Sparse Posting This Week

Will return to normal pace soon.

Nice Long Term Energy Chart

This is the result of an interest study projecting exports by major supplier. Shows a rather steep decline in exports with an increasingly large slope in later years. This brings up a good cover story in the WSJ about the internal debate inside the Kingdom about whether we have reached peak oil.

My own gut is that with oil this high, people are going to spend billions more to get it out of the ground and ocean and the line will have a lot less of a downward slope. This is another way of saying we have reached peak cheap oil.

With rising demand in the emerg(ed) markets and even flat supply, price is going to go up no matter how many laws Congress tries to pass banning speculation. Speculation by the way may cause a price to arrive sooner than it otherwise wood, but it does not change underlying supply and demand --in fact one would argue in brings supply on more quickly by encouraging new capital expenditure that increase production.

Also of note, I've been encouraged by the bolstering of the energy proposals out of both GOP and Democratic Presidents. As a fanatical moderate, I'd like to see a whole lot of everything tried to get all sources of energy and efficiency up. Holding on to ideology on either side isn't going to solve problems here. The only problem I have is I don't understand why we have to wait 9 months for an election and new Congress to get this thing done. Then another three years for anything to have an impact. Every day we wait to enact some kind of plan is an act of irresponsibility by our elected representatives.

To me it also means energy technology is going to be part of a 15 year process that will have to spread globally as we learn to live with scarce resources and a truly global economy.

Great Interview with Andrew Liveris

My favorite part is at at 5:42 in the video where he lays blame for the 25% increase in prices. Paraphrasing "I hate to lay blame but since I pretty much did last time, I'll just continue exactly where I left off...."

In short, he blames the paralysis in Washington to enact any kind of bipartisan energy plan for the country. He is absolutely correct and it makes all the hearings on speculation in oil and baseball players hormone use that much more ironic.

Overall, his interview has good stuff on oil, theories on US demand destruction, Asia all important things that impact everything else as well. His points at that while US demand destruction is occurring it is outweighed by higher growth in the rest of the world which pushed total global demand up. Couldn't agree more with him.

Video via CNBC here.

Quick Reacton on Fed Decision

Just a real quick reaction to the Fed statement. If the Fed did the statement right, the dollar will stay flat or ideally start to dribble and ebb up over the next 3-5 days. Right now the initial reaction was positive, but it's drifted down as concern about western banks starts to rise again. Libor strains also showing since Euro banks don't have enough dollars for a variety of reasons.

The ideal scenario for the fed is a slow creep back of the dollar without putting pressure on bank spreads so they can rebuild their capital base. Really tough balancing act. I think the key catalyst is pressure on the Euro rather than upward pressure from the dollar.

Article via Bloomberg.

If the dollar doesn't start to creep up, watch for talking Fed-Heads over the next week hawking it up.

That would be my bet.

Phone OS Wars 2.0 Mini Linkfest

Nice brief piece in Fortune on the battle between Apple, Android and Symbian. The author implies a few interesting pattern matches between the war that Apple lost with Microsoft for the desktop. There are some big differences this time however in Apple's favor. Besides, I think Steve Job's is still fighting that war for the desktop, and until he stops fighting, that war he lost was just a battle.

Full piece here and it is somewhat pro Apple.

Also a more in depth piece from Wired Magazine that details the journey Google has taken in dealing with some of the strategics and the carriers in the wireless space here.

As an aside, and from personal experience on both sides of the table, carriers in the past have eaten internet entrepreneurs as morning snacks. I think that balance is finally changing. Once the genie is out of the bottle, it's hard to convince her to step back inside:

This time Google is going out of its way to assuage the fears of potential partners and pay the necessary fealties. The cockiness that marked its relationships in the past has been replaced by at least the appearance of empathy and cooperation. When one chipmaker got cold feet at the idea of having some of its code open-sourced, Rubin immediately called senior executives to talk over the benefits. Then he had his top engineer, Brian Swetland, sit down with the chipmaker's attorneys and engineers to work out solutions. "You have to very carefully figure out how to help them help you do the right thing," Swetland says.

Things are Changing Quickly In Wireless

One common theme everyone seemed excited about is that, after years of hope and anticipation, the mobile Web finally seems within reach. The rise of the iPhone and the work on Android hold out the promise for a mobile Web that doesn’t suck,” as DFJ Gotham partner Thatcher Bell puts it. By that, he means a fully functioning mobile Web that is open to developers so that they can create the same types of experiences on cell phones that they are creating on PCs. Another common theme is the continued personalization of content, commerce, and advertising. And data-driven startups that make sense of the deluge of information and media now available to everyone are also likely to get a hearing from these VCs.

I thought this was an interesting chart/view on some areas on the venture that were target areas by Eric Schonfeld over at Union Square Ventures. Specifically, the comment on the mobile web was pretty spot on.

In Austin from about 1999 to 2001, I had the lucky task of reviewing probably in excess of 600 business plans for wireless web ideas (luckily I had the purview to look at other business areas). I think I probably took meetings with maybe 10 of those, which is a pretty low ratio even for a VC. Even of those 10 meetings, most were semi involuntary and in the end I invested in zero with perhaps 1.5 hours at most spent on each deal.

An hour and a half is the most I will spend evaluating a business or business idea to see if there is a way for me to look at something in a new way, or to see if there is a catalyst inside a segment I am missing entirely.

But things have changed, there is huge potential, in geographic based wireless applications, mobile services, social networking, mobile advertising, fulfillment as well as wireless media/entertainment.

In fact, for the wireless web, I'd draw a much steeper curve then Eric drew above and I'd put a little "crook" in the line in about Q3 of last year, with another kink hitting in Q4 of this year. No matter how you draw the line, something has changed.

I would add areas of interest in segments such as clean tech (over crowded but still huge potential if you are careful), biotechnology, biofuels, agricultural/water technology, mobile and geographic based gaming and nanotechnology. Certain power generation technology, particularly localized power generation is also something I am interested in.

The full piece by Eric is here via TechCrunch.

A View by an Economist on Speculation in Oil

Via Econbrowser for those of you that are economically inclined:

Given these data, I think it is impossible to argue that the volume of futures market purchases alone could be the reason why oil prices went up this year. A key and necessary element of any speculation-based interpretation must be some explanation for the factors governing the physical quantity of oil being supplied to the market.

We're hearing from a number of experts asserting that there's no reason why the oil price should have gone up. I wish one of them would tell me where an extra million barrels per day in supply is supposed to come from.

Using Old Tools on New Problems

The thing that fascinates me about human psychology is a tendency to expect continuity when the only thing I think the world guarantees us is change. So why use old tools on new problems, even though those tools are not working? Why is it so hard to change the way prior things are done when the world is telling us we need to?

There is a large debate where the ECB is trying to earn its stripes for pulling away from the Fed's leadership by keeping rates high, and in fact, presaging a rise in the ECB rates from 4% where the Fed has lowered significantly and dramatically at two. This disparity in policy has been in place since mid last year when the Fed began to aggressively lower it's rates to 2% when the ECB was down at 4% (more accommodating).

So obviously interest rates are the right tool to solve our inflation problem since they have been in the past right ? The ECB must have made a lot of progress on inflation given their willingness to keep rates high while the US dropped to 2%? They've been using all the textbook tools therefore they must not have an inflation problem.

Look at this interesting table just published by the economist above. Lots of numbers there but I've excerpted the data that compares what has happened in the high interest rate Euro Zone vs the US where the Fed has aggressively cut below:


___________________CPI Last Year_____CPI This Month_____Q1 GDP____Discount Rate
US___________________2.70%__________4.20%_____________2.50%__________2%
EU___________________1.90%__________ 3.70%_____________2.20%__________4%


So we've had almost a year of different monetary policy approaches with the US dropping from 5.25% to 2% and the inflation rate is pretty much the same in Europe as it is here and they have catastrophically huge currency advantage.

Importantly, think about how much the dollar has plummeted against the Euro, how much Europe imports and they still have not tamed inflation. A high relative value of a home currency shields an economy from inflation, but that has not been the case for the Euro zone, and if their currency drops like I expect it will, they may experience inflation in the high single digits much more quickly than in the US. In fact, I'd argue by looking at the spread Euro zone inflation has gotten much worse relative to US levels already.

All this has occurred with relatively similar economic output growth of 2-3% in both zones during the same quarter.

So today with the Fed meeting we are going to spend a lot of time talking about monetary policy as a way to solve this problem and I'm going to have to jog for at least an hour to numb myself through it. Interest rates once were the solution to the inflation problem, but does it mean they still are the tool we should be using? Does it make sense given what is causing the inflation problem in the first place?

The most likely outcome of the meeting is no change in rates while being as hawkish as possible to give the dollar a bounce without spooking the markets. My gut is Bernake "get's it" and his statement will be interpreted as being dovish and the dollar will not get the bounce people expect.

None of this changes the fact that the Fed will eventually raise rates, and rates across all instruments will rise. More than likely tie down risk based assets, including private equity and venture capital and continue money flows into areas where shortages persist. It also means the central banks are going to be limited in terms of what help they can offer banks and other leveraged institutions here.

Bolton on Israeli Attack Against Iran

An old friend and colleague of mine who watches the middle east even more closely than I do sent these comments to me last night. Not a big Bolton Fan, neither the singer nor the UN Ambassador but the idea of an attack by Israel on Iran is a theory I have tossed around a couple times myself on this blog.

I think this theory and timing has merit especially given if Israel acts alone, it somewhat constrains Iran as it may draw in the US into a conflict if Iran escalates. My definition of escalation in this context is is 1) using some sort of chemical or biological counter attack or 2) Somehow winning against the Israeli Air Force.

If the US were to be drawn into a conflict even in a limited way, it would mean the end of the Iranian Air Force and Navy and be a big blow to the religious regime there.

Additionally, as Iraq stabilizes into the Winter, the equation worsens for Iran as US troops are less bogged down. Full article via Jpost here.

Israel is likely to attack Iran in the time between the November presidential election in the US and the inauguration of the new president, former US ambassador to the UN John Bolton told the Daily Telegraph in an interview published Tuesday.
Former US ambassador to the...

However, Bolton said he did not believe the US would take part in such a strike. "It's clear that the administration has essentially given up that possibility," he said. "I don't think it's serious any more. If you had asked me a year ago I would have said I thought it was a real possibility. I just don't think it's in the cards."

"The Israelis have one eye on the calendar because of the pace at which the Iranians are proceeding both to develop their nuclear weapons capability and to do things like increase their defenses," Bolton said.

"They're also obviously looking at the American election calendar. My judgment is they would not want to do anything before our election because there's no telling what impact it could have on the election."

Defying Gravity

So I checked in with a Realtor who is selling one of the really interesting new buildings in San Francisco. I had taken a look at the building in 2006 but it was all sold out. I went back to test the waters to see if there were any bargains as they are about to finish construction. The building has some spectacular views and I've been curious about what it would be like to live there, especially if I could get a good deal.

Let me say that the Realtor works for the building and she was very kind and professional but they were still trying to get prices that are at 2007 peak prices. The very first thing she wanted to make sure I knew was how good the market for condos in San Francisco is. "Things have been just amazing, we are really defying gravity".

I had a couple of reactions to that, the first of which was, "Really? Are you actually defying gravity or are you just ignoring it?"

I guess that makes me not an owner of real estate in San Francisco. Could be a bad call but then again, might be a falling knife. Something to watch and I think I have time to observe before any dramatic rises occur.

One more comment on real estate as an asset class in general. When I was in investment management at Rockefeller I spent a lot of time doing asset allocation studies to figure out where our assets should or shouldn't be. Everybody loved Real Estate asset class in computer models because it was a steady stream up with no volatility. But it's not as if the asset is less volatile, the reporting of it is. i.e. its observed less frequently that say the S&P and of course, its more difficult to mark to market making it appear less volatile. Same with private equity in all fairness although the reporting problem is somewhat less of a concern.

And like in this case, people are going to wait as long as they possibly can before they mark to market. It's going to take a bit of time to get a clear picture on the market --in one direction or the other.

Mobile OS Share

Interesting chart on OS share in the context of the Nokia Symbian deal today showing shipments and share from Q3 of last year when the IPhone launched. The biggest thing of note was the dominance of Symbian worldwide, particularly in contrast to US share.

The most interesting thing is the regional breakout. Microsoft share for example in North America is quite large but it's almost negligible when compared to every other region which are Symbian dominated.

However, most of these companies have been plugging away at the OS market for almost a decade now. What do these charts show Apple has done? While worldwide share of shipments for Apple's new Iphone were close to nil during the measured- and somewhat dated- period, it's pretty astounding to see how quickly Apple gained relatively large share in North America when you examine the regional breakout. Remember when it launched Apple had minimal if any worldwide contracts. Also, the places it had contracts were countries were a 2G product was viewed as less than compelling and they came later in the quarter.

How easy would it be for it to get those kind of numbers in all of these new regions. The Iphone is again hitting in Q3 one year later (2008), and now has a truly global launch rather than just AT&T in North America. So one wonders what will happen to the share numbers once if these markets behave similarly to what happened in North America. What is Nokia's bet here with this Symbian move? Can Nokia innovate toe to toe with Apple?

How will these companies be affected and respond? Who will be impacted most severely? Who will hang in there and keep fighting for mobile share?

My gut is that Apple will wrestle it out with one or two other OS but the rest will slowly drift away over time after initial large share losses.

Markets Reaction to Out of Control Energy Problem

The market appears comfortably numb as it drifts downward across every major sector except agriculture and energy. And today even those sectors are weak.

The most concerning thing I see is we are at the March lows but fear is really not that high at all as measured by most option volatility indexes I watch. They need to go up by about 35% for me to feel like some sort of wash out has occurred.

In the words of old show "the Lone Ranger, which an old boss of mine used to use to communicate profound happenings to my amusement, ideally utilizing a thick Native American accent:

"Tonto throw rock into bush, but see no rabbits".

I think what Tonto meant here was, it's a lot easier to be long when there is fear in global markets.

Additionally, we are in front of a Fed meeting but what tools does the Fed have this time? It will provide some stability until the decision is announced but there are not a lot of upside tools. The Fed has to come out somewhat hawkish, provide some comforting words on inflation and somehow talk up the dollar without spooking the markets. That's a bit of a tall order even for some very smart minds.

I can see a rebound around earnings in two weeks as world markets acclimate to lower earnings from leveraged assets somewhat offset by robust earnings in industrials, some technology, energy and agriculture. But it might get a little rough in the mean time as the Fed tries to talk up the dollar to mute oil without throwing the markets off their horse on hawkish inflation language. Poor Tonto.

Renewable Energy as a Share of the Total and Congress Can't Put Down its Fiddle

After all of these huge increases in energy prices, renewables are still at an incredibly low 7% of our total consumption. Interesting that biomass is the most significant component at 50% of all renewable. That in large part is due to it being the most cost effective of the alternatives.

In a directly related event, the CEO of Dow, Andrew Liveris, came out with a 20% price increase early this morning. His comments below, minus the Australian accent, omit one of the key point I think he drove home in his interview very early this AM. I don't have the audio file but he blamed the price increase on the inability of Congress to enact a bipartisan energy plan. It's even more frustrating given the ridiculous proposals and hearings coming out of Congress that blame speculators and uses quotes by the Saudi King as evidence. They really don't seem understand what is happening.

I have never seen so many people on both sides of the argument be so absolutely convinced they are right. How about we all stop being so intractable and admit there is a problem and do something about it. Both the left and the right have to give a little here and people in Congress are holding on to long held positions that don't reflect the changes in the world or the changing view of the constituents they represent.

If Congress could put their fiddles down for just a minute they could see we simply need new sources of energy. Whether you get these new sources from alternative energy or traditional sources, you can't bring 1.3 billion people into the global market and not have a shortage like this. Speculation has zero to do with it.

If you really think it's speculators, why don't you go short oil? See how that goes and get back to me.

Full article on Bloomberg here.

Chief Executive Officer Andrew Liveris last month raised prices for June by 20 percent, the biggest boost in the company's 111-year history, because of surging costs for hydrocarbon-based raw materials and energy. The additional increases were needed because of a ``relentless'' rise in the cost of energy and hydrocarbon materials, Dow said.

``The staggering increase in our costs over the past few months have forced us to take these further measures in order to restore our margins,'' Liveris said in the statement.

Costs for energy and hydrocarbon materials, such as oil and natural gas, have surged fourfold in the past five years to an estimated $32 billion this year, Dow said.

Dow said it also is reducing production at plants around the world because of slowing U.S. and European economies. About 20 percent of the company's capacity for producing Styrofoam in Europe has been idled, along with 30 percent of its North American acrylic acid capacity and 25 percent of its global ethylene oxide production, the company said.

A Manufacturing Shift Back to Raw Material Efficient Economies is Needed

Show me total world production of the key raw materials such as oil, iron ore, steel, aluminum, copper plot that vs total world GDP over the last 10 years.

I think we've seen a huge transition from moving manufacturing output from "raw materials" efficient economies to China. The huge import numbers in cement, iron ore etc, just don't add up given Global GDP has grown only a fraction as quickly.

China can waste raw materials and still be hugely profitable as a production center because of cheap labor and an artificially low exchange rate.

China has become the world's manufacturing base but to solve this problem, we need to move some production back to "raw material efficient" economies while supply or raw materials rises and China becomes more efficient as it's cost of labor rises and its manufacturing methods modernize.

Need proof? Check out the now infamous cement chart:





In the mean time, they can buy some of our "stuff" which would not be a bad thing about now.

Saudi Energy Summit Redux and the Viable Policy Choice Out of This

So the Oil problem looks bad or worse post summit.

While this is a very nice chart, via the oil drum, it does not show Saudi internal consumption which if memory serves is pretty substantial. The Saudis in addition to free health care, housing, college and who knows what else get subsidized gasoline at .69 cents a barrel. And while I don't have the exact number I think about 2-3 million of the 9 million produced actually is used internally by Saudi Arabia given the subsidized prices.

Subsidies in the fast growing "Rest of World" are a huge problem in terms of allowing for large increases in oil consumption while the developed world actually slows its own consumption. That's pretty much why prices are rising.

Aside from the big Saudi energy summit, we've seen China raise it's own internal prices by 17%. While I think this is helpful in terms of bringing down short term demand, I think all this does is slow the uptrend down a bit rather than solving any real problems. The Chinese seem sort of absurdly reluctant to meaningfully raise prices here because it skews their own internal inflation numbers, which makes it seem like the government has lost control of inflation.

Instead they play games with their exchange rates which causes them to inflate their money supply and import real inflation into their economy while making their own long term problems worse by creating an economy that uses energy inefficiently.

The Chinese economy is one big substitution machine of materials for labor. Have you ever seen a list of the top 10 importers of things like cement, copper, oil, coal etc? Take a look and be prepared to be shocked.

The biggest part of this problem that nobody talks about is the world has made China its factory but at the expense of inefficient use of energy and materials. Manufacturing has shifted from "raw material efficient" economies to China. China just seems to throw a bunch of materials together and since labor is so cheap, discard the excess materials since the output is hugely profitable anyway. All the while when the developed world tries to produce anything, its barely profitable since raw material input costs have risen too high.

We need to take some of this production back to economies that are more efficient in their use of these materials. At least for a time until supply and Chinese efficiency can be brought closer to world standards.

In the developed world, slower oil demand in the US has occurred but it has not been enough to outweigh the growth in consumption in China and elsewhere where real growth is incredibly strong as the rest of the world integrates into the global economy at subsidized energy prices. Globalizing the world and bringing all of its citizens to an equal level will have huge and dramatic payoffs, but we definitely are going through some huge growing pains.

These demand drops in the developed world, decreasing subsidies, increased production may bring us down to the 90s in the price of oil but only in the short term until the underlying problem is solved. Some of the tricks being played with spot vs. futures prices are giving us whacky inventory numbers which I think are sparking some fears of a near term crisis (inventory #s are dropping making people believe there is a huge shortage when people are simply delaying their purchases for future delivery). That said, even if we get this much anticipated pull back, I don't think it goes below $90 and will be followed to a climb back to old highs at $140 then $175.

What do need for a long term fix to allow the world to continue to integrate, globalize and develop without pushing the developed world off a cliff?

How about the US government announcing a Marshall plan for the auto makers where we move to a leadership position in fuel economy rather than simply following the Japanese. Hydrogen fuel cells, Natural Gas, pure electric are all possibilities here.

But the government would rather do subprime housing bailouts or start "land wars in Asia" because it doesn't believe in "market interference". Is it ever good to start a land war in Asia? Almost never. Alternative based fuels are not market interference, it's an investment in our future and our national security. But bailing out real estate speculators is somehow less worse than investing in our energy future? Our Auto companies are embattled and battered, because of competition with the Japenese. They just can't do it themselves.

If the US shifted to one of these next generation fuel standards it would have a huge and dramatic impact on oil prices today, the rest of the world would follow, and the lead up American car companies had by establishing leadership might turn these backward companies into global export leaders. You could turn the US auto industry back into the most dynamic and competitive industry in the world by leading here.

The US auto industry is positioned to do so, all we need is some leadership from the government and the car companies.

China Goes LTE

Aside from various US carriers announcing moves towards LTE, looks like China may have given up the ghost finally. Of course Europe is LTE by fiat.

You know I've tried all sorta of ways to make money off a bet that LTE will become the dominant standard, including doing some angel investing in LTE related deals and shorting Qualcomm. However, I have not really made money and I just can't seem to win on this particular bet about how wireless technology will unfold over the next few years.

I guess that makes me "early" which is just a another euphemism for "wrong". I have not quite figured out why/how I've gotten this one wrong given the end result is what I thought, but the journey there has been different and the players I thought would be negatively or positively by this have not. I believe it has to do with the way the patents are worked out and the wrangling of the various legal team and of course its still early days.

Something I need to figure out.

Having freshly announced the purchase of China Unicom’s CDMA network, China Telecom chairman and CEO Wang Xiaochu says that the company will migrate to LTE in 2 to 3 years' time. Under the deal announced in a Hong Kong press conference last night, China Telecom’s listed arm will purchase the business from Unicom’s listed entity on the Hong Kong Stock Exchange while state-owned parent China Telecom Group will purchase the infrastructure.

Wang said that the company will initially focus on rolling out EV-DO Rev A in key cities because the technology’s download speeds makes it ideal for mobile data services. “In 2 to 3 years' time, all networks, both GSM and CDMA, will migrate to LTE,” Wang said.

The announcement by China Telecom to support LTE represents one of the last major CDMA operators to abandon the standard-specific migration path for the technology to Ultra Mobile Broadband and follows similar announcements from Verizon and KDDI. US CDMA operator Sprint has abandoned UMB in favour of mobile WiMAX as its 4G platform.

Via Commsday which is a good source for a lot of Asia telecom news.

Israel Conducs Military Exercises Aimed at Iran

WASHINGTON: Israel carried out a major military exercise earlier this month that American officials say appeared to be a rehearsal for a potential bombing attack on Iran's nuclear facilities.

Several American officials said the Israeli exercise appeared to be an effort to develop the military's capacity to carry out long-range strikes and to demonstrate the seriousness with which Israel views Iran's nuclear program.

More than 100 Israeli F-16 and F-15 fighters participated in the maneuvers, which were carried out over the eastern Mediterranean and over Greece during the first week of June, American officials said.

Rest here via the herald. Fits with the theory that Israel is laying groundwork for an attack against Iran's nuclear facilities articulated here that attributes Israeli political initiatives with Syria, Hamas and Abbas with a move towards a strike against Iran. Could be just posturing to bring Iran to the table but I think the threat is a credible one. What Israeli PM wants to be responsible for letting Iran get a nuclear weapon when it had the military advantage.

All pushing oil massively higher which of course is ironic given the most credible restraint against Iran would be oil pushing down to $90.

Apple Innards and Is the new 3G Iphone Cheaper

Nice chart on Apple Innards



Also of note is all the press on the new cheaper Iphone. But is it really cheaper? AT&T is paying Apple $325 per Iphone up front in cash. Apple in return in giving up its deal to share in the revenue from every new ATT customer. I suppose mostly this is due to the difficulty for Apple in reaching those types of agreements on other carriers around the world.

To the consumer the net cost of the Iphone is 200 dollars cheaper, but they also have to pay an extra 10 dollars a month in data fees, or $240 over the life of the 24 month contract. So in reality, it's not really cheaper, the cash flows are just shifting around a bit, and in fact the consumer is paying quite a bit more per month. And once all is said and done, the consumer will still be paying that extra $10 dollars a month as long as they are an ATT customer.

I am not so sure this is a great deal for Apple either. Sure the handset cost is subsidized now and these devices should fly off the shelves but very few companies have been able to get a share of the revenue pie and I am surprised they gave it up. Eventually the price points for Iphone are going to come down over the next 2-3 years.

Just like prices came down in the PC industry, they will for high end phones as well and the subsidy won't be as significant a trading chip. In contrast, ARPU will probably stabilize from here or actually grow so a percentage of that is more valuable.

So in the short term, it will help Apple gain market share rapidly, but in the long term the deal means higher prices for consumer and forging the valuable ARPU piece of the pie that is a big more of a predicable grower.

Who wins then? If it's not the consumer, and it's not Apple. That leaves ATT, and by a mile.

The lowered price point means AT&T will not only attract a lot of new customers, but additionally they will force down average device selling prices from the rest of their handset makers. With high end makers like RIM and Nokia being pulled down towards Apple price points without Apple necessarily having to pay the same outrageous subsidy. This means more people switching phones more quickly also which means more fees for ATT.

More importantly, ARPUs rise (Average revenue per user) at ATT. ARPU is probably the most important driver of shareholder value for ATT and this deal will tend to push it up rather than down for existing and new consumers. A Plan that was 65 becomes 75 and with more upgrades to the Iphone on the way, there is less churn at higher ARPU levels. This is going to help ATT get some nice numbers.

Another big benefit for ATT, with a huge subsidy to Apple being paid on activation on ATT, you can bet Apple will work hard to prevent "jailbreaks" or unauthorized jailbreaks of ATT phones.

In short, ATT could not have played this and a variety of other things on other fronts in telecommunications land any better. I know it's not a widely held view but I think everything from their phone deal with Apple to their really horrible UVerse service, the rollout of video services have been materially and strategically sound from almost every angle.

Uverse is essentially a beta product that by hook and by crook ATT has been pushing on consumers as a viable alternative to Cable and Satellite with much lower Capex costs than what Verizon has done. And within a few years, wireless fiber alternatives may make the billions in capex Verizon has shelled out as unnecessary. It may backfire if Verizon reaches critical mass with Fios a lot sooner than expected but for now things are unfolding just the way ATT has anticipated. I am not a big fan of old LECs but ATT management here has dont well by shareholders in a very tough environment.

One last thing, while I don't love the deal for Apple. It's hardly a loser here. They are an old PC maker that has had more impact on the wireless industry than any company in the last 3 years. Their products have finally brought some innovation to the industry and at this much lower price they may prevent Microsoft from dominating this category with Windows Mobile. All good things for Apple and consumers.

Ex Bear Hedge Fund Managers Led out in Handcuffs

So we want to double or triple tax on hedge fund managers when they win, and then put them in jail when they lose. While I am exaggerating the case a bit here, not but much. Somehow, I think the massive droves of MBA's into the Hedge Fund world might moderate a bit though.

Just as a disclaimer I do believe carried interest should be taxed as ordinary income. But I also believe in consumption taxes rather than income tax based schemes as the best source of funds for government revenue. If you really want to hit the excessively rich, hit those that splurge on yachts, jewelry and whatever the excesses are. The income tax code is not the place to hit the super wealthy, hit them where they spend. Besides. With our ability to finance our debt now besmirched, we need to find ways to incent people to save.

Wonder why I think income tax as a method of revenue collection desn't work and the people that are supposed to be paying them don't? Click here. Tax consumption at the point of consumption and through the value chain and overall tax revenue will go way up, and you'll make the tax system more progressive as those that splurge on conspicuous consumption get taxes conspicuously.

In any event, I don't know enough about the Bear Stearns case to know whether this two men misled investors but I think standards could be higher in the industry and by the end of this they probably were. My gut based on what I've heard though is they are no more guilty than the industry in general in terms of saying things were fine when they may have concerns about performance.

By David Scheer

June 19 (Bloomberg) -- Former Bear Stearns Cos. hedge fund managers Ralph Cioffi and Matthew Tannin were sued by the U.S. Securities and Exchange Commission on claims they fraudulently misled investors before the funds collapsed last year.

Cioffi and Tannin urged clients to add and maintain investments by ``consistently misrepresenting'' the funds' health and portfolios and understating client redemptions, the SEC said in a civil lawsuit filed today at federal court in Brooklyn. The agency is seeking unspecified fines and wants them to forfeit ``illegal profits.''

Cioffi and Tannin were arrested by the Federal Bureau of Investigation today in a parallel criminal case. The arrests are the first from a federal probe of possible fraud by banks and mortgage firms whose investments in subprime loans and securities plunged in value, causing losses that now total $396.6 billion.

Dell offers Downgrade plan from Super Bad to Sorta Less Bad for $50 bucks

The new Vista OS is so bad, people want to use the old bad software, cause it's well, less bad. So to upgrade the downgrade with an upgrade it's an extra $50 to $100 bucks depending on which version of less bad you choose. I can't blame you if you've got trouble deciding.

It's even more ironic given they have figured out a way to charge the consumer more by making software that's even more poorly designed than the crap they made five years ago.

Perhaps if Windows 7 is coded badly enough, they might be able to charge $200 next time just so people can avoid putting it on their computers. Or better yet, maybe people will finally start using something else as device usage patterns diffuse.

Okay. I think it's great Bill Gates is going to save Africa, but who is going to save us from the plague of all his bad code? Full article here and consider the virtual egg tossed.

Iran Considering Proposals to Drop Enrichment Program

This is a big shift from prior policy statements- They are basically declaring victory and then saying the concession they were not willing to negotiate on, well now they will negotiate. I wonder what caused it?

A shift like this has to come from the very top (i.e the Ayatollah) and it's my theory it's in direct response to a toughening stance from Europe, led by France, political moves by the Israeli government reaching out to Syria, Abbas, and Hamas.

I think that an Israeli strike with support from the US and France is a real possibility later in the year and the mullahs in Iran realize this. Also increasing stability in Iraq mutes Iranian influence. Iran also must realize by now that whether Obama or McCain is the winner in November, they won't be politically neutered as Bush has been his 2nd term, and Obama will be far more hawkish on Iran than the current scenario. Maybe even more Hawkish than McCain.

Just a theory.

Oh and by the way. Want to solve US economic problems and mute religious nuts in Iran as well as dictators across the planet? Get oil to $40 bucks a barrel. The economic shock to Iran and Venezuela alone would bring about some interesting scenarios.

Full article on Bloomberg.

Good news out of Iraq

Some positive news out of Iraq via the Economist. While I do think the Petreaus surge was a factor in increased stability, I think human nature plays a part here. At some point, unrestrained violence starts to disgust, and I think large segments of the population started to find the idea of slaughtering each other over nothing abhorrent.

Importantly, I think Iraqi young became disenchanted with the mullahs. Religious leaders often were individuals with little to no actual religious background and simply wanted money or to be installed as local warlord. This has served to actually impinge the ability of the real religious leaders to command influence.

For better or worse, the United States never went into Iraq to actually occupy the country. In fact, I think there is evidence that President Bush forgot the whole "occupation part" might be necessary.

And it has not benefited, at least so far, in terms of oil contracts. (although there may be some breaking news there with Chevron and a few others). Iraq is essentially by and for the Iraqis, and it just has taken them some time to realize that and stop killing each other.

AFTER all the blood and blunders, people are right to be sceptical when good news is announced from Iraq. Yet it is now plain that over the past several months, while Americans have been distracted by their presidential primaries, many things in Iraq have at long last started to go right.

This improvement goes beyond the fall in killing that followed General David Petraeus's “surge”. Iraq's government has gained in stature and confidence. Thanks to soaring oil prices it is flush with money. It is standing up to Iraq's assorted militias and asserting its independence from both America and Iran. The overlapping wars—Sunni against American, Sunni against Shia and Shia against Shia—that harrowed Iraq after the invasion of 2003 have abated. The country no longer looks in imminent danger of flying apart or falling into everlasting anarchy. In September 2007 this newspaper supported the surge not because we had faith in Iraq but only in the desperate hope that the surge might stop what was already a bloodbath from becoming even worse (see article). The situation now is different: Iraq is still a mess, but something approaching a normal future for its people is beginning to look achievable.

What are the implications of the Iraq War that we know so far?

• It consumed all the political capital of the Bush administration making them ineffective on any other domestic or foreign front. This included an inability to confront real problems in Iran and elsewhere because of misjudgments, and a lack of credibility in terms of national security threats. In a parliamentary political system this would be termed a "no confidence vote" in the head of government. We only have impeachment in the United States as a recourse to remove a head of government which has a tougher standard.
  
• At least temporarily, it emboldened Iran in the region. As Iraq grows stronger however, this influence will wane and may in fact be counter balanced.
  
• The United States went from being to eager to use military first as an early option, to hamstrung by fears of using military force even in cases where appropriate. Neither approach is correct. People envisioned an air strike on Iran as having enfolding the same way as the invasion and occupation of Iraq and it really wouldn't.
• It exacerbated the financial crisis in the United States by increasing our overseas borrowing, increasing the decline in the dollar and making it more difficult for US companies to weather the debt crisis. It also started a trend where the financial services sector, previously dominated by the West has lost much of its luster and Asia will rise here and take the place of many US firms. It also made it more difficult for the over leveraged US consumer to refinance, getting out from under mountains of debt.

So far, that's what we have.

Latest Commscore Data on Search

Latest Commscore data. Google's got some decent gains as usual with share over 60% with Microsoft actually falling in the single digits and the rest of the share stable (see table two).

The share of Google and Yahoo together is about 80%. With the new deal one has to wonder what grossly disruptive technology Microsoft would have to invent to really grab share here. Have they ever done so?

Interesting Work on Cancer Cells

Great article on using the immune system of the body to fight cancer. The best solutions in health and technology often mimic the processes we see in nature. Some of the most interesting things I see in information technology are pattern matches to processes and interactions seen in biotechnology.

Nature has a good way of finding the simplest answer to a problem possible, but no simpler.

Doctors took cells from the man's own defence system that were found to attack the cancer cells best, cloned them and injected back into his body, in a process known as "immunotherapy". After two years he is still free from the disease which had spread to his lymph nodes and one of his lungs.

Experts said that the case could mark a landmark in the treatment of cancer.

It raises hopes of a possible new way of fighting the disease, which claims 150,000 lives in Britain every year.

Via Telegraph.

Boeing Wins its Appeal

The Wall Street Journal is reporting that the GAO has given Boeing a victory in it's protest of the award to Airbus. It's a huge contract with quite a bit at stake. The GAO cited math errors, and infers that the Airforce misled Boeing in various meetings. Interesting.

What's the downside to all this? This huge contract has been under consideration for way too long, and the Air Force needs the plane now.

We've talked about the possibility of this occuring below right here in this blog on June 12th, bottom two paragraphs.

GOP initiates Big Push for Oil Drilling

Well the political season is in full gear with McCain and Governor Crist Florida shifted their positions on off shore drilling, quickly followed by the President in the Rose Garden today. It was some nice political choreography so as to allow McCain to shift his position without looking like he is following Bush. It also makes me wonder if Governor Christ is not a close contender for the VP slot.

Excerpt via the WSJ below:

WASHINGTON -- President Bush pressed Congress to take quick steps to boost oil production in the U.S., sharpening the clash with Democrats over energy policy as consumers struggle with soaring gasoline prices.

Speaking in the Rose Garden, Mr. Bush outlined a four-point plan to tackle the imbalance between supply and demand that the White House believes is the main force pushing oil prices to record levels. He called for Congress to lift a moratorium on drilling off the U.S. coast, open Alaska's Arctic National Wildlife Refuge to drilling, develop oil shale resources and expand domestic oil-refining capacity.

A lot of people are accusing McCain of being a flip flopper because he use to oppose offshore drilling. Well, when oil was $10 a barrel and gas under $2 it made a lot of sense to buy this cheaply elsewhere and not drill here. Now with shortages in oil overall and specifically sweet crude oil, and the price over ten times higher I think re evaluation of the position is somewhat warranted here.

I have not seen any formal polls but if I were to put my thumb to the wind, I'd guess the % in favor would be at minimum:

• 60% to a high of a about 70% in favor of drilling
• With 20-30 % in favor of the current policy

Usually, when you see numbers in the 70% range or higher, things start to get done in Congress. In addition, environmentalists have to be strategic about where they put up resistance. The wisest pro environmental position is to allow the drilling to take place to appease public angst, but demand that all the proceeds go towards investment in clean non petroleum fuel alternatives. Thus alleviating otherwise unavoidable strains in the economy in the short term, but weaning us off of oil all together over the longer term.

However, it seems pretty clear it's unlikely Congress will act on this at all. I know our government was designed to move slowly, and we may not see any real energy plan until after the first 100 days of the next Congress (2009). However, I am amazed sometimes at how paralyzed our Executive and Legislative branches appear to be. Oil is the root of many of our economic ills but also more importantly world political problems as well.

It will be interesting to see what the reaction in Congress is to this. More than likely the response will be --this won't solve our problem so let's not do anything at all.

I agree 100% that no single solution will solve this problem. Instead, we have to do a whole lot oef every soltuion, as well as alternative energy, cut consumption and move away from fossil fuel dependence as quickly as possibly.

An Editorial in the Nation: One set of Facts Viewed Two Ways

Interesting opinion from Robert Dreyfuss of the Nation on broad peace initiative by Israel with Syria and Hamas which controls Gaza. This is in addition to their efforts to conclude some kinda of agreement with Abbas before the end of the Bush term. The author has a rather optimistic bent and argues that if Israel sees a way for peace here why can't the Bush Administration. I having been thinking about these same facts but have found myself holding a view that is somewhat of a polar opposite. Full article here and excerpt below.

Meanwhile, it appears that a deal is close for a prisoner exchange between Israel and Hezbollah that could free the two Israeli soldiers captured in 2006, whose seizure sparked the Israeli invasion of Lebanon that summer. The two Israelis, wounded but presumably alive--although the deal could involve the soldiers' remains, if dead--might be traded as early as Friday for captives held by Israel, though it might take longer. The deal is awaiting the approval of Hassan Nasrallah, the leader of Hezbollah.

None of this means Middle East peace is breaking out. But perhaps the McCain and Obama campaigns ought to take note: even Hamas and Hezbollah are worth talking to.

A few observations on what this has to do with energy prices and why would expect a slightly different macro outcome:

• Why would Israel conclude a peace deal with Hamas unless Hamas has agreed to renounce the destruction of Israel as its goal. Unless I am missing something, they have not altered their position. So why do a deal without some kind of change in the Hamas position?
  
• Israel has launched more than a few secret- and with the Carter trip now public initiatives to engage Syria. Yet has anything substantial changed in the relationship with Syria and Israel that would induce Israel to launch these talks. Syria still interferes in Lebanon seeking to topple the government there, and is one of the main conduits of arms to Lebanon as well as Gaza, usually as a proxy of Iran and funded by Iran. Why start talking to them now?
  
• Further, why do peace initiatives on all three fronts at the same time? What has changed? There must be something else that is viewed as a more clear and present danger.
  
• If Israel is in peace talks or has a peace deal in place with Syria, Hamas and making progress with Abbas does that make Iran seem more isolated or less so? What end does that achieve and it would scenarios would that be beneficial?
  
• In the context of recent statements from two sources inside Israel that an attack on Iran is unavoidable. As reports are fluttering about on the Pakistani nuclear program being leaked and linked directly to Iran, I think these steps are laying the political groundwork for an attack on Iran. It's also fairly clear that the Bush Administration does not currently have the political capital to attack Iran but Iran's rhetoric continues to build.
  
• The protest from Iran's Mideast neighbors will be vociferous no matter in the event of an attack on Iran by Israel. But these steps will make the political fallout a bit more manageable. If Syria, Hamas and Abbas have some kind of peace agreements in place they are more likely to speak loudly, but wave with a much smaller stick.
  

What would such a macro event look like? More than likely oil would rise $100 immediately and stay that way for three or more weeks. An Israel only air campaign would likely last a week or less. With the US involved an attack would be much broader and would likely be an air and naval campaign that would last one month.

Do these simultaneous initiatives by Israel presage an attack on Iran? Possibly not, I just read the same facts the author did in the Nations and had a completely opposite interpretation. It's not that I am such a cynical person, I am an optimistic one, I just read this particular situation a bit differently and placing my bets accordingly.

Battle of the Social Networks

Now for something a bit lighter, a former colleague of mine sent this video my way.

This individual is now a big muckety-muck at one of the large social networking companies but used to work for me for two summers in a row as a summer associate and sends me interesting things on occasion.

Definitely one of the brighter individuals I have run across and lots of "creative intelligence" as well as intelligence along traditional lines of measure, no doubt even great things for this person who shall remain anonymous ahead. Plus he always questioned everything about a deal or transaction which I enjoy as it keeps me on my toes. If you are going to hire someone, why not hire someone who challenges you through their own learning to make yourself better? Why should learning only flow in the expected direction?

It's an entertaining video but also a good summary commentary on each of the social networks if you don't necessarily use them a lot but are vaguely curious as to what each of them does.

Good Inside Baseball Piece in WSJ on Energy Politics

Full article in the WSJ Here. It's a well done inside baseball view of the pipeline politics in the region. Nicely done map as well.

Innovation in Telecommuncations inhibited by bad regulation

The FCC has seems particularly impacted by lobbying from old, large and entrenched competitors. This deal taking 14 months to approve (and it's still not approved) is bordering on criminal. The FCC has an obligaton to act in a timely manner so people can conduct business. If people can't count on decisions being reached in a timely manner, deals just won't get done for fear of regulatory risk. While this deal has complications because of how the licenses were set up, there is a material failure to act here.

And while Congress, rather than the FCC, was responsible for the structure and nature of telecommunications reform which resulted in billions of wasted capital on CLECS (companies that were supposed to compete against incumbent telecom and cable companies), a break up of AT&T and putting it all back together again resulting in essentially the same competitive landscape. We basically wasted 5 years and the infrastructure and competitive landscape went nowhere. It's still 1 major telecom carrier, 1 cable company that provide telecommunications services and on the equipment vendor side, Cisco dominates across most product categories.

The way we regulate in the United States and the influence of incumbents on the policy making progress needs to be rethought. I am not a populist and I hate even sounding like one but I do believe in consumer choices and free competition. To that end, something is broken here and it results in a lack of innovation, inhibits startups in the communications space, and this all in the end hurts consumers.

FCC Staff Backs XM-Sirius Merger in the Wall Street Journal.

Trichet's Battle With Windmills

No this is not an entry on wind energy.

The news out of Europe on inflation this morning is notably poor deteriorating given how the have not followed the US central bank by cutting rates, the hawkish commentary out of Trichet, and the over valued EU currency. Given how hawkish Trichet has been, one would think this would have resulted in much better inflation numbers. Not so much. I wonder why not?

June 16 (Bloomberg) -- European inflation accelerated to the highest in 16 years last month as food and energy costs soared, intensifying what finance ministers from the world's richest nations said is becoming a ``more complicated'' dilemma.

The inflation rate in the euro area rose to 3.7 percent, the highest since June 1992, from 3.3 percent in April, the European Union's statistics office in Luxembourg said today. The rate for May is higher than the 3.6 percent estimate published on May 30.

Soaring commodity prices have pushed up costs for companies and consumers and at the same time are posing a ``serious challenge'' to economic growth, officials from the Group of Eight nations said yesterday after a meeting in Japan. European Central Bank President Jean-Claude Trichet this month said the ECB may raise its benchmark interest rate a quarter point in July, signaling he is setting aside concerns about the economy's expansion to combat inflation.

The full article on Bloomberg is here.

All this is happening while European growth slows and their over valued currency is forcing them to move businesses and jobs outside of Europe into the US and Latin America (aka the colonies).

What are the implications and questions of a relative worsening in Europe?
1. Europe is not like the United States in that it produced almost no energy or commodity products. People often forget US leadership in several commodities including being a top producer of oil (which rumor has it is expensive of late).

2. What happens to Europe if the Euro actually starts to fall on this news? Since it produces virtually none of its own commodities, the price paid for all commodities in Europe will be much more problematic than even the US has experienced. Note how Trichet has been talking up the Euro even as the US has shifted its own stance on the dollar, he wants to keep the currency strong to prevent a spiral higher in inflation if the dollar recovers. Commodities are all priced in dollars including oil.

3. Gasoline is already taxed highly in Europe and the Saudi King is asking them to suspend their particularly high gas tax to ease the burden on EU consumers. If you are getting economic policy from the Saudi King, it's a clue there is a problem somewhere on how things are set up.

Trichet is tilting at windmills here. If you want to battle inflation by moderating growth in demand, you have to do so in the places where demand actually is occurring. It's not occurring in the the US or Europe but in the Bric economies, are there governments enacting policies that slow groth?

The other, somewhat desperate alternative is you can actually shrink the economies where the growth is not by raising rates to 8% or more pushing the western economies into a highly disruptive and severe recessions. Is Trichet going to engineer Volcker like interest rates to bring this about?

The truth is, he can't do much about this problem, no monetary chief can. The appropriate policy response here to fight inflation needs to come from political governments. Specifically policies that eliminate energy subsidies in the developing world, increase alternative supply in developed world, and non petroleum based fuels. Playing with rates, unless you want to bring on the armageddon like levels of the Volcker era, is just tilting at windmills.

EU Treaty Failure in Ireland?

DUBLIN — In a significant setback for efforts to reform Europe’s unwieldy institutions, a senior Irish official said Friday that voters had rejected a revised European Union treaty designed to change the way the bloc governs itself and presents itself to the world.

If that outcome is confirmed in official results, it will mean that the 27-member bloc will be in turmoil, its latest attempt to reform stymied by less than one percent of its population of almost 500 million.

Justice Minister Dermot Ahern declared on television: “It looks like this will be a ‘no’ vote. At the end of the day, for a myriad of reasons, the people have spoken.”

Full article here in the WSJ.

This is an important treaty for the future of the EU and will help decide whether it transitions into a power with more centralized power or merely a loose association of states with common economic and political interests.

With any member state able to veto it, it shows one of the inherent weaknesses of the EU system in terms of change. This is their second attempt at a treaty revision to address some of these weaknesses with most member states bypassing direct popular votes and affirming the treaty through their respective legislative bodies.

What are the implications of a failure here during a time of continued tensions over monetary policy in disparate regions o the EU. What about the status of the Euro as a reserve currency. It's a young currency and it wasn't that long ago when the US had to intervene to support it. The Euro is over valued by a mile now, does that make it that much more vulnerable to these types of events?

Differing constitutional models are pretty fascinating to me. Should decisions be taken directly by the people in every case? Where and when should decisions fall to their duly elected representatives? How hard or easy is it to make change?

It's an interesting distinction in contrast to the US model. People often call for "Change" and complain when Washington can't get things done. But the truth is, the United States was designed with a heavy bias against change.

It's suppose to be hard to make little changes, and considerably harder to make big changes. All sorts of mechanisms are built in to naturally slow and/or stop things, and if anything ever gets done quickly its usually out of extreme emotions such as fear.

An example of which is the a lot of the post 9/11 legislation that gave us things like Airport Security checks that keep things off of airplanes that have little to no impact on our actual security. I get searched daily by people that check me for over sized bottles of shampoo while security tests routinely smuggle automatic weapons past airport screeners that nod off while millions of people flow through their scanners daily.

Excepting emotional events like 9/11 change is supposed to be hard. Bypassing a Veto in the Congress requires a 2/3rds majority which is notoriously difficult, amending the constitution requires a 2/3rds majority and even getting regular legislation through the Senate requires 60 Senators which is often cantankerous.

In the EU, even agreeing on Iran sanctions requires the assent of every member state. That's too hard and that's what this treaty attempts to fix.

The EU has grown quite markedly in size and I believe it's a good thing as it brings in former Soviet countries into the world economy and makes for a more peaceful and prosperous Europe. But they need to transtion to a new model and few countries have benfited more from the EU than Ireland. It will be ironic if one of the countries that have benefited most from the economic integration the EU has engendered causes this major treaty failure.

Nice Map of the Week

Interesting map for multiple reasons. The orange/brown areas are those where people spend 10-15% of their income on gasoline. Frankly, I was a bit surprised gas would account for such a high proportion of income across so many geographies and might explain some of the gas tax repeal logic that McCain came out with. Still a horrible idea though.

Note that that most of the pain here is in rural areas with large distances between home and work as well as incomes that are lower than those found in the rest of the country. Put an electoral map and overlay it on this one. What does it help? Who does it hurt?

Deal Musings on Microsoft Off Again/ Off Again Deal With Yahoo

Microsoft appears to have permanently walked from the "Off again", "Off Again" deal that's now, well, off again. The deal never appears to get traction since Ballmer doesn't want to brook any nonsense and Yahoo management has already done so much to try and avoid selling the company to big evil Microsoft. Is Ballmer posturing based on a need to "Look Good" and is that why he walked from a price he offered in May? Was the May offer ever real?

While I think 80% of the blame here is with Yahoo management, in terms of protecting shareholders and fiduciary duty, some fault rests with Ballmer who has behaved erratically here. Why walk from this deal at $33 when you have been pursing this company for a year.

This time the Yahoo board (Independent directors met with Microsoft, no Yang) offered to accept Microsoft's old offer from a few weeks ago at $33 bucks, with the Microsoft counter offer of "okay but it needs to be lower now". Ouch!

What does Ballmer expect them to go down to and is that really feasible for them? Is this a ploy by Ballmer to oust Yahoo management, then resume discussions after that?

Microsoft's statement that it only wants to buy a piece of Yahoo (the good part) is code to me for , they don't believe they can integrate the people. They are probably right but at the same time how do they see Yahoo giving up the best part of their business and leaving a shell behind?

This position has some substance behind it since most tech businesses have a lot of value in the people. And the people here have made it clear they don't like the combination and it's antithetical to the current culture.

Perhaps this is Microsoft's way of lending juice to Icahn's board slate and to get a new "culture" in place. But I wouldn't lay odds on this scenario either.

I've always seen Yang as a transition CEO that the board picked to sell the company. Shows you what I know since Yang doesn't really appear to want to sell the company.

What will Icahn do in response? He may be able to force the sale of Yahoo's Asian holdings which could create a short term pop but a large quick exit looks unlikely now. How is Yahoo's business doing now? Is it cheap in the low 20s? Maybe. But it's equally likely you could see the price in the teens as well where it will look cheap there also.

In other deal musings, remember the deal Air Force Cargo planes that went to Airbus instead of Boeing? It was pretty controversial, had some implications for McCain since he first questioned awarding the deal to Boeing before it was sent up for a rebid where Airbus won. There was quit a bit of rumbling in Congress to legislate a rebid or outright award to Boeing.

Well there is a rumor there was large math error in comparing the costs of the two alternatives and Airbus was not in fact cheaper. This is a pretty significant billion dollar contract with plenty of US jobs at stake. Could the Airforce not afford someone to check the math? GAO announces the results of the review soon. I'm Boing gets a big concession here and a re award is possible. Love to know how this kind of a basic error happened however. Something doesn't smell right.

What would Bloomberg work as VP on Either Ticket?

CNN Article on 20 possible Obama picks.

• He has "Governor" like experience making his fortune building a billion dollar company as well as managing the City of New York which has the budget of a medium sized state. Plus having lived in New Yorker City I know they complain more so it's worse.
• He was a Democrat, and a Republican. Now he is technically neither, so could be chosen by either.
• He may add some measure of "safety" to address weaknesses in Obama among male and low income voters.
• He knows the economy and the financial markets, building his company after a career in an investment bank and building his business from Scratch.
• He is an independent thinker and could help clinch independent voters.
• Frankly neither John McCain or Obama understand the economy particularly well, I think picking a VP on the ticket that does is one of the most important variables. Bloomberg would do exceptionally well here.
  

I consider myself a fanatical moderate (as opposed to moderately fanatical), Bloomberg tends to go towards the practical and the efficient and would be appeal to me personally.

Am I wrong in thinking either Candidate could select him as a bold but attractive choice? Obama is ahead and is less likely to take a risk like this, but I'd lay higher odds on a selection by McCain. It would do a lot to unseat Obama's mantle of "change", or at least even the odds out.

On Nortel Dropping Wimax

I don't think this signals the demise for Wimax. Capital is tight, and Nortel needs to focus on a few things and try and do them well in order to compete and survive against Cisco. Cisco is an absolute animal in networking 8 years after the burst of the tech bubble and I don't envy any large company CEO trying to compete against them. Cisco didn't buy all its large competitors, it just took all their customers.

However, while LTE will be the leader here, I see Wimax more of a 2nd place finisher rather than the next evolution of Qualcom's CDMA. An IP based next generation network has a real place here. I thought if Google actually won (i.e. got stuck) with the C-Block in the auction Wi-max would have been perfect for them. Qualcom's next gen tech, not so much. They bought Flarion and I'm pretty sure it was just so they could have a cause of action against everybody else using the OFDM patents. Although, I would never count Qualcomm out, they have some really bright attorneys.

From Silicon Alley Insider Below:

Dan Frommer | June 11, 2008 4:20 PM

WiMax, the long-hyped wireless broadband technology, is losing a backer: Nortel (NT) will cut its investment in WiMax to focus on a nascent, rival technology called LTE, which has won the support of the two largest U.S. wireless operators -- AT&T (T) and Verizon Wireless -- and big European carriers. (Nortel will funnel its remaining WiMax business through a partnership with Israeli gearmaker Alvarion.)

What does this mean for Sprint Nextel's (S) WiMax network, which is being spun off into Clearwire (CLWR) -- and has recently attracted billions of dollars of investment from the cable industry, Google (GOOG), and Intel (INTC)?

Not much, in theory: Sprint has its infrastructure suppliers lined up, including Motorola (MOT) and Samsung -- and not Nortel. (One of the reasons that Nortel's departure isn't a surprise.)

But it's not good news for Sprint and its partners. In any format war, you want more allies, not less. Just ask HD DVD backer Toshiba.

Jurvetson on Early Stage Investing

Some good thoughts on early stage venture investing from Steve Jurvetson.

My favorite part below, and full article here. If I am in a meeting with someone and I notice them jump around from one seemingly unrelated ideas to another, that is typically a sign of creative intelligence in my book. Not necessarily raw brain power mind you, rather creative intelligence which I think is a lot better.

Where he looks for disruptive technologies: "One source is if you're on a path of exponential progress, like Moore's Law, that's already coupled to something growing exponentially and tends to be disruptive to business as usual.

"Another source is a creative idea, something that nobody has ever thought of before. As the world becomes more democratic for ideas (though) ... the chances of any one person having a breakthrough idea are less and less likely.

"But if a breakthrough technology requires you to simultaneously be an expert in genetics and computer science, that dramatically lowers the number of people on the planet who can have that idea.

"If an organic chemist looking at a semiconductor problem has an insight, there's a higher likelihood Intel hasn't thought about it.

"As an investor, when we look for disruptive change, we often look for weird cross-pollinations of talent. That's why nanotech is so interesting, also synthetic biology and a lot of other fields. A lot of these companies if not all, or almost all, have a key insight that's some weird combination across academic disciplines that hadn't been thought of before."

Slow Posting

A bit swamped for the next day or two. Posting should resume tomorrow or Friday.

A couple reactions on the Iphone Release

AT&T has issued a press release providing additional details about service plans for the iPhone 3G in the U.S. First of all, AT&T confirmed that it remains the exclusive U.S. carrier for the iPhone, which will be available starting on July 11th.

The new iPhones will cost $199 (8GB) and $299 (16GB) with an unlimited 3G data plan costing $30/month. This is an increase from the current $20/month unlimited EDGE data plan for the 1st generation iPhone. Voice plans continue to start at $39.99, but no additional details are provided.

Meanwhile, AT&T reveals that Apple will no longer receive the revenue sharing from each users plans. It was highly publicized that AT&T paid Apple a portion of its monthly recurring service charges for each iPhone user. Under the new agreement, there is no revenue sharing. AT&T is presumably directing that money towards the $200 subsidy for the iPhone.

Update: Arstechnica was able to speak to an AT&T representative who claims that if existing iPhone owners buy an iPhone 3G, the new 2 year contract replaces the current contract rather than extending it.

Full article at Macrumours here.

Just a few reactions on the release and the plan.

1. The phone is great but there is nothing "earth shattering" upgrade wise here. Such as a keyboard for business users, or a OLED Screen. My guess is we will get that in the form of a Iphone or some kind of non related Tablet from Apple by Christmas. Plus the higher price per month may crimp an otherwise huge volume gain. Nice battery life though.
2. I have not seen a lot of data business models on $30 per month. $15 to $20 sure, but $30 undiscounted is a bit rare. Will this crimp Apple's US growth? I wonder what Apple's reaction to the price increase by AT&T.
3. Apple gets no piece of the revenue and it's still an exclusive deal and the ARPU is up $10 bucks?
4. When does exclusivity end? Let's give T-Mobile a shot at this and I am not an AT&T fan which is really just a bunch of SBC guys. I hate being forced to buy from LECs. Memo to Steve Jobs, stop making us do it.

Obama: You Should Drive to Work on Hope

Democratic presidential candidate Barack Obama sought to tap into anxiety over high petrol prices yesterday by pledging to seek a windfall profits tax on US oil companies if elected.

Launching a two-week focus on the economy, Obama accused Republican John McCain, his rival in the November election, of a "full-throated endorsement" of President George W Bush's policies, including tax breaks for oil companies.

"I'll make oil companies like Exxon pay a tax on their windfall profits, and we'll use the money to help families pay for their skyrocketing energy costs and other bills," the Illinois senator said.

Full article at the Herald here.
A couple reactions, other than if you tax a thing you make less of it:

1. Is this going to make gas prices lower or higher?
2 Is this going to increase domestic production of oil or decrease it relative to foreign imports?
3. Will it impact our trade balance negatively or positively? Could that hurt the dollar or help it?
4. Are you discouraging production without a plan in place for actual alternatives? How are the people Obama cares about supposed to get to work? On hope? "No we can't".

If you want to be sensible go ahead and impose the tax. But...

Allow the oil companies to avoid the tax with offsetting investment credits in new production. This way domestic producers can avoid the tax by increasing investment in production which lowers the price of gas and helps make the drive to work for low income voters cheaper. It also helps the dollar by offsetting all the foreign imports, the less of our oil that is foreign the cheaper it is because of our current account deficit. This pushes their short term profits down and incents them to invest in new production.

What's wrong with just importing our oil? Nothing if you don't mind a diving dollar and sending all your money to petty foreign dictators that want to kill us with it. My vote is, "No thanks".

This is somewhat excessive policy tinkering in my view that may result in over investment. However this is one case where I wouldn't mind a huge amount of over investment.

Lots of new Studies on Diabetes Medications and Sugar Metabolism

"PSN821 has the potential to be the first orally available molecule which delivers both glucose control and substantial weight loss, while PSN602 is designed to give greater weight loss efficacy without causing the cardiovascular side effects seen with some anti-obesity agents," said Anker Lundemose, President of (OSI) Prosidion

Full article here.

Another article out from the diabetes conference today:

Participants treated with Qnexa, which is also being developed for obesity, lost 8 percent of their starting body weight, compared with weight loss of 1.2 percent for the placebo group, Vivus said.

Full article here.

Since 2003 I have been pretty fascinated with the relationship between diabetes, metabolic disorder and sugar metabolism in the body. The way the body metabolizes sugars depends on the state the body is in when various types of sugars are injested. Additionally, non caloric substances that modify, or exacerbate the production of insulin in the body can cause more problems that just eating pure cane sugar. For example sugar substitutes or other stimulants.

A lot of the new drugs for diabetes "informs" this process in the body, as well as one of the very old ones, Metaformin also known as Glucophage. I think if we can understand this process better, we get closer to a real medical treatment for weight loss. And more broadly, the processes inside the human body contain a lot of clues not just for our own healthy but for future technologies in areas in the world around us.

Back to weight loss. American's eat too much, but it's not all our fault directly. The very powerful corn lobby makes sure there are all sorts of subsies that put corn based sugars into almost everything we eat. It's very cheap and drives fast food, but also really kills our ability to process foods normally.

Aren't you glad the Presidential campaign starts in Iowa? Obama won a break out upset in Iowa and Clinton was never able to take back the initiative.

Why not start it in a large state like California? The worst that would happen is there would be tax breaks for spray on tans or subsidies for surf boards and movie tickets and no one lobby would have such a concentrated voice. Sounds good to me.

Saudi's call for Summit between Producers and Consumers?

RIYADH, Saudi Arabia (AP) - Saudi Arabia says it will call for a meeting of oil producing countries and consumers to discuss soaring oil prices and work to prevent unjustified rise in prices.

Information and Culture Minister Iyad Madani says the kingdom will work with OPEC to "guarantee the availability of oil supplies now and in the future."

In a statement following the weekly Cabinet meeting, Monday, the minister said Saudi Arabia will also work to control "unwarranted and unnatural" price hikes.

He said that the current price of oil is unjustified.

This to me looks like:

1. The Saudi's don't have the excess production capacity they claimed they did
2. They are worried that consuming nations will shift away from oil consumption for cars and want to do some damage control or at least forestall it.

It seems like people are so used to using oil for cars they feel like there are no alternatives. Just because a thing has been a certain way for so long, why is it so hard for people to envision change?

At $5 to $6 per gallon at the pump, quite a few alternative business models become attractive.

Is Hilary Clinton Obama's VP Pick?

Washington Post speculation here.

"It's not a job that she's seeking. And it's not a job that she's campaigning for," said Howard Wolfson, the adviser. "But she has made it clear, during the campaign and now, that she will do, as I've said, whatever she can and whatever she is asked."

Okay..."We've got your resume, and we'll get back to you should a suitable position become available"

Obama needs to pick a VP candidate that will appeal to the Democratic base and bring in low income, less educated voters (the people that should be voting for him, but for some reason don't), independents and Republicans.

More than likely, this is a current or former Democratic Governor in a swing state (Ohio, or somewhere else in the Midwest and Virgina for example) that has very high national recognition to make Obama appear "safer". It's not Hilary Clinton.

She'll get offered a position in the cabinet in healthcare or elsewhere, question is will she take it.

If he picks Clinton as a VP candidate however, I'd put my odds of a McCain victory up 15 points from 40% to say 55-60%.

More drivers for a Shift away from Microsoft OS Dominance

The New York Times has a piece on the new Iphone here. Also, Macrumors live coverage of the Apple conference below as well as a picture of the lines of the sold out conference. Full link here of Macrumours and excerpt below:

The price also will rock: $199, according to people with knowledge of the matter, down from the current $399 and $499. Sources declined to be cited by name or affiliation because Apple and AT&T haven't authorized anybody to speak publicly about pricing until after Monday's announcement. The $199 price is being subsidized, though USA TODAY could not confirm details.

Rumors of a $200 rebate first emerged in April alongside claims of GPS and a thinner design. Similar claims were again echoed just last week.

Meanwhile Barrons has heard that the Foxxconn, Apple's iPhone manufacturer, has only shipped "several thousand" of the new iPhone and don't expect to ramp production up until the middle of the month. This would suggest an actual launch date closer to the reported AT&T blockout dates (June 15-July 15th).

Apple is widely expected to announce the 3G iPhone at today's WWDC keynote speech which begins at 10am Pacific. We will be providing live coverage at MacRumorsLive.com.

We'll know in a few hours what Apple has up it's sleeve. It's important because this former PC company has had the more of a dramatic impact on the wireless industry than any single company in years. It's inclusion of GPS will further drive the development of location based services.

A lot of people are anxious that the price point is too low but at $199 it really moves the device into mass market territory. Apple has already made huge inroads into Windows market share, a global mass market drive into the mobile phone market may accelerate the process dramatically. While Apple has made inroads, it's market share is still small compared to Microsoft and the OS share for its desktops has almost nowhere to go but up

Big picture aside there are rumors they may have a design with a built in keyboard for business users or heaven forbid, an OLED screen which would be incredible. An OLED screen plus a keyboard? That's pretty much a dream device.

I doubt this is true quite yet and I'd guess Q1 for that combination, but if it's even close I'll be picking up a new Iphone myself. The first computer I was exposed to was a Apple II at my elementary school. It was an incredible machine. Nice to see things come full circle.