain why the economy has not been more severely affected by the rise in oil prices. Including both household utility costs for electricity and oil, and drivers' fuel costs, the share for energy use climbed to 6.2 percent of personal consumption expenses.

That is the highest in 15 years, but it is far below the peak of 9.3 percent reached in the first quarter of 1981, during the second oil-price shock. In 1972, before the first oil supply cutoff caused lines at gasoline stations and sent prices soaring, energy costs were also 6.2 percent."

That's consistent with my overall view -- increasingly stretched househoild budget, but by no means exhausted, with short term swings in gasoline prices impacting consumer spending.

On an unrelated note, a Federal Reserve analyst has reviewed the jobless rate, and said it hasn't been artificially depressed by a failure of many discouraged workers to be counted as unemployed. I'd like to look at this later today . . .

UPDATED March 31, 2006 11:13am

Here's a chart I whipped up on household energy consumption.

Source: BEA

Source:
4th-Quarter Growth Put at 1.7%
FLOYD NORRIS
NYT, March 31, 2006
http://select.nytimes.com/2006/03/31/business/31econ.html

BEA
http://www.bea.gov/bea/dn/nipaweb/
TableView.asp?SelectedTable=65&FirstYear=2003&LastYear=2005&Freq=Qtr

Media Appearance: Kudlow & Company (3/30/06)

Thursday, March 30, 2006 | 02:00 PM

in Media

This is the regular gig: Today's Kudlow & Company, is on CNBC today at 5pm. I'm scheduled to be on from 5:10 to 6:00 pm.

Also on is Marketwatch’s Herbert Greenberg, John Rutledge of Rutledge Capital, and Noah Blackstein of Dynamic Mutual Funds.

Topics will include the Market Rally, Metal Rally, Senators trading on Congressional Inside Information, and Major League Baseball steroid scandal.

UPDATE March 30, 2006 11:12pm

After the show, I met John Rutledge, who was in the NYC remote studio also. John's a fascinating character, a true old world gentleman. He's been to China as often as some people go out eat chinese food.

We spoke about a ton of things -- I mentioned that Larry is becoming a very vocal Bush White House critic (He should have Krugman back on), and John regaled me with some Reagan stories. Say what you will about RR, but he was less obsessed with loyalty than competance. Under Reagan, the shake up going on now in the White House would have happened about 3 months into the Iraq war.

John and I discussed part of the immigration issue not getting much press; Economically, I care less about the Mexico situation and more about the Brain Drain threatening our tech companies and research universities. There is now a global competition for talent -- one that we are on the verge of losing through dumb immigration policies. Post 9/11 national security issues should not become a force in shifting the balance of scientific power.

I'd like to see this discussed in a future show . . .

Rise of the Pure Patent Business Model

Thursday, March 30, 2006 | 06:42 AM

in Financial Press | Intellectual Property | Technology | Web/Tech

Back in December 2004, I wrote a column titled "Five Under-the-Radar Trends for 2005". One of the below radar trends I predicted was the acceleration of intellectual property lawsuits. That turned out to be rather prescient.

There are actually two different issues here: The first is, should the USPO be issuing so many patents, especially those for business methods? Amazon's One-click buying, and MercExchange's Buy it now auction are certainly questionable "inventions." That's an issue for Congress, who needs to adequately fund the Patent Office so they can hire many more patent examiners, rather than merely have an under staffed patent office rubber stamp applications.

The second issue is that once a patent becomes issued, who gets to use it and how? Very often, we see the first issue inappropriately raised as a PR defense in the second. I don't get the sense that all of the financial media really has a firm grasp on this. There is an entire world of patents, innovation, USPO issues, and large corporate litigants that have not been adequately discussed. Some get it, some don't. Compare this story: "eBay Takes on the Patent Trolls" with this one "In Patent Case, EBay Tries To Fight Its Way Out of Paper Bag." (For some intercorporate litigation, see Apple against Apple Corps. Ltd., and TiVo's against EchoStar's Dish Network).

Incidentally, the term "Patent Troll" was invented by Peter Detkin when he was defending a patent case against Intel. Ironically, Detkin is now managing director with Intellectual Ventures, an intellectual property firm suing patent infringers.

If you recognize the property right inherent in patents, then the term "Patent Troll" is quite meaningless, meant to stir up political opposition to patents. How you use your property is irrelevant to the property right attached to it. What does it matter if you choose to manufacture widgets -- or merely license the patent to thos ethat do?

What is actually going on now is a massive land grab underway by large corporations, looking to keep the fruits of entrepreneurs and innovators labor for themselves. These are not meek and vulnerable entities at the mercy of lawyers; rather, these are very astute players seeking to use the patent to further their own goals -- often at the expense of innovation.

Take Intel, where Detkin was vice president and assistant general counsel, for example. They are certainly no stranger to patent litigation. As the book Inside Intel makes clear, INTC used its patents as a club to thwart competition in the CPU market for decades. That's why its taken AMD so long to become a legitimate competitor to the chip giant.

The stealing of entrepreneurial innovation by large firms is fairly common place. My own experience with patent enforcement is that it is an enormously expensive, difficult, time consuming venture, fraught with peril. Consider the case of Robert Kearns, the inventor of the intermittant windshield wiper. In 1967, he received several patents on his design, which he tried to license to the Big 3 in Detroit. They sent him packing, but later the intermittant windshield wiper somehow found its way into autos. Long story short, he ended up in litigation for decades before finally winning. Thats decades later.

Continue reading "Rise of the Pure Patent Business Model"

Obnoxious Dell Pre-Installs

Wednesday, March 29, 2006 | 06:30 PM

in Corporate Management | Retail | Technology

Time for a rant: This is one of those things that makes me look at Dell and wonder WTF happened to their vaunted customer service. I blame either a) a McKinsey ("the people who brought you Enron:™ ") -type consultant, or 2) some jackass MBA.

Dell no longer "delights" their customers -- at least not this one. They have become a commodity supplier of low cost goods, which are IMO spyware/popup infected.

Seriously, who is the Putz that greenlighted this collection of obnoxious sales pitches?

- Type in a bad address, and instead of Google, you are directed to a Google like page with ads for Dell's products (see below);

- Print anything, and the default printer utility will launch a sales pitch on toner;

Someone should fire that bastard. Hardly delightful day after day.

Here are the fixes:

To delete the printer pop up, you must uninstall the printer software, and then uncheck a box during the install process. Not only did it take a Dell tech support person an hour to figure that out, but it guaranteed that my next printer will be an HP. (Morons).

The other McKinsey/MBA type abrasiveness is this stupidity below. Mistype an address, or leave any site that auto refreshes (WSJ, TheStreet.com, Briefing), and you get a Dell/Google co-branded sales page.

Go away.

To remove that program, go to the Control Panel Add/Remove Programs. Look for the application named "Browser Address Error Redirector" or it may be called "GoogleAFE". Select "Uninstall."

btw, I do not recall giving permission for that to be installed. (Jerks)

If the sales / marketing people at HP had any smarts, they would be paying attention to these sorts of customer service rants. The shame is, the machine -- once the obnoxious-ware was uninstalled -- is a reliable screamer.

This sort of poor customer experience will certainly make me hesitate before if I order something from Dell again . . .

>
>

For prior discussions on this topic, see Consumer Issues and Investors and Consumer Issues (Feedback)

Hey! Your cranky when your off the meds!

Econ 101 Class

Wednesday, March 29, 2006 | 10:15 AM

in Economy

I am teaching an Intro to Economics class this spring at NYU's (School of Continuing and Professional Studies). The syllabus for the class is about done, but it is not yet etched in stone.

I am starting with the basic law of Supply and Demand, Incentives, then on to Utility for individuals and Profit Maximizing for firms, Smith's Invisible Hand. Then, its on to the amorality (versus immorality) of capitalism, a history of economic schools of thought. Micro vs Macro, What is Inflation?, Paper currency versus Gold, Real Estate, Commodities, the role of the Fed, Monopoly & Anti-Trust, Free Trade & Globalization, Competition & Creative Destruction, Banking and Debt, Capital markets, and Economic Cycles, finishing up with behavioral economics. I also want to address the idea that there is "no free lunch" throughout the class. (The course is 6 weeks)

I want this to be less boring than the Econ classes that put me to sleep in college, and less technical than the Economics and Anti-Trust classes I took in law school.

Here's my question for y'all: If you were to take a course such as this, what would you want taught? What topics and specific subjects would you like to see discussed? I am looking to balance current topics with historical examples. Some theory is fine (hey, its economics)

Any ideas?

UPDATE March 29, 2006 4:20pm

Wow -- huge inflow of suggestions -- Many thanks.

The books I am going to recommend -- note these are not textbooks -- are Naked Economics by Charles Wheelan, and New Ideas from Dead Economists by Todd G. Buchholz . . .

Real Fed Fund Rates

Wednesday, March 29, 2006 | 06:14 AM

in Data Analysis | Federal Reserve | Fixed Income/Interest Rates

Last week, we looked at the historical range of Federal Reserve Funds since 1946.

It was a simple mean reversion, and did not incorporate the post WWII price controls, the 1970s inflation spike, or the Bretton Woods agreement.

As such, some implied that it overstated Fed Funds rate. Marketwatch's Rex Nutting had the suggestion that it would be instructive to look at real versus nominal Fed rates (see update 2).

After the Fed meeting, Rex did just that, and analyzed the real (after inflation) Fed Funds Rate. His conclusions?

"Adjusted for the increase in the consumer price index, the real federal funds rate has averaged 1.75% since 1956. Currently, the real rate is about 1.10%, with a fed funds rate of 4.75% and a trailing inflation rate of 3.65%.

To bring rates back to the 50-year average, the Fed would need to raise rates or lower inflation by a cumulative 0.65%."

Ahhh, but that's a simple mathematical exercise (like ours) that does not consider all the variations in economic time periods -- including periods of "low inflation and modest growth, times of high inflation and no growth."

Which raises the obvious question: What has the Fed Funds Rate looked like in similar periods of high productivity and high growth?

"The Fed achieved a soft landing in the economy in 1995. From late 1994 through mid-1998, the Fed managed to keep the fed funds rate relatively steady between 5.25% and 6%. The economy prospered, growing at an average rate of 3.7%. Inflation averaged 2.5%.

During that time, the real fed funds rate averaged 3.1%, two full percentage points higher than today.

This analysis suggests that, in a period of high productivity and high growth, it may take a somewhat higher real funds rate to keep inflation low.

If the Fed wants a 3.1% real funds rate, it might have to boost nominal rates another 2 percentage points to 6.75%. The Fed probably wouldn't have to do all eight quarter-point hikes, because that much tightening would probably have some impact on lowering the inflation rate (otherwise, why do it?).

If inflation rates moderated to 2.5% or so under the pressure of Fed tightening, the Fed could probably stop at 5.50%

That's my number (as well Lehman Brothers). To get there requires three more 1/4 point hikes.

As to that soft landing, I would point out that the 1995 was a period in the middle of a secular Bull Market. Technology, networking and computers were the prime drivers, creating a virtuous cycle that powered the economy and markets higher. It was an organic business cycle expansion that kept going until it reached an upside blowoff in Spring 2000.

That is quite different than the present stimulus driven economy. The Fed's tools are not being used to moderate this hot economy; Rather, they are slowly removing the economic stimulus namely, pulling interest rates up from 46 year lows.

Those are the prime differences between 1995 and 2005: a secular bull market driven by organic economic expansion, versus an economy that has been driven purely by a combination of government (war spending, tax cuts, deficit spending) and Monetary (rate cuts, increased money supply) stimulus.

Source:
Monetary policy still far from normal
Rex Nutting
MarketWatch, 8:24 PM ET Mar 28, 2006
http://tinyurl.com/o5p9l

So much for "One and Done"

Tuesday, March 28, 2006 | 02:40 PM

in Federal Reserve

So much for "One and Done."

In raising rates the expected 1/4 point, the Fed announced that they are likely to keep increasing short term rates for the next few meetings.

They threw a little bit of a head fake in there, noting "Economic growth has rebounded strongly in the current quarter but appears likely to moderate to a more sustainable pace."

Trader's who left their feet on that were disappointed.

By itself, that statement might have been a sign that the Fed was all but finished -- which would have been the fuel sending the Bulls racing to new heights. A moderating economy on a glide path to a soft landing would not require additional monetary tightening.

But as George Mason taught UConn, you have to play to the end of the game. In FOMC terms, that means reading to the end of the statement, where they shifted their focus to energy prices, noting the "potential to add to inflation pressures:"

"As yet, the run-up in the prices of energy and other commodities appears to have had only a modest effect on core inflation, ongoing productivity gains have helped to hold the growth of unit labor costs in check, and inflation expectations remain contained. Still, possible increases in resource utilization, in combination with the elevated prices of energy and other commodities, have the potential to add to inflation pressures."

Like the Huskies, the "One and Done" squad is now firmly eliminated from contention. Better luck next year.

Source:
FOMC statement
March 28, 2006
http://www.federalreserve.gov/BoardDocs/press/monetary/
2006/20060328/default.htm

Wired: How to Put Your DVDs on Your Video iPod

Tuesday, March 28, 2006 | 11:15 AM

in Film | Music | Web/Tech

Why is it that I can buy a CD and legally listen to its content on my iPod, but the DVD I legally purchase cannot be watched on my video iPod?

Does that make any sense?

You can physically (or virtually) do that, but you are -- believe it or not -- actually breaking the law. That's right, transferring your store bought DVD to your own iPod is a violation of The Digital Millennium Copyright Act (you are permitted to make a back up copy of a DVD).

The content industry is doing all they can to destroy their own business, and drag down the technology industry with it.

For you "scofflaws" who think there is nothing inappropriate about viewing your legally acquired content on your legally acquired hardware, (i.e., watching movies on a your iPod), here's how its done, according to Wired Magazine:

WINDOWS

1. Decrypt the DISC
Software like DVDFab Decrypter (www.dvdidle.com/free.htm) removes a DVD's copy protection. Remember, this is the illegal part, which is why DVD decrypting software is always a moving target. Should DVDFab disappear, a replacement is just a Google search away.

2. Combine the Video files
Ripping a DVD produces a bunch of cryptically named .VOB files. VOBMerge 2.5 (medlem.spray.se/evilmastr/mainmenu.php) will string them together. To find the movie, look for a series of very large files named something like VTS_07_1.VOB, VTS_07_2.VOB, and so on.

3. Convert the Movie
Use an app like 3GP_Converter (www.videohelp.com/tools?tool=3GP_Converter) to turn your movie into an iPod-compatible MPEG-4 file. Select "Model: MP4, for iPod" as the conversion mode (there is also an option for the PSP). The resulting file is ready for iTunes.

The Mac version comes from Macteens web site:

MACINTOSH

1. Download Handbrake

Download HandBrake for Mac OS X (http://handbrake.m0k.org/download.php). HandBrake is an open source app and doesn’t require any installation

2. Rip DVD

After doing so, HandBrake should have selected for you (if not, select the DVD manually by choosing “DVD Folder/image) and clicking “Browse"). Hit Enter and the HandBrake window should become available. Give the file the appropriate name and destination.

3. Applying these settings:
Destination
File Format: MP4 file
Codecs: AVC/H.264 / AAC Audio

Video
Framerate (fps): 15
Encoder: x264 (Baseline profile)

Quality
Average bitrate (kbps): 192

Audio
Sample Rate (Hz): 44100
Bitrate (kbps): 80

Its pretty absurd that you cannot watch what you want on whatever device you own . . .

Sources:
Putting Your DVDs on a Video iPod
Issue 14.03 - March 2006
START|Scofflaw
http://www.wired.com/wired/archive/14.03/start.html?pg=15

Putting DVDs onto your iPod
Sam Rothenberg
12/31/2005 at 09:08 PM http://macteens.com/index.php/features/fullstory/putting_dvds_onto_your_ipod/

See also:
Coming Attraction: Downloadable Movies From Amazon
SARAH MCBRIDE and MYLENE MANGALINDAN
WSJ, March 10, 2006; Page B1
http://online.wsj.com/article/SB114195865527894447.html

Steve Ballmer quote of the Day

Tuesday, March 28, 2006 | 10:59 AM

in Music | Technology | Web/Tech | Weblogs

Fortune elicits the quote of the day from Steve Ballmer, CEO of Microsoft:

>

Do you have an iPod?

No, I do not. Nor do my children. My children--in many dimensions they're as poorly behaved as many other children, but at least on this dimension I've got my kids brainwashed: You don't use Google, and you don't use an iPod.

>

A billion dollar putz!

(No Google and no iPod -- that's borderline child abuse)

Perhaps this helps to explain why the offerings from Microsoft are such shite. It sounds as if arrogance is actually precluding them from doing competitive research. Gee, I wonder why Microsoft actually LOST market share in the search space last year, and why their blogging effort, My Spaces, is an MSN only ghetto.

One thing is good to know -- its not just us that gets pained by the bloatware -- at least the families of MSFT execs are suffering, also.

Source:
The sleeping giant goes on the offensive
Steve Ballmer, CEO of Microsoft is ready to take the offensive.
Telis Demos
FORTUNE, March 28, 2006: 6:05 AM EST
http://money.cnn.com/magazines/fortune/fortune_archive/
2006/04/03/8373041/index.htm

One More Time?

Tuesday, March 28, 2006 | 10:15 AM

in Markets | Politics | Technical Analysis

The Bulls believe this is the beginning of a multi-year expansion; the Bears think its the end of a cyclical run. Frustration levels on both sides are palpable. It may turn out that both sides are correct, only using very different time frames.

Looking towards the 2nd half of the year, we view the market’s prospects as dimming considerably. Risk levels are high, complacency reigns, and the Bull itself is ragged and aged. That’s before we get into the structural problems of the economy, trade deficits at record levels, and current account balances a mess. The Federal deficit is worsening. A bloody and costly war is sapping dollars that could be put to better use elsewhere. The dismay over the Iraq situation is causing the President’s polling to reach its nadir since taking office; worse yet, the sentiment decay is spilling over to consumers. All this as the prime drive of the economy – Real Estate – shows every sign of rolling over.

Over the shorter term, prospects viewed through a technical lens continue to show signs of resilience. The advance decline line has improved. One day reversals and negative outside days have been shrugged off. There’s plenty of liquidity, with cash looking for a place to go. Money flow remains strong (albeit targeting emerging markets). The Dow Transports have broken out. Action in the Option pits has been mildly bullish. While the bearish camp describes this as complacent – and they are correct – one still must respect the underlying strength revealed. More significantly, the S&P500 is now up for 5 consecutive months. If the trend is your friend, your friend has been telling you he markets want to go higher. A plethora of bad news has been absorbed, and still, the market powers on.

For those who believe that the market is in the 9th inning of its bull run – present company included – there is the real possibility of yet another leg up. Indeed, the underlying strength argue that the timing of the top could be further into 2006 then we previously imagined. While we haven’t hit our original 2006 price targets – 11,800 on the Dow and 2600 on the Nasdaq – they remain possible 1H 2006.

All it would take for that to happen would be reassuring comments from Bernanke & Co. tomorrow. One last lunge upwards remains a very realistic possibility before any top is put in. In the face of the new Fed Chief’s 1st policy statement, we suggest a more hedged stance than a naked short one. Nimble traders can get long. Watch 1294 on the SPX as a bearish signal, and 2320 on the Comp as a bullish one. Either side getting penetrated moves us away from a hedged strategy and more towards a naked positioning.

note: this was emailed 3/27/06 ~noon

Chart of the Week: First Q 4% Year End Performance

Tuesday, March 28, 2006 | 09:45 AM

in Markets | Technical Analysis

The S&P 500 index is up 4.38% YTD. History suggests when the market’s gain of 4%+ in Q1, it often presages double-digit moves – up or down – in the S&P 500 for the entire year.
>
Double Digit Full Year Gains & Losses (1956-2005)

Source: Mike Panzner, Rabo
>

Since 1956, the market has gained 4% in 27 out of 49 Q1s, or 55% of the time. When that has occurred, the full-year sees a greater-than-10% rise or fall on 20 of 27 occasions (74.07%). Median double-digit gains over 12 months were +25.77%. Median losses were 13.09%.

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Caricatures of the prophet Muhammad in Danish newspapers

Quote of the Day:

“Behold, my son, with what little wisdom the world is ruled.”
-Count Axel Gustafsson Oxenstierna (1853-1654), from a 1648 letter to his son at the conclusion of the 30 Years War

Compare and Contrast: Millionaires versus 18 - 40 Demographic

Tuesday, March 28, 2006 | 06:40 AM

in Economy | Psychology/Sentiment | Retail | Wages & Income

We've run numerous stories discussing the decline of the middle class in the US. Historically, the middle class as we have come to know it was primarily a post-war phenomena. As of late, the group seems to be under increasing pressure, in what Dan Gross calls the "Cram Down decade."

Is it possible that this expansive, home-owning, SUV-driving, plasma-screen watching, internet surfing, day trading, kitchen-renovating, debt laden, cell phone chatting, iPod listening, credit card spending, consumer oriented group was merely a post-war aberration?

I sure as hell hope not . . . but if that is the case, a lot of economic infrastructure -- think of each market sector referenced above -- is entering a potentially challenging period.

An interesting side note about this is that it is not a uniquely American phenomena: In Great Britain, a similar cram down effect seems to be at play:

"An official government study into Britain's personal finances reveals a lost generation of 18- to 40-year-olds unable to cope with debts and soaring house prices, with alarmingly low levels of savings and little hope of building a decent pension.

The study, by the Financial Services Authority (FSA) and Bristol University, published today, is the biggest of its kind undertaken in Britain. It paints a picture of a generational divide fuelled by higher education costs and the collapse of company pension schemes - with 42% of adults now with no pension and 70% with no meaningful savings.

Around one-quarter of adults aged 20 to 39 have fallen into financial difficulties over the past five years, compared with 5% of over 60-year-olds, said the report."

What makes this study so fascinating is that this is less a matter of "class warfare" then it is a generational one. The UK study discovered that "24% of young adults are currently overdrawn, compared to 11% of over-50s and just 4% of over 60s."

Its not a function of thrift or industriousness, but rather, its due to "rapidly changing economic and social trends presenting young adults with greater challenges than their parents. Even after lower incomes and limited experience are taken into account those in the 18 to 40 age group are less financially capable than their elders."

In the United States, we see a similar phenomena. Younger people are saving less, and graduating college with more debt. The job market remains difficult, although the silver lining is that the entrepreneurially talented have options oday that did not exist 20 years ago.

At the same time, the number of "American households with a net worth of $1 million or more, excluding their principal residence, grew to a record 8.9 million last year," according to an article in today's NYT:

"The number of millionaire families rose to 7.1 million in 1999, said Jeanette Luhr, a TNS manager who directed the survey, and then, after the Internet bubble burst, dropped steadily to 5.5 million by 2002. The ranks of millionaire households rose to 6.2 million in 2003 and 8.2 million in 2004, she said.

More than one in seven of the households were in just 13 of the nation's 3,140 counties, TNS said.

In most large counties, about one household in 12, or about 8.5 percent, was worth $1 million or more, Ms. Luhr said. An exception was Nassau County on Long Island, where millionaire families were more than twice as common, at 17.5 percent of all households.

The households had an average net worth, excluding principal residence, of nearly $2.2 million, of which more than $1.4 million was in liquid, or investable, assets. The survey counted some tax-deferred retirement savings but did not include individual retirement accounts in the liquid assets."

There's another discussion about how the rich themselves are stratifying: There's the merely rich, and the uber rich -- but that's an enitrely different issue. Meanwhile, some of the details about the US millionaires are pretty surprising and fascinating:

"The survey found that 29 percent of the millionaire households did not own stocks or bonds and 32 percent did not own mutual funds. One in four had a second mortgage on a home. Half of the heads of millionaire households were 58 or older, Ms. Luhr said, and 45 percent were retired.

Just 18.7 percent of the millionaires own — or owned before they retired — part of a business or professional practice, an indication that high-wage earners who save and invest are the dominate group, at least among those on the lower rungs of the millionaire class.

195 counties had at least 10,000 millionaires and that slightly more than a third of all counties had at least 1,000 millionaires"

Two groups seem to be bearing the brunt of economic change: the middle class, and those who have entered into the work force over the past 20 years place.

Whether this is a temporary phenomenon or a full blown secular change will have a significant impact -- on society, on the economy, and on the markets . . .

click for larger table

Sources:
Study reveals financial crisis of the 18-40s
Patrick Collinson
The Guardian, Tuesday March 28, 2006
http://money.guardian.co.uk/news_/story/0,,1741079,00.html

New Rise in Number of Millionaire Families
DAVID CAY JOHNSTON
NYT, March 28, 2006
http://www.nytimes.com/2006/03/28/business/28rich.html

Game Over Still On In Blog Search

Monday, March 27, 2006 | 04:15 PM

in Technology | Weblogs

Time for a mea culpa:

Last year, when Google entered the Blog Search Space, I wrote that it was Game Over for Technorati. I thought Google Blog Seach was going to eat their lunch, throw a ton of resources at blogs, and take over the space.

I was wrong.

Between the two, I find that Technorati gets links up quicker -- sometimes, as much as 12 hours ahead of Google. Their coverage of the blogosphere seems broader, with Technorati often catching items that Google misses.

Google was so rarely offline, while Technorati so rarely functioned, I assumed that reliability level would continue to project foreward along those parameters. Instead, faced with Google's making them potentially irrelevant, Technorati got its tech act together pretty quickly thereafter.

Between the two, I find myself relying on Technorati much more. Google Blog Search is still bookmarked, but it only gets used when Technorati is down -- something occuring less and less.

If Technorati can come up with a viable, money making business model . . .

Carnival of the Economists

Monday, March 27, 2006 | 09:45 AM

in Economy | Weblogs

Over at Macroblog, Dave Altig collects lots of Odds And Ends from the week's economic writings. He's a one man Carnival of the Economists. Looks like it took hours to put together.

If you are looking for additional sources of economic writing and discussion, then go forthwith to Dave's post. Begin exploring. You will come across many talented writers and economists (or both) covering a broad swath of econo subjects and a full spectrum of poltical perspectives.

Check 'em out . . .

Mid-East Stock Slide

Monday, March 27, 2006 | 07:11 AM

in Markets | Psychology/Sentiment | Technical Analysis

Fascinating discussion on the cratering of the Middle Eastern bourses, and what the impact could mean socially in the region:

WSJ:

"The Persian Gulf's highflying stock markets, suffering their first serious correction after years of gains, are raising concerns that a speculative bubble may burst and hurt emerging markets more broadly.

Fueled by cash from high oil prices, stock markets in Dubai, Kuwait, Abu Dhabi and elsewhere in the Gulf have tripled or more in value in the past three years. But in recent weeks, these stocks have suffered double-digit losses, with Saudi Arabia, the region's biggest stock market, shedding about a third of its value since late February.

The declines underscore the risks of emerging-market investing at a time when U.S. investors, from individuals to pensions and hedge funds, are investing more overseas. Emerging-market stock funds world-wide have received $20 billion in new money, or inflows, this year, matching the total inflows for all of 2005, a record year, according to EmergingPortfolio.com Fund Research.

Analysts say the selloff in the Gulf shows few signs of spilling over broadly to other developing countries -- as happened in 1997 when a currency crisis in Thailand sparked broad losses throughout Asia, or when Russia's debt default the following year roiled global markets -- because few investors outside the Gulf own its stocks."

I always find it fascinating trying to locate the pin that pricks the balloon, even if its after the fact:

WSJ: "The run-up in Gulf stock-market prices draws comparisons with the surge in Internet shares in the late 1990s. Seven different markets in the region more than doubled last year, despite formidable restrictions on foreigners that keep most overseas investors away. In Saudi Arabia -- the largest Gulf stock market and the one where investor borrowing has been heaviest -- the market doubled in value last year and has surged nearly sevenfold since 2002. In Qatar, Islamic bank Al Rayyan Bank filled a sports stadium in Doha with tens of thousands of investors hoping to participate in its IPO.

Some say the selloff was sparked by a rule change in the Saudi market that lowered the maximum one-day fluctuation for a stock to 5% from 10%. Analysts say investors interpreted this as a sign authorities were getting nervous about the market's vertiginous level. Others say the collapse of a deal by Dubai Ports World, which is backed by the government of the U.A.E., to take over operations of some U.S. ports hurt investor sentiment."

Source:
Mideast Feels Stress of Stock Slide
Drop Threatens Oil-Fueled Gains And May Hurt
Emerging Markets; Scrambling to Avoid Burst Bubble
CRAIG KARMIN and YASMINE EL-RASHIDI
WSJ, March 27, 2006; Page C1
http://online.wsj.com/article/SB114341741039508615.html

GDP versus Wages

Monday, March 27, 2006 | 05:51 AM

in Economy | Politics | Wages & Income

The wealthiest quintile's total ~~wages~~ income are down 8.3% after taxes? That counter-inutitive statement is shown in the chart below from today's WSJ.

My own experience has been that the cut in Capital Gains tax (from 20% to 15%) had an impact, but most especially, the slashing of the Dividends Tax (from as high as 39% top bracket down to 15%) has had a huge, after tax impact.

Down 8.3% over 5 years doesn't ring true to me (Source is CBO):

Here's the WSJ discussion on the subject:

Since the end of 2000, gross domestic product per person in the U.S. has expanded 8.4%, adjusted for inflation, but the average weekly wage has edged down 0.3%.

That contrast goes a long way in explaining why many Americans tell pollsters they don't believe the Bush administration when it trumpets the economy's strength. What is behind the divergence? And what will change it?

Some factors aren't in dispute. Since the end of the recession of 2001, a lot of the growth in GDP per person -- that is, productivity -- has gone to profits, not wages. This reflects workers' lack of bargaining power in the face of high unemployment and companies' use of cost-cutting technology. Since 2000, labor's share of GDP, or the total value of goods and services produced in the nation, has fallen to 57% from 58% while profits' share has risen to almost 9% from 6%. (The remainder goes to interest, rent and other items.)

The author, Greg Ip, concludes that "History suggests that with unemployment low and growth steady, the typical family will see its income rise noticeably. As that happens, Americans' spirits will rise, as well."

That is more likely to be true if the factors impacting wage disparity and employment mobility attenuate: technology and globalization. At the moment, the odds of that happening look pretty slim . . .

The rest of the article is available to non-subscribers free . . .

Source:
Wages Fail to Keep Pace With Productivity
Increases, Aggravating Income Inequality
GREG IP
WSJ, March 27, 2006; Page A2
http://tinyurl.com/pfubj

Linkfest!

Sunday, March 26, 2006 | 06:30 PM

in Weblogs

Good Weekend! Forget what the calendar says, old man winter's icy hands still grip the NorthEast. No worries, though, relief seems to be on the way as warmer weather is expected this week.

No relief for either the Bulls of the Bears in the market this week. Trendless, up-down-up action seems to be mainly rumor driven, with oil prices and Fed splices driving every other tick. Something for everyone? More like nothing for anyone. This too, will pass.

While we eagerly await the first Fed meeting of the Bernanke era, hows 'bout some reading to keep y'all occupied til Tuesday?

• Did Bernanke actually say those four little words, "Its different this time?" No, but according to Barron's, he came pretty damned close. (If no Barron's sub, go here)

• The Housing data seemed to throw everyone for a loop. 3 things to note: After 5 down months, a pop in existing home sales is merely a counter trend bounce; Note too that new home sales are notoriously volatile; All of this matter less than the fact than we may be at the beginning of the housing cycle where Houses are Repriced Downwards;

• Interesting discussion by a Value Investor on the advantages of Technical Analysis;

• Jeremy Grantham, who runs $120 billion, talks markets at Inside The Mind of a Legend;

• Computers and the Internet? Thats so last century. Technology Review Identifies 10 new emerging technologies that may change the world; The list runs from Nuclear Reprogramming to Cognitive Radio. Its way too early to worry about a bubble in Nanobiomechanics stocks;

• I am not happy about the Relative Outperformance of Low Quality Stocks;

• As Mad Money gets more and more popular, a cottage industry has sprung up critiquing and praising Jim Cramer; Some measures show him outperforming, while others underperforming:
Sad Money? Cramer’s Stock-Picking Prowess In Question
Cramer: Stock Tips for Suckers?
Is the Market Mad? Evidence from Mad Money (academic paper)
Booyah Audit
Funny Money
Unauthorized Discussion Forums
Note that while Kass, Shark and I have all weighed in on what this means to the market, the new criticism seems almost "Cramer obsessed."

• The powers that be in the Media and Entertainment business are not sure how to treat upstart YouTube;

• Its not just the WSJ: The New York Times is blogging also;

• I wrote the producers of Fox's Bulls and Bears last week, and suggested they needed to change their name to Bulls & Bulls; Their hype last week was so over-the-top absurd even the Daily Show mocked it;

• As a longtime Mac user and fan -- but no longer an Apple shareholder -- let me start a minor firestorm: Apple's chart looks like hell. The stock is down 30%, and Steve Jobs just dumped almost $300 million worth of stock. So at $59, with the company about to turn 30, is Apple a Buy, Hold, or a Sell?

• Incidentally, the one thing you cannot do with Apple is rely on magazine covers for Buy or Sell signals;

• A surprisingly interesting discussion about AT&T and the “common carriage” rule; It has direct applicability to internet bandwidth pricing;

• Asia's Future? It's All About Demographics

• Time Magazine asks is President Bush's normally astute "Political Antenna" broken?

• If you are a wonk who is interested in the esoteric discussions on Economic Dark Matter -- that mysterious stuff that rationalizes all the imbalances in the eoconmy -- you may find No Monopoly on Dark Matter interesting;

• Very unflattering portrait of J.P. Morgan Chase CEO Jamie Diamond; Forget sucking up to obnoxious bosses -- Guy Kawasaki gives good advice on The Art of Sucking Down;

• Simple ways to make yourself far cleverer -- Even if you aren't the Woman with perfect memory who is baffling scientists;

• Awesome: A 9 Year old uses Apple's garage band to great effect: check out what he created musically, and as you listen, you may find it hard to believe he's 9!

• The first of the reviews for Pixar's Cars is utterly terrific; The animation looks astounding; See the newest trailer here (check out the tatt on the Porsche);

• Jeff Matthews digs the Arctic Monkeys; (My CD is already ordered). Lately, I've been loving Jenny Lewis with The Watson Twins new disc, Rabbit Fur Coat -- its brilliant modern alt. country. Jazz fans need to check out Testifyin'!: Live at the Village Vanguard by the under-appreciated Benny Green;

• The very witty Stanley Bing looks at the Roman Empire as an expansionary multi national corporation in Rome, Inc. Very amusing!

That's all from this end, where the latest Whose Line is it Anyway? may very well be the funniest show since MXC.