I am testing the ability to use CellSpin for blogging, flickr, toutube, wordpress and blogger. So, if this post shows up, then it is my encouragement for everyone to use Cellspin.net for your mobile blogging.
pd’s Talks at Renaissance of a Soul are Growing in Number
Lately, the list of talks that PD has at renaissanceofasoul.com has been growing. Go there now and listen to his talks on everything from “culture and current events” to the church’s focus in this era.
YouTube launches API for uploading videos from any web site
One of the moves that has made YouTube successful is the ability to embed YouTube videos on any site. Now YouTube is going a few steps further and giving web developers tools that will let users upload and edit YouTube videos from any web page.
What that means is you can essentially build a web page that lets visitors upload videos of kittens and puppies doing cute things, send video responses to one another, edit their video metadata, and never ever have to click through to YouTube, even though all of the transcoding and file hosting is taking place on a Google server.
Web developers can also customize the look and feel of the YouTube video player using a new Javascript API.
“Game over man, game over” Wall Street bloodbath just begun!
Like a scene out of Aliens, the Wall Street fat cats are crying for mercy, but the carnage is just beginning. This brilliant piece of reporting describes the real Aliens, credit default swaps aka derivatives. These alien financial instruments are the real cause of the money massacre. The next bail out just might be $55 TRILLION. This article is really a must read. It shows the dark underbelly of the credit market out there and the UNMONITORED BETTING & HEDGING going on in this CASINO of the Financial World.
The financial crisis has put a spotlight on the obscure world of credit default swaps – which trade in a vast, unregulated market that most people haven’t heard of and even fewer understand. Will this be the next disaster?
By Nicholas Varchaver, senior editor and Katie Benner, writer-reporter
Last Updated: September 30, 2008: 12:28 PM ET
AMERICA’S MONEY CRISIS
* Read the text of Bush’s speech
* ‘Global response’
* GM, Chrysler in merger talks – source
* Report finds flaws in SEC Bear Stearns probe
* Local banks fail in Illinois, Michigan
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(Fortune Magazine) — As Congress wrestles with another bailout bill to try to contain the financial contagion, there’s a potential killer bug out there whose next movement can’t be predicted: the Credit Default Swap.
In just over a decade these privately traded derivatives contracts have ballooned from nothing into a $54.6 trillion market. CDS are the fastest-growing major type of financial derivatives. More important, they’ve played a critical role in the unfolding financial crisis. First, by ostensibly providing “insurance” on risky mortgage bonds, they encouraged and enabled reckless behavior during the housing bubble.
“If CDS had been taken out of play, companies would’ve said, ‘I can’t get this [risk] off my books,'” says Michael Greenberger, a University of Maryland law professor and former director of trading and markets at the Commodity Futures Trading Commission. “If they couldn’t keep passing the risk down the line, those guys would’ve been stopped in their tracks. The ultimate assurance for issuing all this stuff was, ‘It’s insured.'”
Second, terror at the potential for a financial Ebola virus radiating out from a failing institution and infecting dozens or hundreds of other companies – all linked to one another by CDS and other instruments – was a major reason that regulators stepped in to bail out Bear Stearns and buy out AIG (AIG, Fortune 500), whose calamitous descent itself was triggered by losses on its CDS contracts (see “Hank’s Last Stand”).
And the fear of a CDS catastrophe still haunts the markets. For starters, nobody knows how federal intervention might ripple through this chain of contracts. And meanwhile, as we’ll see, two fundamental aspects of the CDS market – that it is unregulated, and that almost nothing is disclosed publicly – may be about to change. That adds even more uncertainty to the equation.
“The big problem is that here are all these public companies – banks and corporations – and no one really knows what exposure they’ve got from the CDS contracts,” says Frank Partnoy, a law professor at the University of San Diego and former Morgan Stanley derivatives salesman who has been writing about the dangers of CDS and their ilk for a decade. “The really scary part is that we don’t have a clue.” Chris Wolf, a co-manager of Cogo Wolf, a hedge fund of funds, compares them to one of the great mysteries of astrophysics: “This has become essentially the dark matter of the financial universe.”
***
AT FIRST GLANCE, credit default swaps don’t look all that scary. A CDS is just a contract: The “buyer” plunks down something that resembles a premium, and the “seller” agrees to make a specific payment if a particular event, such as a bond default, occurs. Used soberly, CDS offer concrete benefits: If you’re holding bonds and you’re worried that the issuer won’t be able to pay, buying CDS should cover your loss. “CDS serve a very useful function of allowing financial markets to efficiently transfer credit risk,” argues Sunil Hirani, the CEO of Creditex, one of a handful of marketplaces that trade the contracts.
Because they’re contracts rather than securities or insurance, CDS are easy to create: Often deals are done in a one-minute phone conversation or an instant message. Many technical aspects of CDS, such as the typical five-year term, have been standardized by the International Swaps and Derivatives Association (ISDA). That only accelerates the process. You strike your deal, fill out some forms, and you’ve got yourself a $5 million – or a $100 million – contract.
And as long as someone is willing to take the other side of the proposition, a CDS can cover just about anything, making it the Wall Street equivalent of those notorious Lloyds of London policies covering Liberace’s hands and other esoterica. It has even become possible to purchase a CDS that would pay out if the U.S. government defaults. (Trust us when we say that if the government goes under, trying to collect will be the least of your worries.)
You can guess how Wall Street cowboys responded to the opportunity to make deals that (1) can be struck in a minute, (2) require little or no cash upfront, and (3) can cover anything. Yee-haw! You can almost picture Slim Pickens in Dr. Strangelove climbing onto the H-bomb before it’s released from the B-52. And indeed, the volume of CDS has exploded with nuclear force, nearly doubling every year since 2001 to reach a recent peak of $62 trillion at the end of 2007, before receding to $54.6 trillion as of June 30, according to ISDA.
Take that gargantuan number with a grain of salt. It refers to the face value of all outstanding contracts. But many players in the market hold offsetting positions. So if, in theory, every entity that owns CDS had to settle its contracts tomorrow and “netted” all its positions against each other, a much smaller amount of money would change hands. But even a tiny fraction of that $54.6 trillion would still be a daunting sum.
The credit freeze and then the Bear disaster explain the drop in outstanding CDS contracts during the first half of the year – and the market has only worsened since. CDS contracts on widely held debt, such as General Motors’ (GM, Fortune 500), continue to be actively bought and sold. But traders say almost no new contracts are being written on any but the most liquid debt issues right now, in part because nobody wants to put money at risk and because nobody knows what Washington will do and how that will affect the market. (“There’s nothing to do but watch Bernanke on TV,” one trader told Fortune during the week when the Fed chairman was going before Congress to push the mortgage bailout.) So, after nearly a decade of exponential growth, the CDS market is poised for its first sustained contraction.
***
ONE REASON THE MARKET TOOK OFF is that you don’t have to own a bond to buy a CDS on it – anyone can place a bet on whether a bond will fail. Indeed the majority of CDS now consists of bets on other people’s debt. That’s why it’s possible for the market to be so big: The $54.6 trillion in CDS contracts completely dwarfs total corporate debt, which the Securities Industry and Financial Markets Association puts at $6.2 trillion, and the $10 trillion it counts in all forms of asset-backed debt.
“It’s sort of like I think you’re a bad driver and you’re going to crash your car,” says Greenberger, formerly of the CFTC. “So I go to an insurance company and get collision insurance on your car because I think it’ll crash and I’ll collect on it.” That’s precisely what the biggest winners in the subprime debacle did. Hedge fund star John Paulson of Paulson & Co., for example, made $15 billion in 2007, largely by using CDS to bet that other investors’ subprime mortgage bonds would default.
So what started out as a vehicle for hedging ended up giving investors a cheap, easy way to wager on almost any event in the credit markets. In effect, credit default swaps became the world’s largest casino. As Christopher Whalen, a managing director of Institutional Risk Analytics, observes, “To be generous, you could call it an unregulated, uncapitalized insurance market. But really, you would call it a gaming contract.”
There is at least one key difference between casino gambling and CDS trading: Gambling has strict government regulation. The federal government has long shied away from any oversight of CDS. The CFTC floated the idea of taking an oversight role in the late ’90s, only to find itself opposed by Federal Reserve chairman Alan Greenspan and others. Then, in 2000, Congress, with the support of Greenspan and Treasury Secretary Lawrence Summers, passed a bill prohibiting all federal and most state regulation of CDS and other derivatives. In a press release at the time, co-sponsor Senator Phil Gramm – most recently in the news when he stepped down as John McCain’s campaign co-chair this summer after calling people who talk about a recession “whiners” – crowed that the new law “protects financial institutions from over-regulation … and it guarantees that the United States will maintain its global dominance of financial markets.” (The authors of the legislation were so bent on warding off regulation that they had the bill specify that it would “supersede and preempt the application of any state or local law that prohibits gaming …”) Not everyone was as sanguine as Gramm. In 2003 Warren Buffett famously called derivatives “financial weapons of mass destruction.”
***
THERE’S ANOTHER BIG difference between trading CDS and casino gambling. When you put $10 on black 22, you’re pretty sure the casino will pay off if you win. The CDS market offers no such assurance. One reason the market grew so quickly was that hedge funds poured in, sensing easy money. And not just big, well-established hedge funds but a lot of upstarts. So in some cases, giant financial institutions were counting on collecting money from institutions only slightly more solvent than your average minimart. The danger, of course, is that if a hedge fund suddenly has to pay off on a lot of CDS, it will simply go out of business. “People have been insuring risks that they can’t insure,” says Peter Schiff, the president of Euro Pacific Capital and author of Crash Proof, which predicted doom for Fannie and Freddie, among other things. “Let’s say you’re writing fire insurance policies, and every time you get the [premium], you spend it. You just assume that no houses are going to burn down. And all of a sudden there’s a huge fire and they all burn down. What do you do? You just close up shop.”
Read The Rest…
Basic Economics for Washington & You
Most of us like to scoff at our representatives in Washington now and then. But we do generally assume that they know what they’re doing.
Given our current economic crisis, though, it might disturb you to learn that, according to a Wall Street Journal piece, “[M]ore than 8 in 10 members of Congress don’t have a formal educational background in the business, economics, or finance fields.” Well, I guess that makes some sense. After all, all kinds of people run for public office — they needn’t be economists.
James Bowers of the Center for Economic and Entrepreneurial Literacy waxed harsh, saying, “It’s interesting that those who are responsible for solving the biggest economic crisis in generations don’t have the educational background to know the difference between commercial paper and copy machine paper.” I love a clever insult, but I also know that you needn’t have majored in something in order to have a good grasp of it.
Still, it’s kind of critical for politicians — and us — to understand basic economic concepts.
Terms explained
Let’s review a few key terms, shall we?
* Opportunity cost: This represents what you give up doing in order to do something else — it’s the next-best thing you could do. Imagine that you have $5,000 and you’re torn between investing it in Home Depot (NYSE: HD) or Best Buy (NYSE: BBY). You buy shares of Home Depot. That Best Buy purchase you gave up is your opportunity cost; if shares skyrocket, you missed out. Similarly, before Congress decides to spend $700 billion on a bailout, it should spend a little time thinking about what else it could have done, what its opportunity cost is. We spent $85 billion on a loan to bail out AIG (NYSE: AIG). That’s more than the current market cap of Oracle (Nasdaq: ORCL) or Abbott Labs (NYSE: ABT). Was that our best use of that money?
* Supply and demand: It’s supply and demand that create stock prices. If lots of people want a stock, since there is a finite supply, the price tends to rise. If banks today raise money by issuing many more shares, they will increase the supply, and prices will fall (“diluting” the stock) unless demand rises.
* Liquidity: This reflects how easily assets are turned into cash and how readily an entity can get money when it needs it. With today’s credit crunch on Wall Street, easy money isn’t being found anymore. Lenders have less money to lend and are being more selective in their lending.
* Human capital: Some companies are “capital-intensive,” holding much of their value in land, factories, raw materials, and inventory. Others have lighter models, with much of a firm’s value tied to the brains (the knowledge and skills) of employees. Microsoft (Nasdaq: MSFT) and Adobe (Nasdaq: ADBE) are examples of this. We have to hope that Congress is rich in human capital.
* Inflation: Sure, it’s the rate at which price levels rise. But it has deep implications. For example, we shouldn’t think of our investment returns without factoring in inflation. If we expect to earn an average of 10% over a period, for example, and inflation is 3%, then the “real” return is just 7%. If we’re earning 2% in a bank account and inflation is 3%, then our real return is actually negative. Inflation was on the low side for many years, but it has been rising quickly lately — look at gas and food prices, for example. If we plan to save $1 million by the time we retire in 30 years, we should realize that an average inflation rate of 4% during that period will reduce its purchasing power to more like $300,000 in today’s dollars. For us to maintain the buying power of a million, we’d need to accumulate over $3.2 million by 2038. And as our government prints more money to address today’s problems, concerns arise that it could create new inflation threats.
* Deficit: This is the net result of spending more money than we receive. We’re well aware of government budget deficits, but many people also end up with personal deficits by racking up too much debt.
* Money: This isn’t just paper currency printed by governments. It can be anything, as long as it holds some value and facilitates exchanges. In prisons these days, for example, cans of mackerel have become a form of money. As our dollar has been troubled lately, many people have flocked to gold, sending its value up.
Homebuyers balk amid Wall Street meltdown
As the financial crisis intensifies, the few homebuyers that are out there are reconsidering a purchase.
NEW YORK (CNNMoney.com) —
The Dow has lost over 2,200 points in the last seven trading sessions – and that’s giving the few homebuyers that are out there right now reason to reconsider.
Something Good Is Brewing at Starbucks
STARBUCKS SPARKED A premium-coffee revolution, which now threatens to devour the world’s largest coffee-house chain. With Dunkin’ Donuts, McDonald’s (MCD), the local deli and even Target (TGT) getting in on the act — and that’s just a partial list — Seattle-based Starbucks (SBUX) has found itself saddled with rising costs, declining revenue, a sinking stock price and customer fatigue. The crisis has returned founder and Chairman Howard Schultz to his role as CEO, with an imperative to “significantly differentiate” Starbucks from a whole latte competition.
Schultz, 55, is answering customers’ calls for healthier dining options with a revamped menu that includes oatmeal and fruit smoothies. He’s taken steps to enhance the “coffee experience” at Starbucks cafes, while promoting the company’s social-action endeavors at home and abroad. And he’s cutting stores and costs in the U.S. while stepping up international expansion. “We have the resources and the tools to execute on a well-thought-out plan,” Schultz told Barron’s in a recent interview.
So far, Wall Street isn’t even nibbling on the story, especially now that a sour economy threatens to make a Caramel Macchiato a capital expense. Starbucks shares have plummeted more than 60%, to a recent 15, from a peak of 40 in November 2006, and show little sign of regaining their buzz.
Yet, investors may be too dismissive of Schultz and his company, especially in view of Starbucks’ history of innovation and growth. A year from now consumers may be feeling richer, and Starbucks will be running smarter. The combination could help lift the shares by as much as 20% to 30%.
“There’s a lot more upside than downside” to the stock, says Scott Chapman, a partner and portfolio manager at Lateef Investment Management in Greenbrae, Calif., which started buying Starbucks shares a few months ago. Chapman thinks the company will benefit from the recent decline in oil and gasoline prices, among other things.
Read on with Smartmoney…
For Long-Term Investors, Now Is Time to Buy
James Stewart says:
No two financial crises are exactly the same. There are times to be an observer, watching from the sidelines. And there are times to act. A week ago Monday, when the Dow Jones Industrial Average plunged 788 points after the House rejected the proposed $700 billion rescue legislation, the Nasdaq Composite dropped through my latest buying target… (Click below to read the rest of this article).
Now, for my thoughts on purchases. Here’s my current list. You do your own research and see what you want.
NXG – Northgate Minerals
HPQ – Hewlett Packard
WB – Wachovia (Yes I am a bit risky).
BA – Boeing
SBUX – Starbucls
BGP – My Borders group has always paid nice dividends
DELL – I just like Dell.
VMW – VMWare has my favorite Virtual Products.
TLK – PT Telekom has a lot of opportunity
PCU – Southern Copper – I just see Copper being important
YGE – Yingli Green
TGB – Taseko Minerals
SIRI – I am serious abount Sirius. Even though they aren’t going to make money for a while…
PBME – Pacific Biometric has some really great ideas that I hope they cash in on.
VIAP – This pharma company looks like it could do something.
GRUBB – I had to get some exposure in real estate.
YHOO – Yahoo. I still believe! And they are pretty darn cheap right now.
As always, do your research. Some other great stock that is just plain on sale right now are: AAPL, GOOG, TGT, BKS, HOG (although, they are hurting for European sales), JNJ (I really like them!), PFE, CAT, HD (Home Depot), and WMT (Walmart).
If you are waiting for the bottom, you will never find it. However, if you look for the long term, and don’t bet the farm, do your research and have TONS of patience, there has to be a turn around somewhere.
Just think about it like it’s a HUGE YARD SALE of stock! And go get cracking!
Also, here is a great article on how to invest in a market like this. CLICK HERE.
The Best Technology I’ve Ever Seen
Cloud computing is to storing and processing data what the electrical grid is to plugging in your television: a scalable way to deliver services while matching supply and demand across the grid. Forrester Research calls it a classic disruptive technology. I call it the best technology I’ve ever seen.
Some of my favorite links to great Cloud Computing Apps are:
1 – Google Apps – http://www.google.com/apps/
2 – Thinkfree – http://www.thinkfree.com
3 – Google Gears – http://gears.google.com/
4 – Salesforce.com – http://www.salesforce.com
5 – Airset – http://www.airset.com
6 – Mozy Backup – http://www.mozy.com
Dell Takes on Asus With Tiny Laptop – page 1 of 3 – TheStree
The new Inspiron Mini 9 is Dell’s contender in the battle for mini-laptop supremacy. It is small (9.13 by 6.77 by 1.07 inches) and lightweight (less than 2.3 pounds). It’s also configurable. You can choose your operating system (Ubuntu Linux or Windows XP), memory (512MB or 1GB) and solid-state storage (4GB, 8GB or 16GB). You even have a choice of color!
Read on…