Archive for December, 2009

New Google Phone

Wednesday, December 30th, 2009

With this post I’m going to inaugurate a new Category of post, called “Seen this?”–as we used to say, 12-30-2009-9-06-19-am1big whoop.  It’ll be classic Obvious Insights stuff, where I lift the work of someone else–with linkages and due credit, of course–possibly add my own twist on it in a likely futile attempt to add some value, and show you  something you might otherwise not have seen.  To see all these, you can, from the Home Page, click the category below the Home button.

Apparently, some one has liberated some sneak peeks at the Google phone, due to be launched in January.

12-30-2009-8-34-58-amThis stuff ain’t cheap.  You can pick one up for $180 with a two-year contract.  At $80/month, you’ll shell out $2,100 over two years.  If you don’t want to be restricted to T-Mobile, shell out $530 and use it with any carrier.

The question on investors’ minds, of course, is what will this do to Apple and its iPhone? 

The latest iPhone is the 3GS and it comes in two flavors, 16 GB and 32 GB, the former’s $199, the latter $299.  An unhacked iPhone requires AT&T as the service provider, and a plan similar to the T-Mobile plan will cost you $90/month ($20 for text/$70 for the rest).  Choosing the cheaper 3GS model will cost you $2,360 over two years.

That’s a lot of bread, but that’s also a lot of sweetness.

Let’s consider the $180/199 a sunk cost.  It’s the price of admission into the coolest-technology-convergence-new-paradigm club around.  Your current oh-so-’90s cell phone plan costs you at least $40/month, so that’ll run you $960 over two years.  Wouldn’t ditch your cellphone, would you?, so I think I can tell Mrs. Obvious Insights that the new Google phone will only cost $40 per month, which is just the marginal monthly contract amount; the iPhone, $50.  That’s $1.58/day for the Google phone, and I could vow to only drink free coffee.

The math of what the phone will do to demand for the iPhone isn’t that easy, of course, but it wouldn’t take a dismal rocket scientist to determine that–at least at the margin–the demand for the iPhone will go down.  That’s what these are, obvious insights.


Williams Inference Center update

Tuesday, December 29th, 2009

We recently sat down with our Williams Inference Center guy, Syd, for the Winter 2009 look at the Williams’ material.  Here’s a look at the list of files we reviewed this time round.  Each file is a collection of articles that the WIC folks think portends change (click to enlarge).

gps-wic_0001This time–as is often the case–several of the files went hand-in-hand.

Big- this file covered the complexity involved with big enterprises.  Exhibit 1 of this has to be the too-big-too-fail banks, which have only gotten bigger.  For example, JPMorgan Chase now holds $1 of every $10 of deposits, as do Bank of America and Wells Fargo.  Include Citigroup, and the four issue one of every two mortgages.

A telling takeaway is this quote from an article in the file from The Washington Post:  “It is at the top of the list of thigns that need to be fixed,” said Sheila Bair, chairman of the Federal Deposit Insurance Corp. “It fed the crisis, and it has gotten worse because of the crisis.”

Key takeaway:  one of the–if not causes–catalysts of the crisis still remains.

Delayed Financial Problems  – this file leads off with something that’s been featured here, the huge amount of option adjustable rate mortages that will reset in 2010 and beyond.  We’re past the sub-prime problem, but the Option ARM problems are still to come.  A New York Times article featured some chilling facts.

  • “Many interest-only mortgages will soon become unaffordable, as the homeowners have to actually start paying principal.  Monthly payments can jump by as much as 75 percent.”
  • “John Karevoll, a longtime senior analyst for MDA DataQuick, sees the plight of interest-only owners this way:  ‘You’re heading straight for a big wall and you can’t put the brakes on.’ “
  • “Nationally about 18 percent of prime interest-only loans are at least 60 days delinquent.”

Vampires – the Williams’ folks also look for symbolism in both . . . well, popular symbols and in colors.  WIC says that symbols represent what we subconsciously want.  Gargoyles, a symbol spotted in the early part of the decade, were symbolic of the subconscious desire we had for protection against risk, but which we weren’t pursuing.  (Gargoyle statuettes were originally place on buildings to ward off evil.)  The vampire represents longevity, something is notably absence today, in things are far afield as romantic relationships and stock holding periods, which have dropped precipitously (“stocks are no longer owned, but ‘rented.’ “)  WIC sums it up this way.

Vampires represent longevity.  In today’s world nothing lasts even for a short time.  We want jobs that will last until retirement.  We want assurances of being able to retire.  We want marriages that last.  We want romance and love that lasts . . . We want to know that our children have a good future.  We want more certainty in our lives.  Vampires express that subconscious

Wanna know what I think of when I think of vampires as a symbol, not being a TV watcher, as I’m not?  You probably couldn’t care less, but it’s Count Chocula, the disgusting chocolate-flavored cereal.  (BTW, did you know that there were four other-monster-themed cereals launched with and after it?  Boo Berry, Franken Berry, Fruit Bruit and Fruity Yummy Mummy, the last two of which were later scuttled.)  Here’s a look at the timing of the cereal launches.  I think I might be on to something, but I’m not sure what.













Bond Bubble- we’ve talked about this phenomenon before, and that’s the flood of funds into bond funds.  Something that many have cited as a reason that stocks could go higher was the so-called Money Mountain, the huge amount of money market funds earning next to nothing (“but at least it can’t go down.”)  Well, the money mountain has dwindled, but it’s gone into bonds, which are at generationally-low yields.  With inflation somewhere on the horizon, investors in bonds could be in for a good, ol’-fashioned portfolio whuppin’.  We also picked up this theme earlier when we saw that PIMCO’s Total Return bond fund had moved–or was close to moving–into the slot of largest mutual fund–stock or bond.  Richard Russell, 85-year old master caller of market moves, has this concern

In the next two years the US must roll over $2.5 trillion. Worldwide, banks during the coming two years will have to roll over $7 trillion. On top of that commercial real estate in the US has $750 billion to roll over. Whether all this debt can be successfully rolled over is doubtful, but one thing is clear – interest rates will go up.

So where is one to invest?  Stocks are dicey, having risen by a bjillion percent in a lousy economy.  Bonds are in a bubble.  Cash yields nothing.  Commodities get hurt with a rising dollar.


This wasn’t a Williams theme or focal point, just a line buried in a summary of an article on the global economy and the dollar. 

Earlier in this decade [oops] we told our clients that currencies need to be considered an asset class just as stocks and bonds, the traditional cornerstones of investments.

We’ll have to look into that for you.


Global Default Risk

Tuesday, December 22nd, 2009

What with the PIGS (Portugal, Ireland/Italy, Greece, Spain)–not my creation, that acronym–in the news of late (all are on the brink of serious economic problems), I thought it appropriate to look at the Credit Default Swap pricing of sovereign debt.



Especially-timely Dividend Aristocrats

Tuesday, December 22nd, 2009

Some of the stocks listed in the Got dividends? post might work especially well in the short term if we see a geopolitics-related spike in oil prices and a flight to the safety of the dollar (see Iran Shenanigans for a further discussion).  I took at a look at the historical sensitivity of these stocks to crude oil prices and the dollar. 

Most sensitive to rising crude oil prices (i.e. these have gone up when crude oil has gone up in the past):

  1. Questar Corporation
  2. Energen Corporation
  3. Eaton Vance
  4. T. Rowe Price Group
  5. National Fuel Gas

Perhaps surprisingly, Chevron is number seven on the list, and ExxonMobil is slightly inversely correlated to crude oil

Most sensitive to a rising dollar:

  1. Family Dollar Stores (does worst when oil is rising, though)
  2. Consolidated Edison
  3. Associated Banc Corporation
  4. Piedmont Natural Gas
  5. WGL Holdings

Got dividends?

Tuesday, December 22nd, 2009

In 2009 the best-performing stocks were the worst capitalized, the closest to the brink of bankruptcy, the most highly leveraged–in short, the trash.  It’s likely that, as the rally progresses–and there are too many skeptics for it to end just yet–the better quality stocks will play catch-up. 

Standard & Poor’s maintains a list of what it calls Dividend Aristocrats, those stocks in the S & P 500 that have increased their dividends every year for the last twenty.  I’ve expanded that concept a bit by looking at the much broader S & P 1500. (more…)