I just bought a new copy of Snow Leopard, the latest Apple operating system. The curious thing, is that there was no line at the store. My office is across the street from Apple's flagship store on University Avenue in Palo Alto. Doors opened at 9am. There were 3 people waiting outside. When I walked in at 9:09 am, I was the only person in the store who was buying a copy.
This might not seem odd, unless you've bee working across the street from the Apple Store for the past six years. I've seen every queue out the door for the iPhone, the new iPhone, the new MacBook, Leopard, etc. Most times, people are camping outside the store a day or two in advance, and by opening time, the line is literally around the block. With the latest iPhone, the line persisted for several DAYS. That's why today's complete lack of a line (demand) struck me as surprising.
Friday, August 28, 2009
Thursday, October 02, 2008
"No Short" List--only hurts small individual investors
The new ban on short selling financial stocks has not only broken the integrity of the financial markets, it really only impacts the small, individual investors. If you were a large hedge fund who wanted to short a financial stock, it can still be done by selling short a futures contract on the S&P 500, and simultaneously going long 499 stocks in the index--excluding the stock to be shorted. The net position is a synthetic short on the targeted stock.
Why does this hurt the small, individual investors relative to the big guys? Because the commissions on buying 499 stocks adds up relative to the gain from shorting one stock--if you are right. The bigger funds are likely going to be short more than one stock and they are making much large investments, so the transaction costs are a much lower fraction of the amount invested.
Why does this hurt the small, individual investors relative to the big guys? Because the commissions on buying 499 stocks adds up relative to the gain from shorting one stock--if you are right. The bigger funds are likely going to be short more than one stock and they are making much large investments, so the transaction costs are a much lower fraction of the amount invested.
Friday, June 20, 2008
Will Bush Give the Order to Invade Iran?
According a June 13, 2008 document published by the UN Security Council, Iran has restarted the construction of an IR-40 heavy water reactor. Such a reactor is necessary to generate plutonium. Making plutonium is necessary for creating a nuclear warhead small enough to fit on one of Iran’s missiles. (Uranium bombs are big an heavy, plutonium bombs are compact).
The week before this report was published, Bush met with Israeli Prime Minister Ehud Olmert. After the meeting, Olmert had the following things to say, “We reached agreement on the need to take care of the Iranian threat. I left with a lot less question marks [than I had entered with] regarding the means, the timetable restrictions and America's resoluteness to deal with the problem. George Bush understands the severity of the Iranian threat and the need to vanquish it, and intends to act on the matter before the end of his term in the White House” …."The Iranian problem requires urgent attention, and I see no reason to delay this just because there will be a new President in the White House seven and a half months from now."
One thing worth pointing out, since this is rarely mentioned, is the location of Iran relative to Afghanistan and Iraq—it’s directly between the two countries. Said another way, Iran is positioned directly between two territories that are fully occupied by the United States armed forces.
What are the chances that the US will have their forces deployed on both sides of Iran again in the next 50 to 100 years if we pull out of the current conflict now? Now imagine you were running military strategy in the Pentagon. Changes are you would have a point of view that Iran is a long term threat since they don’t like us and they are strategically located near most of the world’s major oil fields. You’d then look at the current placement of US armed forces and then checked the polls to see that Obama is highly favored in the election to win based on a promise to pull out the troops. If you had a strategy to spread democracy in the Middle East and secure US interests (ie oil), and you had Iran thumbing their nose at UN resolutions to stop working on Nuclear weapons, what are the chances you’d recommend a military strike against Iran while Bush is still in power? How hard is this politically? Consider the situation in Iraq before we invaded. In that case, there was no evidence of WMDs and Hussein was even saying that they didn’t have WMDs. Despite lack of evidence or admission, we invaded anyway. Contrast that to today, were there is both evidence and self admission of a nuclear program.
For all our sakes, I hope that this scenario is obvious to the leadership in Iran and they would recognize the inevitable logic that they are about to be attacked, and choose a diplomatic solution before it’s too late.
Tuesday, June 03, 2008
Auctions on eBay: A Dying Breed: Financial News - Yahoo! Finance
Auctions on eBay: A Dying Breed: Financial News - Yahoo! Finance
Given that I plugged eBay a while back for having Microsoft like economics, I've elicited a lot of feedback from folks. While eBay had the chance to be the next Microsoft, I fear their management will go down in history as killing the goose that laid the golden egg. Instead of executing on international growth and expanding the platform with new innovations, eBay has grown through continued price gouging of their core customers. They have, in fact, behaved like most economists fear a monopolist would.
However, we don't need the government to fix things with anti-trust lawsuits. Free markets are taking care of the problem, as competitors capitalize on the opportunity created when eBay prices at the marginal point of indifference. Had eBay left prices alone, they would never have been exposed to such risks, but greed appears to have gotten the better of wisdom.
Given that I plugged eBay a while back for having Microsoft like economics, I've elicited a lot of feedback from folks. While eBay had the chance to be the next Microsoft, I fear their management will go down in history as killing the goose that laid the golden egg. Instead of executing on international growth and expanding the platform with new innovations, eBay has grown through continued price gouging of their core customers. They have, in fact, behaved like most economists fear a monopolist would.
However, we don't need the government to fix things with anti-trust lawsuits. Free markets are taking care of the problem, as competitors capitalize on the opportunity created when eBay prices at the marginal point of indifference. Had eBay left prices alone, they would never have been exposed to such risks, but greed appears to have gotten the better of wisdom.
Thursday, May 29, 2008
CDN Discussion Video
For the past 10 years, a lot of my investing work has been in the area of content delivery networks. It’s cool to see that they are now enabling video distribution over the internet, and even cooler that there’s now a video I can post where I’m talking about this stuff. The link below is taken from the Streaming Media East Conference where we discussed Wall Street's view on the CDN industry.
Wednesday, January 30, 2008
Taxes and Politics
The following is from an email I got recently, and it (I assume) is quoted from David R. Kamerschen, Ph.D. Professor of Economics University of Georgia. It's a great anecdote that highlights how conflict is created from the process of change....
Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:
The first four men (the poorest) would pay nothing. The fifth wo uld pay $1. The sixth would pay $3. The seventh would pay $7. The eighth would pay $12. The ninth would pay $18. The tenth man (the richest) would pay $59.
So, that's what they decided to do.
The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve.
"Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by $20." Drinks for the ten now cost just $80.
The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six me n - the paying customers? How could they divide the $20 windfall so that everyone would get his 'fair share?'
They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.
And so:
The fifth man, like the first four, now paid nothing (100% savings). The sixth now paid $2 instead of $3 (33% savings). The seventh now pay $5 instead of $7 (28% savings). The eighth now pa id $9 instead of $12 (25% savings). The ninth now paid $14 instead of $18 (22% savings). The tenth now paid $49 instead of $59 (16% savings).
Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.
"I only got a dollar out of the $20 declared the sixth man. He pointed to the tenth man, "but he got $10!"
"Yeah, that's right," exclaimed the fifth man. "I only saved a dollar, too. It's unfair that he got ten times more than I!"
"That's true!!" shouted the seventh man. "Why should he get $10 back when I got only two? The wealthy get all the breaks!"
"Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor!"
The nine men surrounded the tenth and beat him up. The next night the tenth man didn't show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!
And that, ladies and gentlemen, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.
For those who understand, no explanation is needed. For those who do not understand, no explanation is possible
Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:
The first four men (the poorest) would pay nothing. The fifth wo uld pay $1. The sixth would pay $3. The seventh would pay $7. The eighth would pay $12. The ninth would pay $18. The tenth man (the richest) would pay $59.
So, that's what they decided to do.
The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve.
"Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by $20." Drinks for the ten now cost just $80.
The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six me n - the paying customers? How could they divide the $20 windfall so that everyone would get his 'fair share?'
They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.
And so:
The fifth man, like the first four, now paid nothing (100% savings). The sixth now paid $2 instead of $3 (33% savings). The seventh now pay $5 instead of $7 (28% savings). The eighth now pa id $9 instead of $12 (25% savings). The ninth now paid $14 instead of $18 (22% savings). The tenth now paid $49 instead of $59 (16% savings).
Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.
"I only got a dollar out of the $20 declared the sixth man. He pointed to the tenth man, "but he got $10!"
"Yeah, that's right," exclaimed the fifth man. "I only saved a dollar, too. It's unfair that he got ten times more than I!"
"That's true!!" shouted the seventh man. "Why should he get $10 back when I got only two? The wealthy get all the breaks!"
"Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor!"
The nine men surrounded the tenth and beat him up. The next night the tenth man didn't show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!
And that, ladies and gentlemen, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.
For those who understand, no explanation is needed. For those who do not understand, no explanation is possible
Wednesday, December 05, 2007
Tax Free, For Profit Corporation Idea
At the Renaissance Weekend this past Labor Day, I proposed the creation of an "F Corporation" as an alternative corporate entity to the traditional "S Corp", "C Corp", and 5013c non profits. Several people asked me to post this idea, especially given the political fireworks around the elections. This isn't intended to be political, but I'd welcome criticisms to be posted on the blog.
This "F Corporation" would be Free of federal taxation, but would be allowed to operate for profit. The catch is that upon incorporation, and for any share issuances thereafter, the US Treasury receives 35% of the equity.
Why this could make things better:
The Directors and Officers of a corporation have a fiduciary duty to benefit shareholders. This is a real, legal obligation. That obligation requires that Directors and Officers take action to maximize the cash flow from the business that ends up in the hands of the shareholders. One way this obligation is met is by avoiding payment to other stakeholders in the corporation--in particular the tax authority--since that stakeholder provides no direct benefit to corporate interests.
A significant amount of inefficiency exists because of this lack of alignment of interests between the government and the shareholders, as evidenced by the existence of an entire industry for corporate tax accounting and consulting.
Over time, the shares held by the US Treasury generate cash flow in two ways: first, through the payment of corporate dividends, in the same way that other shareholders receive dividends; and second, through the cash payment for shares when a corporation is acquired.
If tax payments were retained within a corporation, that capital could be reinvested and grown at a rate equal to the return on equity, less dividends. In the time period from 1802 through 1998, a dollar invested in Treasury bills—the effective return on tax receipts, would have grown by a factor of 3,847 while a dollar invested in large cap equities would have returned 9,856,849 times. (Source: Pioneering Portfolio Management, Swensen, page 61). Few people appreciate the magnitude of compounded returns over long periods of time. Compounding our national wealth in such a way could easily erase a federal debt that is otherwise insurmountable. Existing corporations could elect to irreversibly convert into “F Corporations.” This strategy leverages one of the United States greatest assets—efficient, well developed capital markets.
Argument against: What about the other stakeholders, like employees and the environment? Government taxation of corporations allows these interests to be represented by #1 diverting cash flows directly to the government for allocation and #2 changing corporate behavior through implementation of tax incentives and penalties.
Counter argument: The cash flow to the government from the equity interest is significantly higher than from direct taxation for 3 reasons: 1) the elimination of loss from tax avoidance and deferral strategies 2) the compounded returns gained from corporate reinvestment of capital, 3) the increase in corporate profitability due to the increase in ability to make decisions solely based upon profitability uncompromised by the considerations of tax implications. This increase in ultimate tax revenue to the government, by growing the pie, will give other stakeholders more capital for their needs. Moreover, legislators can still influence corporate actions through non-tax oriented laws. A good example of a law which changed corporate behavior without a tax motivation is Sarbanes Oxley.
This "F Corporation" would be Free of federal taxation, but would be allowed to operate for profit. The catch is that upon incorporation, and for any share issuances thereafter, the US Treasury receives 35% of the equity.
Why this could make things better:
The Directors and Officers of a corporation have a fiduciary duty to benefit shareholders. This is a real, legal obligation. That obligation requires that Directors and Officers take action to maximize the cash flow from the business that ends up in the hands of the shareholders. One way this obligation is met is by avoiding payment to other stakeholders in the corporation--in particular the tax authority--since that stakeholder provides no direct benefit to corporate interests.
A significant amount of inefficiency exists because of this lack of alignment of interests between the government and the shareholders, as evidenced by the existence of an entire industry for corporate tax accounting and consulting.
Over time, the shares held by the US Treasury generate cash flow in two ways: first, through the payment of corporate dividends, in the same way that other shareholders receive dividends; and second, through the cash payment for shares when a corporation is acquired.
If tax payments were retained within a corporation, that capital could be reinvested and grown at a rate equal to the return on equity, less dividends. In the time period from 1802 through 1998, a dollar invested in Treasury bills—the effective return on tax receipts, would have grown by a factor of 3,847 while a dollar invested in large cap equities would have returned 9,856,849 times. (Source: Pioneering Portfolio Management, Swensen, page 61). Few people appreciate the magnitude of compounded returns over long periods of time. Compounding our national wealth in such a way could easily erase a federal debt that is otherwise insurmountable. Existing corporations could elect to irreversibly convert into “F Corporations.” This strategy leverages one of the United States greatest assets—efficient, well developed capital markets.
Argument against: What about the other stakeholders, like employees and the environment? Government taxation of corporations allows these interests to be represented by #1 diverting cash flows directly to the government for allocation and #2 changing corporate behavior through implementation of tax incentives and penalties.
Counter argument: The cash flow to the government from the equity interest is significantly higher than from direct taxation for 3 reasons: 1) the elimination of loss from tax avoidance and deferral strategies 2) the compounded returns gained from corporate reinvestment of capital, 3) the increase in corporate profitability due to the increase in ability to make decisions solely based upon profitability uncompromised by the considerations of tax implications. This increase in ultimate tax revenue to the government, by growing the pie, will give other stakeholders more capital for their needs. Moreover, legislators can still influence corporate actions through non-tax oriented laws. A good example of a law which changed corporate behavior without a tax motivation is Sarbanes Oxley.
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