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Avian Flu Outbreak, Affected countries

Monday, October 31, 2005 | 06:57 PM

Here's something truly frightening for Halloween:  Two graphic views on the Avian Flu Outbreeak, and affected countries


See also this chart:



The Financial Times

Strategic Forecasting, Inc. (STRATFOR)

Monday, October 31, 2005 | 06:57 PM | Permalink | Comments (5) | TrackBack (0)
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DRM Crippled CD: A bizarre tale in 4 parts

Monday, October 31, 2005 | 06:27 AM

DOWN THE RABBIT HOLE:  Ever come across something that only gets stranger and stranger the deeper you delve into it? That was my experience when I almost purchased a new CD -- a DRM crippled CD -- this weekend. 

This tale is part of a larger struggle within the recording and digital download industry -- not of P2P or piracy -- but one of innovation and competition. As you follow this odd story (broken into 4 increasingly strange parts), you will note that as it gets weirder, Artists and Consumers are the collateral damage. It makes one wonder just what the hell the Recording Industry is thinking about these days:

Part I
A friend with whom I frequently swap Music and Film suggestions (as well as mixed CDs) asks me if I have ever heard of the band "My Morning Jacket." I have not. She suggests checking out the album Z. The album is very well reviewed. So I fire up iTunes, go to the music store. The band is rather interesting, not your typical pop fare. Sounds like a cross between Morcheeba and The White Stripes. (Rolling Stone heard elements of Radiohead, The Who and Lynyrd Skynyrd). Lush, ethereal, offbeat music, mixed with some electronica, but mostly straightforward fuzzbox-driven rock-n-roll. My kind of stuff.

I hop over to Amazon to read some reviews (mostly positive). I am about to purchase the disc, when I notice the DRM info. (See Amazon DRM reviews below.)

The reviewers note that Sony has crippled the disc with Sunncomm's latest DRM software. (You may remember Sunncomm's infamous shift key incident). The key restriction of this particular DRM is that it renders a disc nontransferable to the iPod. Nor can you make a backup copy, or travel discs, or a copy for the weekend house, or use any of the songs on a mixed disc. Oh, and it won't work with my iTunes Music software (and that also means no shuffle play).

Since the CD is incompatible with Apple iTunes, and the music cannot be transferred to an iPod, it eliminates about half of my legal uses for it. So I don't buy the CD, 'cause it won't do what I need it to do. Chalk up a lost sale to DRM.


Part II
Here's where our tale takes a turn for the bizarre:  According to the Band/Label's website, these DRM restrictions were put on the CD without their knowledge or permission:

Information Regarding Our Artists' Music, Copy-Protected CDs and your iPod
We at ATO Records are aware of the problems being experienced by certain fans due to the copy-protection of our distributor. Neither we nor our artists ever gave permission for the use of this technology, nor is it our distributor's opinion that they need our permission. Wherever it is our decision, we will forego use of copy-protection, just as we have in the past.

That's simply a stunner.

The loss of good will and fan support must be significant to the band. That's a very real monetary damage to the band. (I wonder what their legal options are). It becomes even more absurd when you consider that "ATO Records permits audiotaping at our artists' performance." So this is a very forward looking, copyright-friendly bunch of folk.

I would hope that in the future, music agents and attorneys remember to address this in label contracts on the band's behalf.


Part III
As odd as the story is so far, its about to get a whole lot weirder: It turns out that all Engadget (quoting Variety) notes that this DRM is not at all about making the CD immune to piracy. Instead, its part of a pissing contest between Sony and Apple:  Variety writes that "the new copy protection scheme — which makes it difficult to rip CDs and listen to them with an iPod — is designed to put pressure on Apple to open the iPod to other music services, rather than making it dependent on the iTunes Music Store for downloads."

You mean to tell me that this isn't even about P2P and unauthorized downloading? How annoying is that? Sony has their panties in a bunch cause Apple has been kicking their arses all over the innovation and digital music schoolyard? So the mature response from a major global conmsumer electronics corporation is to take their ball and go home?

DRM is now being used as a competitive economic weapon -- not as an anti-piracy tool.

As a music consumer, I find this ridiculous. Why I cannot use a legally purchased CD -- because Sony is miffed at Apple for creating the 2000's version of their Walkman -- is beyond absurd. I am very, very annoyed at this. 

In fact, I am so perturbed at this act of wanton stupidity, that two imminent purchases -- a Sony Bravia LCD big screen TV and the Sony Vaio notebook -- are now put on hold.

So far, Sony's lost business with me is now one CD ($10.99), one flat panel TV ($3,499) and one laptop ($3,199). That's  lost sales of approximately $6,710. If you are a Sony shareholder, you should be as annoyed as I am.



Part IV
I saved the absolutely weirdest part for last.

I write Suncomm to complain about this DRM. Their website encourages people to write Apple and request them to "Open up their proprietary technology."

Yeah, spare me your lectures. Just because your client failed to create a digital music player and legal downloading store, doesn't mean that I have to get conscripted in your lobbying ploy. 

Just tell me where CD purchasers should send this crippled disc back for a refund, I ask them.


"If you have a PC place the CD into your computer and allow the CD to automatically start. If the CD does not automatically start, open your Windows Explorer, locate the drive letter for your CD drive and double-click on the LaunchCD.exe file located on your CD.

Once the application has been launched and the End User License Agreement has been accepted, you can click the Copy Songs button on the top menu.

Follow the instructions to copy the secure Windows Media Files (WMA) to your PC. Make a note of where you are copying the songs to, you will need to get to these secure Windows Media Files in the next steps.

Once the WMA files are on your PC you can open and listen to the songs with Windows Media Player 9.0 or higher. You may also play them in any compatible player that can play secure Windows Media files, such as MusicMatch, RealPlayer, and Winamp, but it will require that you obtain a license to do so. To obtain this license, from the Welcome Screen of the user interface, click on the link below the album art that says If your music does not play in your preferred player, click here. Follow the instructions to download the alternate license. PLEASE NOTE: This license is only necessary for playing the copied songs in a media player other than iTunes or Windows Media Player. If you are just trying to use iTunes, simply continue with these instructions.

Using Windows Media Player only, you can then burn the songs to a CD.  Please note that in order to burn the files, you need to upgrade to or already have Windows Media Player 9 or greater.

Once the CD has been burned, place the copied CD back into your computer and open iTunes. iTunes can now rip the songs as you would a normal CD."

So this entire rigamarole won't even protect the CD contents -- its merely a very annoying interference with my ability to enjoy the legal uses of a product I actually wanted to purchase.

But wait, there's more! As if that's not absurd enough, they remind me that none of this is necessary at all. As noted above, its nothing more than a swipe at Apple: 

"Please note an easier and more acceptable solution (to who?) requires cooperation from Apple, who we have already reached out to in hopes of addressing this issue. To help speed this effort, we ask that you use the following link to contact Apple and ask them to provide a solution that would easily allow you to move content from protected CDs into iTunes or onto your iPod rather than having to go through the additional steps above."


If you think that this cannot get any dumber, you would be wrong. The coup de grace of this exercise in corporate stupidity is this:

"If you have a Mac computer you can copy the songs using your iTunes Player as you would normally do."

Words simply fail me . . .




POSTSCRIPT:   October 31, 2005 6:08am

I am a buyer of CDs, and only rarelydo I download tracks from Apple's iTunes Music Store due to sound quality. I didn't spend an obscene amount of money on a home audio system to listen to the mediocre audio quality of MP3s. The not-even-remotely-as-lossless-as-advertised-compression algorithms are hardly any better. MP3s and iPod quality music is fine for the beach or my commute on a train, but its something else entirely in my living room.

My fair use: When I get a new CD, I rip it to iTunes, then transfer the music to my iPods; I make a backup copy (in case of loss). If I really like a disc, I make a copy for the car or the weekend house. If the disc is "youth-friendly," I'll make a copy for my wife's classroom. She teaches art, and I refuse to let her take any more original discs to school -- they have all gotten destroyed.

Incidentally, I am what the marketing people like to call an "influencer" (i.e., think of Netflix, TiVo or Macintosh). I do not copy entire CDs for people, but I like to expose frinds to news music -- I will give them a song or two, with the recommendation that if they like it, they purchase the artist's disc. I use P2P to check out stuff not available elsewhere, or to see if I want to purchase a full CD.  I also like to make mixed playlists, which get burned for the car or for friends who are looking to hear new music, now that radio is dead.

I believe all of the above is well within my rights as a consumer of the CDs that I legally purchased; If someone wants to try to convince me otherwise, please take your best shot.




UPDATE:  October 31, 2005 7:02 am

This morning, I did a Google News search on "My Morning Jacket: Z," and I found 147 mainstream news articles from the past 30 days.

One -- only one -- mentions the DRM issue:

MUSIC:  Burning the Faithful
New copy-protected CDs screw over the only honest customers the music industry has left.
Eli Messinger
Wednesday, October 19, 2005

There is a large and potentially fascinating story here that you folks in the tech press/music media are overlooking . . .



UPDATE:  November 10, 2005 1:38 pm

Here's the biggest joke of all:  I actually got the disc, and ripped it to iTunes and the iPod -- on my G5 iMac . . .



The Amazon reviewers DRM comments are below . . .

Continue reading "DRM Crippled CD: A bizarre tale in 4 parts"

Monday, October 31, 2005 | 06:27 AM | Permalink | Comments (153) | TrackBack (24)
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Massive Weekend Linkfest

Sunday, October 30, 2005 | 02:15 PM

What happened to Autumn? It seems we went straight to Winter from Summer. Anyway, turn down the thermostats, put on a heavy sweater and put up a mug of hot cocoa, get ready to turn those clocks back -- you have one hour less more this weekend to enjoy these -- here's a look at some items worth perusing:

Barron's Alan Abelson notes that over two-thirds of the industrial bond market merits junk status - compared to only 3% in 1980. (If no Barron's sub, then go here).

• My pal James Altucher will eventually be correct about deflation -- but prolly not until late 06/early-07; Meanwhile, you best understand The Unpleasant Truth About Inflation.

Construction materials are yet another category of goods going up in price: Gypsum, asphalt, insulation, lumber, steel and copper products, PVC plastic, concrete. And that's before you factor in the 50 percent surge in Diesel prices;

• The Apprenticed Investor continues this week with advice on not getting killed in a "fiasco" stocks: Protect Your Backside;

• Jon Markman thinks the Indictments were what roiled the markets: I'm less certain;

• What I find intriguing about the whole sordid Plamegate affair isn't the alleged INTEL failure -- it was the total breakdown of Strategic planning;

• Here's a question for Real Estate Buyers: Why are you still paying 6% commissions?

• The Economist asks:  What's to stop India and China?

• The WSJ reviews the Greenspan Era. Be sure to read the pre- and post- 1987 crash WSJ columns (If no WSJ sub, go here);

Is the US becoming hostile to science?

"Meltdown. It's one of those annoying “buzzwords." We prefer to call it an unrequested fission surplus."  So too, with Bernanke's so-called Savings Glut semantics.

• A clever promotional idea from Bank of America: Keep the Change; (I wonder how long it will take for someone to figure out how to abuse it?)

My Bad:  The morning of the Bernanke nomination, I told CNN he was more John Roberts than Harriet Miers.  I thought that was clever -- until it bounced through the MSM reflection chamber, turning into an instant cliche . . . My humble apologies for the whole foolish phrase.

• Wharton Prof Jeremy Siegel thinks High Gas Prices may be a Blessing in Disguise

• We have talked about the strain middle and low income consumers are under due to high fuel costs; But did you know that the Wealthiest are under an increasing financial strain? (There are some caveats to this);

• The closest gets less crowded: Mr. Sulu is Gay; So too, is WNBA MVP Sheryl Swoopes;

Dilbert is blogging!

Sunday, October 30, 2005 | 02:15 PM | Permalink | Comments (3) | TrackBack (0)
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Ten Lessons to Be Learned from the Market Decline

Sunday, October 30, 2005 | 10:45 AM

Hedge fund manager Doug Kass gives people some needed reminders:

1. Above all, do your own homework! Do not rely on television commentators, strategists, biased money managers (who are talking their book!) in your decisions. Do your own research. Use the significant resources on the Internet to accomplish this.

2. Use old-fashioned common sense! If things look too good, they probably are and will turn down. If things look too bad, they probably will turn around and improve.

3. Don't be afraid to be a contrarian -- in small doses! When everyone (and their entire family) is long a sector or is avoiding a sector (and is exceptionally glib about it), it should be a sign to go the other way.

4. Let your gains run and stop your losses! -- Don't average down.

5. Be a cynic and remain skeptical even when the good times are apparent! This especially true as it relates to government statistics.

6. Let speculation be your guide! If investors all around you are losing their heads, don't lose yours.

7. Read and reread the classic books on investing! In bull markets, the historical perspective is disregarded. But in bear markets, or volatile markets, the history lessons are invaluable as market conditions/influences are nearly always repeated.

8. When times are tough (like the present), do not press your investments and do not overtrade! Mr. Market will be back up and running tomorrow ... and the next day.

9. In uncertain times do a simple piece of homework: Reassess why you own each investment! Omega Advisors' Leon Cooperman taught me to draw a line in the middle of a page and list how you view the assets and liabilities for the markets and for each individual investment.

10. Do not forget point #1!


Ten Lessons to Be Learned in the Recent Market Decline
Doug Kass
Street Insight, 10/6/2005 7:43 AM EDT

Sunday, October 30, 2005 | 10:45 AM | Permalink | Comments (3) | TrackBack (1)
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Sit Down & Shut Up

Sunday, October 30, 2005 | 07:38 AM

Gretchen Morgenson opens a can of whoop-ass in her Sunday NYT's column. In it, she admonishes Corporate management to "Sit Down & Shut Up."

More specifically, she reports the story of how Joel Ronning, the foolish CEO of Digital River, apparently threatened litigation against a boutique research firm & a stock analyst (you can read the details here).

Morgenson kicks some serious CEO ass:

But executives who disagree with those assessments or even dislike the analysts charged with covering them should sit down and shut up. Bullying analysts is unacceptable behavior that the S.E.C. has said it wants stamped out. It is not just childish, but downright dumb.

Such behavior also shows a deep disrespect by company management for individual thinking and an even deeper insecurity about themselves and their business. Indeed, retaliation by a company against a straight-talking analyst should be viewed as a red-flag warning that the company or its executives may have something to hide.

Concealing problems can work for a while in life. But it rarely works forever.

My attitude is even simpler: With over 9,000 stocks to choose from domestically, why ever get involved anywhere there is even a hint of impropriety?

I'm not referring to such blatant idiocies as fraud or embezzlement -- any behavior that reveals: poor judgement, stupidity, or even a lack of comprehension as to how the markets process information should be sufficent to remove the firm from your consideration for your portfolio.   

Any complaints about shorts or analysts for that matter reveal a disturbing  information deficit in the managers of a public company. The absence of intelligent responses to these issues is quite revealing of the managements capacity and/or abilities.

In my opinion, e-mails such as this one fall into the category of "Unfit to serve as CEO."


NYT:  An e-mail message from Digital River's chief executive to the analyst Jay Meier, after Forbes praised Mr. Meier for his skill as a stock picker.

Avoiding a company such as this means you are limited to the other 8,999 publicly traded companies out there.

See also:  Risk Management of Fiasco Stocks

Also, with this post I add the category "Corporate Management"

They Shot the Messenger and Their Foot
NYT, October 30, 2005

Sunday, October 30, 2005 | 07:38 AM | Permalink | Comments (4) | TrackBack (0)
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Attack of the Blogs Dumb Journalists

Saturday, October 29, 2005 | 03:28 PM

1114Daniel Lyon heaves a big ole rock at a hornet's nest in the upcoming Forbes, opening fire at Bloggers in a column called Attack of the Blogs.

Allow me to open and close nominations for what is a surefire winner for the dumbest dead tree cover story ever written award:

Lyon's article is stunningly errant in its lack of understanding of oh so many things, one does not even know where to begin. Its simply dumb in too many ways to count.

But what the hell, lets give it the old college try:

Let's start with the basic principle that bloggers are but a drop in the ocean in an enormous mainstream media sea. 99% of blogs get almost no traffic. Even this blog, which is (just barely) in the Truth Laid Bare Top 100, gets less than 10,000 hits per day.

Compare that with the circulation of major newspapers, magazines, TV stations, radio, etc. The blogosphere is totally dwarfed by mainstream media. It makes one wonder about the foolish strategic error of elevating the "enemy" to one's own level. Why give free press to your opponent, most especially if he is much smaller than you? There's a reason established candidates with double digit poll leads don't debate their lesser challengers.

Of course, if the Mainstream Media were doing their jobs better, the blogosphere might not have any clout at all; bloggers merely stepped in to fill the huge void developed when the Press stopped doing what they were supposed to do.

The anti-bloggers might consider this in more detail: the Fourth Estate has utterly failed its charge to be the vigorous watchdog and counter-weight to government and corporate interests this countries founders  envisioned it to be. This has been increasingly so over the past 10 years. Budget cuts have sliced funding for hard hitting investigative journalism; the focus on ratings has mostly neutered television news; the obsessive focus on sensationalism (think OJ or Lacie Peterson or Michael Jackson trials) is an outgrowth of the cult of superficial celebrity worship. The FCC has allowed the Public airwaves to stay in the hands of those whose appreciation and understanding of the privilege seems to be ever decreasing.

That's before we even get to the sheer hypocrisy -- this coming from Forbes, who has been running an ongoing "Best of the Blogs" section for several years now. It even makes one suspect that the purposefully irritant story is a corporate gadfly attack designed to generate some controversy, buzz and sales in the style of the  shrill blonde harpy.

As to that hornet's nest, criticism has already begun coming from too many places to count. boing boing, Doc  Searls, techdirt, Micro Persuasion, live journal, Infectious Greed, et. al. all criticize how poorly tohught out and argued the column was. Even BusinessWeek was compelled to note how bad the advice given in a related Forbes sidebar (Fighting Back).

But without a doubt the best response was a clever bit of satire by Kurt Opsahl, an EFF attorney. He parallels the Forbes drivel in a brilliant send up titled Attack of the Printing Press! Substituting the words "Printing Press" and "pamphleteers" for "Blogs," he places the entire debate in the setting of the US revolution with devastating effectiveness:

Printing presses are the prized platform of a public lynch mob spouting liberty but spewing lies, libel and invective. Their potent allies in this pursuit include Ben Franklin and John Hancock.

Take the tea tax. Revenue was coming, providing much needed funding to help with his Majesty’s benevolent aims in the colonies.

Then the pamphleteers attacked. A supposed crusading journalist launched a broadsheet long on invective and wobbly on facts, posting articles with his printing press calling your King "deceitful,""unethical,""incredibly stupid" and "a pathological liar" who had misled the colonists. The author claimed to be “Silence Dogood,” a middle-aged widow who started a one-woman "watchdog" pamphlet, to expose alleged regal excess...

Printing presses started being used a few years ago as a simple way for people to publish bibles. Suddenly they are the ultimate vehicle for insulting His Majesty, personal attacks, political extremism and smear campaigns. It's not easy to fight back: Often a bashing victim can't even figure out who his attacker is. No target is too mighty, or too obscure, for this new and virulent strain of oratory. King George has been hammered by pamphleteers; so have the Penn family, King Louis XIV, two research boutiques that criticized separatist colonials, the maker of scotch whiskey, a Virginia governor outed as a homosexual and dozens of other victims—even a right-wing pamphleteer who dared defend a printing press-mob scapegoat.

"Pamphleteers are more of a threat than people realize, and they are only going to get more toxic. This is the new reality," says the Governor of New York, "There is bad information out there in the pamphlets, and you have only hours to get ahead of it and cut it off, especially if it's juicy."

Read the entire piece.

If it wasn't for that pesky First Amendment . . .


Attack of the Printing Press!   
Kurt Opsahl
Electronic Frontier Foundation (EFF), October 28, 2005

Attack of the Blogs
Daniel Lyons, 11.14.05
On The Cover/Top Stories


Saturday, October 29, 2005 | 03:28 PM | Permalink | Comments (12) | TrackBack (2)
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Construction Costs Rising

Saturday, October 29, 2005 | 10:20 AM

We have had robust reflation/inflation ever since the Fed took rates down to half century lows, and then left them there for quite a while. Each time I mention this, some dang fool insists its just energy, depsite the evidence that food, commodities, precious metals, heath care insurance, industrial metals, medical care, housing costs, education, etc. are all higher in price than they were.

Today, we add yet another category of goods that hve been going up in price:  construction materials.

Ken Simonson, chief economist for The Associated General Contractors of America, issued an analysis this week that compared construction costs over a four-year period from 2001 to 2005 . . .

By September of 2004, steel and copper construction products had soared as much as 62 percent higher than a year earlier.

Overall, construction material cost climbed about 11 percent in the 12 months ended this past September.

What's on the construction list price increases?

Gypsum products were up 21 percent;
asphalt had climbed 12 percent;
insulation materials rose 11 percent;
lumber up 12 percent;
steel and copper construction products up 62  percent;
PVC plastic up "almost" 100%;
gypsum -- double-digit increase;
concrete prices: plus seven percent from 9/03 - 9/04; more than 12% 9/04 - 9/05;
Diesel fuel up more than 50 percent;
Cement: rising prices and spot shortages;

The diesel expenses "hit contractors hard. Not only did they have to pay more to run their own trucks, bulldozers, backhoes, and generators, they also had to pay more for fuel-thirsty materials such as concrete, which burns considerable energy while being mixed and transported in heavy loads to sites."

The only bright spots:  Lumber, which thanks to hurricane-downed trees is abundant (and relatively cheap) -- and labor, whose costs have risen less than 3%


Construction costs building steam
Contractors' group says prices for concrete and other materials have soared the past two years.

Les Christie
October 27, 2005: 2:03 PM EDT, CNN/Money staff writer

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2/3rds of Industrial Bond Market = Junk

Saturday, October 29, 2005 | 07:58 AM

Fascinating discussion today via Barron's Alan Abelson. He looks at som interesting ideas from MacroMavens, who raise some interesting red flags in the Corporate Bond Market:

"STEPHANIE POMBOY, WHOSE scintillating and informative MacroMavens is on our short list of must weekly reads just put out one of her periodic issues devoted to trading tips. Stephanie, by way of brief background, is flat-out bearish on the economy and most markets.

Envisioning the twin drags of higher interest rates and energy prices carrying us into recession, her first theme is what to do when credit problems bubble to the surface. Among other things, she points out, $1 trillion in adjustable-rate mortgages are slated to reset in the next 18 months and no less than half of these will hit subprime borrowers. That's destined to take a toll, not only on the lenders, but on the poor souls who can't cough up the extra dough and on discretionary spending generally.

So she recommends shorting subprime lenders and going long consumer-staples stocks, while shorting consumer-discretionary stocks. She'd also buy the stocks of companies that specialize in repossession.

Switching to bonds, she notes that the investment-grade universe "has shriveled to almost nothing." Currently, over two-thirds of the industrial bond market merits junk status, compared to only 3% in 1980. Only seven U.S. companies are rated triple-A credits. The value of the entire Treasury market, $4 trillion, is dwarfed these days, she sighs, by the $5.6 trillion in mortgage-backed securities, $2 trillion in asset-backeds and over $3 trillion in high-yield corporates.

When trouble rears its ugly head and investors bolt from risky stuff into high-quality paper, yields on the latter should, she reasons, dramatically compress. One obvious way to play this is to go long 10-year Treasuries, while shorting junk. Another possibility: Short financials against long positions in a defensive sector like health care.

Risk, Stephanie says, "is to market liquidity what kryptonite is to Superman. Its mere suggestion is enough to cause seizures." As risk returns to its rightful place in the investment firmament, liquidity will beat a sharp retreat and "the tide that once lifted all asset boats will beach them instead."

In such an environment, she avers, "what you don't own may be at least as important as what you do. The key to survival is to underweight the most notorious liquidity lushes. Most generally this would mean underweighting stocks versus bonds, high-yield versus high-grade, and if the past is prologue, the emerging markets and resource economies versus their developed country counterparts."

Emerging markets, she worries, despite their long-term promise, likely would be roiled by fears of a U.S.-led global slowdown and are apt to be "tossed out with the bathwater." She suggests waiting for the storm to pass or hedge existing long positions by shorting those emerging markets most exposed to the U.S. against those most exposed to China, which has both the motivation and means to keep growth going. Happily, she offers a more direct and simpler approach: Go long the Nikkei, while shorting the S&P. (emphasis added)

I find little in there to disagree with . . . note my prior RM discussion on Japan, here.


Barron's, MONDAY, OCTOBER 31, 2005

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Apprenticed Investor: Protect Your Backside

Friday, October 28, 2005 | 03:41 PM

Tscm_1The latest "Apprenticed Investor" column is up: Protect Your Backside

This week, we look at how investors can avoid get killedin "fiasco stocks."

Here's the excerpt:

Let's say someone was foolish enough to rely upon the sell-side analysts' "strong buys" on Enron in 2000. Our hypothetical investor -- let's call him Kenny Boy -- got suckered into Enron at the worst possible time, buying 1000 shares at its peak price of $90.

When he bought the stock, Kenny employed the very simplest loss limitation -- a straight 15% stop loss. He placed a "good till canceled" 15% stop loss order at $76.50. (Next week we'll go over a variety of stop-loss techniques.)

Towards the end of the year, Enron had broken $80 and was sliding further south. By mid-December 2000, the stock was flirting with Kenny Boy's stop point. Soon after, Kenny Boy was "stopped out" of Enron at $76.50.

Still, Kenny Boy's a sucker. He read a few positive articles on the company with titles like Enron's Power Play that got him excited again. As the broader market bottomed in April 2001, Enron appeared to stabilize. Just as Enron rallied to $60, poor Kenny Boy went back for more punishment. He bought another 1000 shares, with the same 15% stop in place.

A month later, the stop loss took Kenny Boy out again. This time, he was sold out of at $51, for a $9,000 loss.

Meanwhile, as the stock price slid, institutions may have been forced to dump shares in order to stay true to their investment style. For example, a large-cap growth fund, by its own charter, may not be allowed to hold mid-cap stocks. As a widely owned issue like Enron cratered, it created a self-fulfilling "death spiral."

There's  alot more where that came from.



Apprenticed Investor: Protect Your Backside
RealMoney.com, 10/28/2005 10:34 AM EDT

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GDP Shocker?

Friday, October 28, 2005 | 07:33 AM

Wsj_gdp_10272005204404What will today's GDP data look like? (and yet another call to take "the under?")

The consensus is for 3.6% growth, according to Economists surveyed by Dow Jones Newswires and CNBC. That would be quite robust, despite the inflation working  its way through the economy. 

Its tough enough to come up with accurate estimates under the best of circumstances; given all the incomplete data and forced assumptions, this GDP number may be even trickier. The WSJ's Justin Lahart notes that "the Commerce Department lacks September business inventories and trade figures, it will be making assumptions of its own. And inventories and trade both got roiled in September." (I called it the Fog of Katrina)

Economist and CNBC host Lawrence Kudlow, a perennial optimist if ever there was one, thinks the energy spike post-Katrina may clock GDP: He's looking for a real downside surprise.

I think his logic on this one is compelling. Barring any special BLS adjustments, 3.6% looks mighty aggressive. 2-3% might be a more accurate read, with Larry on the low end of the scale.

I'll wildly guess 2.75% -- but its only a guess -- I don't model GDP . . .


UPDATE: October 28, 2005 9:46am
Surprise!  GDP came in at 3.8% -- I havent torn apart GDP data yet, but at first read it looks like  the increase was driven by consumer spending (Automobiles in particular), inventory changes, and a big increase in Federal government spending.

Dow Jones noted "For its first and second estimates of a particular quarter's GDP, Commerce must make assumptions for some components of economic activity, for which data are unavailable."

So how did we end up with such a strong number, despite the big inflation spike and apparent weakening? Here's the money quote:

"The Commerce Department said it adjusted its methods in some cases to take the hurricane into account."

Let's see if we can't figure out what these adjustments were . . .



October 28, 2005; Page C1

Friday, October 28, 2005 | 07:33 AM | Permalink | Comments (9) | TrackBack (1)
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