Hank Paulson Doing Rehab on the Weekend Shows

I presume this is for his upcoming book. I've never understood how Hank Paulson ran Goldman.

But the thing that bothers me the most is his handling of the financial crisis. It seeemed that at many stages he accelerated the crisis where at many points it might have been diverted or at least slowed.

• The man struggled for a structure to use to save the banks instead of tried and true methods used in every prior crisis that wiped out debt holders.
• He made it clear that at no point he would save Lehman when his handling of that failure and Lehman's collapse greatly accelerated the problem
• It's not clear that the system is saved, but rather put into some sort of suspended animation where the condition could relapse at any point.
• The Fannie/Freddie guarantees were obviously a difficult call especially with apparent rumors around Russian pressure on this debt however, the taxpayer liability here dwarfs anything I've seen.
• The bailout of the auto companies and unions.

If we had just forced debt write downs as part of the bailouts I think I might feel a bit less hoodwinked at a taxpayer. The standard line from him and Geithner was "It's the best alternative among a bunch of bad ones".

No, you could have let the write downs happen and the country now would have less debt.

It's not the same kinda feeling I had about Edwards when he campaigned where I thought he was a panderer and dishonest-- I just don't think Hank was a very capable Secretary of the Treasury. I think he panicked and was in over his intellectual capacity to solve problems. Not a bad or evil person, just not a competent or intellectually deep person.

Mr. Paulson wanted to have an impact as SOT, and he has left his mark.

Paul Ryan on Health Care

Paul Ryan had an Op-ed in the WSJ outlining a platform for reform on multiple issues but some of the more interesting elements are in health care. As the president reaches for some kind of compromise on health care, or decides to ram through the Senate plan through the house, I think Ryan's ideas offer a lot of merit whether you are from the right or the left. Why not rach out for compromise here? Essentially this gives each individual $2,300 and each family $5,700 to spend as they see fit on health care. Full piece here- see below:

The plan ensures universal access to affordable health insurance by restructuring the tax code, allowing all Americans to secure an affordable health plan that best suits their needs, and shifting the control and ownership of health coverage away from the government and employers to individuals.

It provides a refundable tax credit—$2,300 for individuals and $5,700 for families—to purchase coverage (from another state if they so choose) and keep it with them if they move or change jobs. It establishes transparency in health-care price and quality data, so this critical information is readily available before someone needs health services.

State-based high risk pools will make affordable care available to those with pre-existing conditions. In addition to the tax credit, Medicaid will provide supplemental payments to low-income recipients so they too can obtain the health coverage of their choice and no longer be consigned to the stigmatized, sclerotic care that Medicaid has come to represent.

Some thoughts?:

• This amount comes up short in terms of what a health plan probably costs, however it's a great start and would get most all American's preventive care and a good chunk of emergency care covered. I'd like to see some sort of savings component so that if you take care of yourself, have great health habits, you save this money in case of an emergency.
• This "floor" would end up creating more efficiency in the health care system as health care companies work to reach these limits with more efficient programs.It reminds me of the Swiss system which gives each citizen a set amount to buy private insurance.
• The biggest negative? You can't really have a private health care system if the medicare system is still intact (the two systems feed on each other as excess costs are passed from one to the other).

However, Mr. Ryan addresses that with an idea for Medicare reform. It's a good start:

• Medicare. The Road Map secures Medicare for current beneficiaries, while making common-sense reforms to save this critical program. It preserves the existing Medicare program for Americans currently 55 or older so they can receive the benefits they planned for throughout their working lives.

For those under 55—as they become Medicare-eligible—it creates a Medicare payment, initially averaging $11,000, to be used to purchase a Medicare certified plan. The payment is adjusted to reflect medical inflation, and pegged to income, with low-income individuals receiving greater support. The plan also provides risk adjustment, so those with greater medical needs receive a higher payment.

The proposal also fully funds Medical Savings Accounts (MSAs) for low-income beneficiaries, while continuing to allow all beneficiaries, regardless of income, to set up tax-free MSAs. Enacted together, these reforms will help keep Medicare solvent for generations to come.

Hysterical: Hitler Reacts to the IPad Launch

It's strikingly similar to my "Venti IPod" Reaction on launch day.

Fascinating Trends in Genetic Screening

The interesting question is how soon before people start screening for traits? Intelligence, height, athleticism, or hair color.

Is that a good or a bad thing? Via NY Times:

The company, Counsyl, is selling a test that it says can tell couples whether they are at risk of having children with a range of inherited diseases, includingcystic fibrosis, Tay-Sachs, spinal muscular atrophy, sickle cell disease and Pompe disease (the one afflicting the children in the movie).

Once informed, Counsyl says, couples can take steps like using in vitro fertilization with genetic testing of the embryos, to avoid bearing children who would have the diseases, many of which are incurable and fatal in childhood.

Some genetic testing of prospective parents is done now, but only for a few diseases like cystic fibrosis and Tay-Sachs, and only for certain ethnic groups. Each test can cost hundreds or even thousands of dollars.

Counsyl’s test, which analyzes DNA from saliva samples, costs $349 for an individual or $698 for a couple. Similar tests from others are on the way, experts say. The trend shows that new technology could make possible widespread screening for the risk of passing on rare diseases, something that was simply not practical before.

Venti IPod Launch-- The Chip Piece Was a Big Deal

A couple observations from the Venti IPod Launch and long term implications for Apple:

• The most interesting piece of the tablet is it's the first Apple processor named the "A4" from their PA acquisition. I can't recall a situation where a company controls this much of the ecosystem for a product. They control the OS, the applications, and the now the processor. This has long term cost and performance differentiation possibilities if these chips gets integrated into the IPhone and IPod.
• The biggest surprise to me was no announcement about other carriers regarding either the IPhone or the IPad. Possibly they want to delay this until closer to the summer when they actually start to sell on other carriers. If they stick with just the one carrier, that will make me a sad little IT camper.
• This next bullet is going to get me a lot of hate mail from some of the Apple fanatics out there, but I think the IPhone at this point is dated and tired. In the earnings call before last, Apple was relatively arrogant about how it's IPhone was still miles ahead of competition. Give Android and some of the new phone launches, that's just not the case anymore. I've heard from more than a few sources that even with new market launches, momentum is slowing. It needs a refresh by May preferably much sooner.
• The biggest question I have is how will the new processors from Apple translate into the next IPhone. Specifically, will speed and battery life be positively or negatively impacted by this device? Does Apple have the scale to make the economics of this new chip work? Will it go into the next release? How does it compare to Qualcomm's chips?
• I would kill to see cost and performance data on the new A4 compared to Qualcomm and Samsung.
• Apples closed architecture and ecosystem bet seems to be accelerating. My working theory has been that as hardware advances and people become more comfortable with Phone/Computers people are going to want to use their own applications in the mobile realm just like they do with their Macs. Do I want to use Apple's email app on my IPhone? Hell no--it's a piece of junk and I'd much rather use Gmail. I think people are going to want more control just as Apple starts to exert even more control.
• There is no question that Steve Job's reinvigorated the the wireless world with innovation when he introduced the IPhone. I will always love the guy for that and his ability to wrest control from the carriers and truly innovate. However, we seem to have traded one monarch for another rather than getting any kinda application/software freedom on our phones.
• The price is A LOT lower than I thought it would be--and I think will catch a lot of others off guards as well. Specifically other netbook/tablet makers.
  
• My opinion on the IPad was not going to be anywhere near as transformation as the IPhone has not changed since release. This thing just looks like a product round out or a netbook launch in terms of revenue impact. Selling premium before the release was the right approach as detailed in my post here. With no details on new carrier relationships, I added 190 puts to the strategy. The lack of new carrier deals was a disappointment.

Long Common, Short Calls, Long Puts, Vertical Calls

The "New Poplulation Bomb"

Via Foreign Affairs

The New Population Bomb the Four Mega Trends That Will Change the World

Pelosi Sounding Optimistic Note on Getting Senate Health Bill Through House

"assuming pre agreed changes". We'll see--it's been my bet.

IPad: It's a Betwixt/Between Gadget- The Venti IPod

• It's basically a Venti IPod or for $165 more, a Venti IPhone without the voice application. If you have an IPhone on ATT in San Francisco or New York, and try and place a voice call, it's the same thing.
• Calendar and email integrated into a big giant IPod? Really? Did you guys stay up all night coding that? Come on...turn the hype machine down a notch man.
• So as expected it's essentially a super sized IPod. Not that bigga deal. Selling premium was the correct play.
• You know, on the bright side-- Now Obama has something cool he can get the Queen. (last time he got her an IPod-she already had one).
  
• AT&T is selling it without a contract so no subsidy. $630 for 3g, and $499 for Wi-FI
• Pricing is a lot lower than I thought it would be. That's the biggest upside here. Margin I am sure will improve if they sell a lot.
• Wow I didn't necessarily expect the device would be available on Verizon- I hypothesized a unlocked CDMA version for SPrint and Verizon but I thought at least it would be on T-Mobile. Given the spectrum differences it's unclear if the ship can hit those bands that are T-Mobile only.
• Why are they putting this thing on AT&T again. Why?
• No Camera it appears?
• Good deal for publishers--not so much for Apple.
• New processor from PA semi. That one is interesting and also expected. ALmost certainly this means the next IPhone will be using PA Semi chips. From what we can see they look pretty good.
• Nothing on the IPhone (tall version) at all. No new CDMA version-- no nada.
• AT&T again, Really??
• No Multitasking or TV Subscriptions (yet)
• Instead of the $29.95 extra for data a month how bout allowing normal tethering like a normal carrier instead of blocking.
• It's a Netbook that you can't put MacOS on. Does Apple prefer the closed IPhone OS because it is easier to monetize (i.e. control). I wonder if this thing is hackable --processor may be a problem.
• There really was no "one more thing" --no big surprise about the device. It really was just a big IPod.

A device worth getting-for some sure. I'd use a scaled down version as a Kindle. No positive catalysts though. This kind of device is not a new category--it's just a betwixt/between gadget.

Apple Hype Appears a Bit Overblown- Lots of nibbles rather than a whole new fruit

Best Case: It's a keyboard-less netbook with great content deals. Interesting? Absolutely--but not that bigga deal.

Great news for newspapers and book publishers who are finally getting some leverage again. Also great for carriers as people do more wireless contracts on their networks. However, as a company becomes excessively successful, hubris becomes increasingly possible and expectations become overblown.

It's possible that there may be some major surprise interface that either makes the device more portable than people expect, but the net of this is it's like adding a netbook line to the product line up. There will be a big emphasis on gaming moving it more into competition with Sony and XBox which is a positive but I'm not sure how meaningful a competitor it can be here.

Exciting and revenue enhancing yes, but not as transformational as the IPhone. Changes to the IPhone itself are more meaningful and interesting to the business overall. In short, it feels a lot more like various bites on the apple rather than a whole new fruit.

Things that would be more transformational?

• Verification of rumors of the IPhone moving to a new carrier. This was somewhat dismissed on the earnings call, and AT&T's honor was defended however, it makes huge sense to do this. While I think Apple's defense of AT&T has some merit at this point, I'll be surprised if there is no announcement of a new carrier deals for the summer.
  
• A 5-7 inch IPhone that somehow fits in your pocket with a Snapdragon or PA processor.
• I think a PA processor is highly likely here and that may have an impact on Apple's supply chain in a negative way.
• An upgrade to the IPhone itself. This is important as the device is losing momentum from Android and others. Apple has felt like it's been ahead of everyone else but folks have caught up quickly. This is very unlikely other than an update to the OS itself.
• There should be some updates to the Macbook line. Might be some vendor changes there as well. There is some materially odd funkiness going on with NVidia, Intel and ATI. Apple seems to be having indigestion with what Intel has been doing on the processor side.
  
• Some sort of secret interface or form factor advance that let's me take a 10 inch device with me. This kind of a change would be transformational but also is unlikely.

The net is, sell call premium against the hype unless Steve gets up there with a some sort of mobile tablet, or a hardware upgrade to the IPhone. Both materially unlikely.

Long Apple, Covered Calls, Vertical Spread, Calendar Spread

Fantastic Missive From Bill Gross This AM

One of his more interesting pieces with lots of great charts/data here.

Short Term Gimmicks are Killing the Country: Three Policy Fixes We Can Do Now

The president just came out with a new gimmick trying to appeace the torch laden illagers. He should stop with the gimmicks and move towards policies that will get the country back on track for the long term.

We've seen a bunch of these gimmicks in the last year as policy appears to be coming from the political operatives and pollsters rather than the policy wonks. Someone needs to put these political operatives and pollsters back where they belong and bring back leaders with vision. Among the gimmicks we've seen include:

• An $800 billion dollar stimulus of mostly pork without addressing our country's competitiveness.
• Special Medicare buy outs for select states in order to buy votes "The Nebraska Purchase"
• Crazy things like Republicans trying to protect Medicare and other entitlements as they promulgate waste and threaten the country with bankruptcy. Lack of spending restraint by either side.
• Monetary stimulus from the Fed that props up bad debt and real estate assets while pumping money through the system. Banks should have been allowed to fail and we are already starting to pay the price.
• Backroom deals and lobbying "donations" in what is supposed to be a health care "reform" bill. Big payouts and carve outs to unions and other special interests that do not serve the best interest of the country

Instead we need just THREE things and to ignore all this other nonsese. None of these things will result in a short term fix, but I think voters know it's the medicine the country needs to get back on track:

1. Energy independence. Move to a temporary replacement fuel for oil-- natural gas. This will create great paying jobs here in America, be good for the dollar and improve our deficits. And we can stop sending money to people that want to blow us up. This can be funded with a $1 a gallon tax on gasoline. Rebates for low income Americans can be implemented to limit it's regressive nature. Energy independence means a lot less borrowing from China and less inflation as consumer purchasing power buys more. It's the single most important thing the president can do.
2. Cut Spending. A 10% across the board in all government spending. Immediate cuts of waste in entitlements like Medicare which encourage unnecessary procedures. Bring the deficit immediately down to 3% of GDP with spending and borrowing decreases. We do need health care reform, but it means cutting our spending here from 18% to about 10%. Every other country gets by on this, we can too.
3. Modernize Infrastructure. Spending can create jobs and increase our competitiveness if its on things with an ROI. High speed rail in densely populated areas has one of the best ROIs out there and our investments here have been neglected for the last century. China has 300 mph trains --we should have that too. Keeps us off of foreign oil and it's faster than cars. If people can hop on a train from LA to San Francisco and get there in two hours, it will improve commerce throughout the state. Same thing for Boston to DC, Chicago and the South. We also need to start building tall buildings again. Stop living in fear and create buildings with amazing architecture that inspires like any great country should.

With these three things the president can start making speeches about our long term future and get people optimistic again. All these gimmicks and excess spending simply mortgage more of our future for electio year gimmicks as each party desperately tries to gain power. Time for our leaders to lead and get the country back on the right track again.

Calacanis on ComScore, Advocates Short:- Comscore's CMO Responds (corrected link)

Jason has done some fire breathing posts/emails before but this one packs quite a punch. Ya gotta love people with fight in em. Hopefully the lad does not burn himself out.

More here:

ComScore Tries to Buy Me Off
------------------------
This summer the tough guys at Comscore approached me with a
clandestine deal after I continued to publicly complain about their
methods. The message was clear: if I stopped criticizing them and
publicly supported their server data measurement program they would
not charge me. The $10,000 it would cost a year for this service would
be free for me if I threw my fellow entrepreneurs under the bus.

Their email to me included something out of the a Sopranos episode:
"Normally there is a cost to implement, but in this case we will
gladly waive the charge if you are interested." Yeah, and if you're
not interested perhaps you would like to come on a fishing trip with
us this weekend.

You bastards think that after a *decade* of me trying to stop your
extortion you can by me off by simply waiving some fees? I could
easily pay the $10,000 fee today but I will never give you guys a
dime. I will remember what you did to me when I was coming up forever.

I'd rather lose half my revenue from advertising as Mahalo grows from
a top 1,000 site (2007), to the top 400 sites (2008) and now a top 200
site (2009), and eventually even a top 50 site I hope (2011?)--than
give you even one ounce of my support.

I wrote back: "You guys are evil for charging companies--I would never
support you. Quantcast and Google are going to crush you guys.... And
I'm telling everyone I know to support Quantcast."

They never contacted me again.

Here is the response from ComScore's CMO, it's good:

Linda Abraham, comScore's CMO said...
Jason:
You really need to get your facts straight.

1) First of all, we measure Unique People rather than Unique Cookies which web analytics systems erroneously can unique visitors. I would challenge you to find any kind of server side measurement system that measures people, not machines or cookies. To show you how absurd server side numbers are, AOL Inc. had about 259 MM Unique cookies which gives it over 125% reach compared to a true reach of 54%. The inflation is driven by cookie deletion, multiple browsers, multiple machines for the same users, multiple devices etc… Large companies do not complain about their numbers because they know their server side numbers are flawed as obviously evident by the AOL metrics, not because ‘comScore fixes your number”. This dynamic is less obvious with smaller sites—they don’t realize how inflated their numbers are until their reach starts exceeding 100%.

2) Our Hybrid measurement is not mere pixel tracking as you assert. Our panel, which allows us to distinguish people from cookies, is a central part of the system used to correct for the inflation of cookie based server-side measurement.

3) You are confused about our pricing, so let me explain it to you:

• We charge a one-time setup fee of $5,000 that enables us to audit the beacon implementation and make sure we are measuring everyone consistently. This means auditing beacons on every page to identify pages with multiple beacons that result in over-counting, and pages with no beacon that result in undercounting. We have found about 15% of sites have placed multiple beacons on a page, and over 30% of sites that have missed a number of pages on their site. This auditing function is crucial to protect the system from being gamed. Imagine what happens, if unchecked, sites start cross beaconing each other to inflate their audience. The ‘free’ services do not incur this cost because not much is expected of them. We have seen many sites where the Quantcast beacons ‘fire’ up to 7 times from a single page!
• The initial $5,000 setup fee pays for that audit and gives you access to our reports on comScore Direct $5K for 6 month period.
• The $10K annual price is for ongoing access to our comScore Direct reporting system. However, you don’t have to subscribe to continue being measured using the hybrid methodology. As long as you maintain your beacons we will measure you with our hybrid methodology FREE of charge.

4) You may be upset because you don’t get a free subscription to the reports. We make no apologies for charging for access to our reporting system. That is the only revenue source we have to cover our costs. In doing so, we make a ‘mafia like’ pre-tax margin of less than 9% . Google and Quantcast offer metrics for ‘free’ because they have an advertising supported model. They use the data they collect from users or publishers to sell targeted advertising. We chose not to have a business model based on selling advertising, because we do not want to compete with our clients who make a living selling advertising, and who need a neutral third party to provide audience data that is free from conflicts of interest.

5) As for the free trial offer we made you, you need to get your facts straight. When we rolled out this new hybrid system, we needed some sites to beacon with us early to test it out and get user feedback .This is a common practice you might have heard of—it’s called ‘free beta.’ You chose not to participate, which is fine. But there was no attempt to ‘buy your silence’ and we challenge you to prove otherwise.

We provide a valuable service and we are proud of it. We offer the most accurate 3rd audience measurement tools available which are paid for in real dollars by more than 1,200 companies who, unlike you, freely choose them despite available ‘free’ services.

It’s unfortunate that you were picked on as a child. It must have been difficult to you. But you’re an adult now. If you want to debate, please do so with facts, not just blind fury.

Venture Investing Down 42% from Peak

Nice to see venture investment outlays shrinking to 42% of it's peak level in 2007, but this needs to keep up for returns in the asset class to get back to those days. Anecdotally, I've heard fund raising has ticked back up as public portfolios of institutions have recovered in the last few months. What a bummer. In short I don't expect it to continue unfortunately. A lot of this is folks sitting on dry powder.

Will be interesting to see if this transforms into a long term trend in the asset class and trends tick up with fewer dollars. I hope so. Interesting to note the impact on early stage vs later stage rounds. Early stage always takes the worst hit during periods like this.

More here:

It’s been suggested that the venture capital industry needs to shrink to as little as half its former size, and new data from the National Venture Capital Association shows that it’s almost there — with some evidence suggesting that further contraction is in order. According to its latest report, produced in conjunction with PricewaterhouseCoopers, VCs invested a total of $17.7 billion in U.S. startups during 2009, off 37 percent compared to the $28 billion invested in 2008 and down 42 percent from a recent peak of $30.5 billion in 2007.

After more than a year of few exits and generally unsatisfying returns, the slowing pace of investment parallels the decline in venture fundraising, which fell 47 percent in 2009. Still, the second half of the year generated more robust dealflow, with more than $10.1 billion invested after July 1.

For the NVCA, that’s cause for optimism, as is the relative enthusiasm for seed and early-stage companies, in which 8.6 percent less money was invested in 2009 than in 2008, compared to 46 percent fewer dollars going into expansion and late-stage rounds. In sharp contrast, however, was another stat: 2009 was the worst year the survey has ever recorded for startups attempting to raise money for the first time, with first-time investments accounting for a smaller portion of overall dealflow than ever before. (See the two slides below.)

Give Nancy A Week

I am hard pressed to believe she will give up on the Senate bill so easy. Give her one more week to grab votes.

Barney Frank Calls for Abolishing Fannie/Freddie in Current Form

How much you wanna bet the new form will be even more of a disaster.

In related news, looks like Bernake may be at risk of losing his job next week. The votes don't look good right now.

Gentle Ben may have made some early errors, but at least his later prescriptions were right on target. The monetary measures were textbook, and where they weren't textbook they were exceptionally creative. Of all our financial leadership, he was the one who got most things right eventually.

Could one say the same of Barney Frank who is a large part of the policy failure around Fannie/Freddie yet is now leading the charge to "recreate them" in a new phoneix reborn? Why is he still running financial reform?

Or Mr. Geithner who along with Paulson engineered a bailout that preserved all the debt holders at taxpayer expense?

More Apple Leaks: Not Mobile, Not As Important

Various leaks coming into the various sources such as WSJ etc, look like controlled leaks. Among these are:

• The device is being positioned as a 10 inch tablet that is a home portal "for the whole family" with an emphais on monetizing "old media". While this is interesting and great for old media which has to date suffered from the internet age , I don't see it as a game changer alone. People are not going to buy this thing just because they can all of a sudden manage newspaper and kindle like content.
• From all the leaks coming out of AT&T is looks like there is something coming soon that is going to be using their network. Other rumors include launch with a CDMA/GSM version that would launch on both GSM and CDMA carriers. I can't tell if Apple is playing Verizon off of AT&T or if it wants to launch on both. Frankly Sprint could use a break here, and in some parts of the West Coast their network is actually superior in terms of coverage (not a huge part).
• The most aggressive thing they could launch in my view is a 4-5 inch version which is essetially just a large IPhone. A version with CDMA here with no voice contract required and VOIP would be very interesting here. However, few if any rumors/leaks or whatever you want to call it lead one to believe we get a device of that size.
• The most interesting rumor we have is a "one more thing statement" from Steve Jobs and a Spring / Summer CDMA launch on Verizon for the next generation of the IPhone.
• Lots of the mockups look like 10 inch IPhones with 3G. But who the hell is going to lug a 10 inch IPhone around and why do they need 3g on it? That is the biggest mystery to me as part of this process. However, just a few days away from more clarity.

Here is the bottom line though. If this ends up only being a 10 inch device with 3G the upside is limited without being mobile.

Note: If Steve Jobs gets up on stage and somehow this thing is positioned as a "mobile device" rather than a "family portal" I think it's significantly more "Game changing".

The real mystery to me is why do we need to have carrier deals with a 10 inch device.

Lastly. There is an interesting rumor that Steve Jobs is not an Eric Scmidt fan and is working to get Google off the IPhone. That rumor rings somewhat true. Schmidt has a heavy nerd vibe which I love, but there is some underlying petulance that probably a recipe for conflict with Mr. Jobs who has been around a long time. Schmidt probably feels like Google represents the "new order".

To appease the disclosure gods I am long Apple.

Top 5 Positive and Negative Invstment Themes for 2010

Top Five Investment Themes for the Next 18 Months

1. Natural Gas exploration, production, and transportation. Natural gas engines, conversions. Natural gas trades relatively low here. There is legislative risk from Congress but there is also upside here as well. This is the easiest way for the U.S. to get energy independence. Pickens plan and others may get traction this year. All massive positives for this sector. Environmental regulation is the big risk here however.
2. Wireless Broadband Buildout. Backhaul, transmitters/ receivers, amplifiers, for HSPA, LTE. Location based services, advertising and networks. Mobile games and entertainment. Social networks here to stay.
3. Health Care IT. You can avoid a lot of the ups and down of Congress especially if you don't follow politics. However, health care IT has blown away the performance of any HMO or insurance company. Health Care IT is finally getting momentum.
4. Emerging market telecommunications. These plays have about 20% less volatility with more even upside plays on emerging middle class.
5. Financial services. BofA, JP Morgan, smaller entities under the radar but benefiting from massive Fed asset stimulus.

Top 5 Negative Themes

1. Oil and commodities. The view on oil and commodities has been relatively unchanged. While things commodities have ramped somewhat, buying upside on them is a bad risk/reward trade as China has cut back on incremental buying for the time being. I am not saying short- I am just saying don't use leverage to go long. Might these plays come back when inflation numbers start to pick up later in the year? Possibly, but there are several countervailing forces going on here. Treasuries and commodities all need to be watched over the next 3 months.
2. The Euro. I went positive on the dollar pretty close to it's bottom in a note last year, if that trend contiues a bit too far, some of the emerging markets plays could get hit. Something to keep in mind. Sovereign debt of several oil dependent countries as well as several in the EU. Had this view since about December 3 if not much earlier where I asked "Can I have your dollars please?"
3. China. Huge excess capacity. Chanos likened it to Dubai. Normally at this phase in a cycle I'd have a lot of calls on various Chinese names. I am a big believer in the long term vision for China but the road here looks choppy.
4. Canadian Currency, Australian Dollar.
5. Banks with a lot of proprietary trading as a share of total earnings and revenue. Too much political risk. The government is going to wage a Jihad on these banks.

What's Next for the Democrats

It will be interesting to see what is next. The Dems will be tempted to do a bunch of short term jobs bills and pork like they passed when the President got elected.

These bills have very little impact on addressing our structural problems and only add to the deficit. A deficit so high it makes it hard for businesses and pretty much anyone else to borrow.

However, the President has some good options on the table for 1) energy indepedence (natural gas), 2) an energy grid 3) high speed rail so the country has infrastructure on par with Europe and China. We need to invest in things that give us a return, not pork, and not debt.

The problem is the leadership sees an election in November and they want to juice the numbers with some short term jobs projects and pork. If that's the strategy, they deserve to lose.

The Chinese Economic Model- Say Something Bad About Us and We'll Crash Your Servers

This is a well written post on current Chinese trade and economic policy. Free and open trade and capital flows can be a great liberator and growth engine as it has been all over the world-- but instead we seem to have some sort of mercantilist chess game with an authoritarian intermix. Ever try and sell something in China that had a significant IP they could steal? Not a good time. More here:

The Feel Good Message of Obama W/ Out all the Pesky Democrats in Office

Is good for equities.

The Most Likely Course of Events is No Revisions to the Senate Bill

Even before this race turned ugly for the President in Mass...I was betting on the bill avoiding any conference between the Senate and House with the House just adopting the Senate version with no changes.

The problem is, with the 60 vote requirement (a rule that slows down government), any minor change or even a re-vote on the same exact bill wouldn't turn out the same way. Even if they don't lose the seat.

If the bill is taken as is, with no changes, then no conference is required and consequently no new vote is needed from the Senate and the bill goes straight to the President's desk.

Perhaps much more importantly, the longer this debate goes on, the worse it is for the President. The President desperately wants to move on to jobs and show the effectiveness of his government in creating jobs before the elections in 10 months.

You can bet that the next spot on the agenda will be some kind of jobs bill-- most probably the worst kind of short term gimmicks to get jobs numbers up.

Instead we really need long term solutions to energy independence and infrastructure. That's the kind of medicine the American economy needs.

Amazing shot of Mars via Brad Feld

Here.

To Have a Game Changing Tablet: Apple Needs to Fold It

I am excited like a lot of others about Apple's new "creation" that is being announced this month but it's probably going to be a disappointment due to lack of portability. This is a device that is more than likely going to spend most of its time at our desks.

The great thing about the IPhone is it's a computer WE CAN TAKE WITH US. 10 inches or even 7 inches on the low side is too big unless it's fold-able. That's what made it such a game changer.

I'll fall out of my chair if this thing is somehow made portable by Apple.

Look the dream device here would be a fold-able OLED screen that sits at 4 inches in your pocket and folds out to 8 to 10 inches. We are not going to get it. The technology is simply not there yet. We are more likely to get a glorified type kindle device that sits just below a laptop.

However, there are are a couple things that are pretty likely:

• It's going to have a screen around 10 inches.
  
• It's likely to run a variation of the IPhone OS rather than the Mac OS
• It's not going to have a OLED Screen. Unless Apple has a secret factory off of Hokkaido island nobody knows about, there isn't the production capacity available to produce that many OLEDs. Also, the price point would be too high for a 10 inch device using OLED (several thousand dollars to make these at 10 inches). One of the casualties of the recession is OLED screens have not reached scale economies as fast as others have expected.
• One big question is the air interface. Will it have built in 3g or 4g as an air interface and will there be pre existing sales agreements with carriers to subsidize the device. I've gone back and forth on this multiple times but my gut is no. Apple probably wants to keep the price somewhat close the Macbook so they won't do carrier deals that push the price way down. Pricing somewhere around $799 +- $100.
• I do think this product will represent a merging into the IPhone/IPod family. While there won't be a new IPhone announcement, there will be a OS 4.0 update. Eventually these products should go all on the same product cycle.
• There is supposed to be some sort of interesting or odd input mechanism-- I have no idea what it is and I am skeptical it will be that interesting. Eventually, the big input mechanism is going to be your voice and the importance of all those multi-touch patents will become less important.
• This will be a great device for watching movies, TV shows via the internet, music and your local and national newspapers. Lots of content deals are already rumored with premium subscriptions rumored at the NY Times and elsewhere. These kind of deals are going to be great for struggling publishers that have unique content and look to lure back subscribers that want to subscribe once again.
  
• I think there will be wireless syncing of calendar and contacts using the new OS 4.0.

In short the big let downs I think will be i) no air interface built in other than Wi-Fi 2) not portable 3) no OLED.

I think the killer here would be a device that through folding or other mechanisms can fit in your pocket yet scales out to a 8-10 inch screen. On the air interface, the dream is no voice plan, simply a VOIP data plan that allows you to select either Wimax/CDMA or LTE/GSM. Pure data, with all your video, music, newspapers, and content on the go with you all the time.

Not quite there yet.

Just for disclosure I am Long Apple.

"Airline Pilots" Make the Best Venture Investors

Use checklists. Via FT:

Such people are rare – and extremely hard to spot. Smart identified half-a-dozen different ways the venture capitalists he studied decided whether they’d found such a person. These were styles of thinking, really. He called one type of investor the “art critic”. He or she assessed entrepreneurs almost at a glance, the way a critic can assess the quality of a painting – intuitively and based on experience. “Sponges” took more time gathering information about their targets, soaking up whatever they could from interviews, on-site visits, references and the like. Then they followed their gut.

The “prosecutors” aggressively interrogated entrepreneurs; “suitors” focused more on wooing people than on evaluating them; “terminators” saw the whole effort as doomed to failure and skipped the evaluation part. They simply bought what they thought were the best ideas, fired entrepreneurs they found to be incompetent and hired replacements. And then there were the “airline captains”. Studying past mistakes and lessons from others in the field, they built formal checks into their process. They forced themselves to be disciplined and not to skip steps, even when they found an entrepreneur they “knew” intuitively was a real prospect.

Why were these last, methodical types labelled “airline captains”? Four generations after the first aviation checklists went into use – lists deemed necessary to get giant, complicated aircraft off the ground and over oceans and continents with minimum risk to passengers – people are starting to apply that methodology to a range of fields. In three years of research, I found that checklists were being used to improve patient outcomes after surgery, keep buildings from collapsing and ensure consistently excellent food at popular and high-quality restaurants. I also found that checklists seem able to protect their users against failure where they might have made mistakes – even the experts.

Sure enough, when Smart tracked the venture capitalists’ success over time, it became clear that the airline captains had by far the most effective style. Those investors taking the checklist-driven approach had a 10 per cent likelihood of later having to fire senior management for incompetence or concluding that their original evaluation was inaccurate. The others had at least a 50 per cent likelihood. The results showed up in their bottom lines, too. The airline captains had a median 80 per cent return on the investments studied, the others 35 per cent or less.

Those with other styles were not failures by any stretch – experience does count for something. But those who added checklists to experience proved substantially more successful.

Bing Makes Headway on Search Share

These look like steady gains to me. It would be interesting to see the total cost of acquistion for this share. Microsoft offers consumers quite a bit of money to buy products with their search tool and some of these numbers might be a tad crocked. However, I still expect Bing to expand share. The numbers look awfully bad for Yahoo or AOL. Via Techcrunch.

Mark Suster on Productivity

Great post on how to become productive. The first one is "eliminate voicemail". I couldn't agree more. It's one of the most inefficient and cumbersome ways to convey information. I can go through an email with the same content about 50 times faster than voicemail. Somewhat of a correlarly, if someone sends me a link to what I think is an article on a topic I am interested in, and the damn thing turns into a video? What a bloody waste of time. More on Mark's awesome blog here:

1. Eliminate Voicemail – I’ve read many articles on productivity over the years and most will tell you to severely limit the amount of inbound phone calls you receive. Tim Ferriss gave this extra emphasis in his book. Like you, I struggle to return everybody’s emails because I get too many. When added to my volume of Facebook messages, LinkedIn requests, blog comments and Tweets my head is definitely below water. So I often try to stay off of email during the day. I scan it for the most important messages to be sure nothing urgent has popped up.

Colin Kelley, the CTO of RingRevenue, left a comment in my last post about the need to “mask interrupts” in order to get work done. It made me laugh because the technical world has this exact phrase to talk in computing sense about the need to block out interruptions in order to complete a task.

“Sikakkar” (sorry, don’t know first name) left a comment to the post that he or she believes that it is important to be on email throughout the day to help with consensus building for his or her team and that the productivity drain of email is outweighed by the fact that the team feels involved in and bought into the decisions that are reached by a group.

I believe in consensus building and understand Sikakkar’s sentiment. At Accenture one of the most valuable tools they used when we were young programmers were “point sheets.” They taught us to write down questions when they came up and batch them together in point sheets. The logic was 1) you don’t ruin the productivity of your supervisor or teammates and 2) questions have a way of sorting themselves out when you wait. I personally believe that in the interconnected, “always on” world that is 2010 people emphasize communicating too frequently versus respecting the productivity of others. Admittedly I also fall into this trap.

Regarding phone calls, if I answered every phone call I’d be completely dead. Why? First, when somebody is calling you by definition they’re interrupting something that you’re working on. It’s much easier to be productive if you have long spurts of time to focus on a task and the phone call breaks the cycle. Of course if I’m not ensconced in deep, thoughtful work then by all means I answer the call.

It might sound rude to not answer calls when they come in but I find it acceptable as long as you return phone calls (which admittedly I’m still not at 100% despite best efforts). As Tim Ferriss would say, (me paraphrasing from memory) “why should a caller assume that when they want to speak to you is the optimal time for the recipient of the call to speak with you?”

But if you’re not answering every call when it comes in you run the risk of having to listen to large volumes of voicemail. I found this a killer so I hacked it. Quite literally. I got rid of voicemail.

About six months ago I signed up for a service called PhoneTag run by Jamie Siminoff. They take all incoming calls on my mobile phone and work phone, transcribe them for me and send me an email with a text transcription and a .WAV file to listen to messages if I feel the need to. The service starts at just $9.95 / month (no, I’m not an investor, I just love the product. In fact, they were recently bought by a publicly traded company called Ditech Networks).

OK, before you all tell me about Google Voice, let me say the following. If you care about the quality of your message transcriptions then it is worth the $10 / month to pay for the service. PhoneTag uses a combination of technology and human translation and thus has a much better accuracy rate. If you care about a free product then you should obviously use Google Voice.

Messages with any transcription service aren’t 100% accurate, but in 19/20 messages I can understand the vast majority of the context and don’t need to listen to the .WAV file. In the 1/20 case (5%) I just click on the message and hear it the same as I would if I were listening to voicemail.

Two big advantages for me. 1) I can read what you’re saying one hell of a lot faster than I can listen to voicemails and 2) whenever people hear that their message is being transcribed (it says this on the message) then they tend to leave shorter voicemails. Nice unintended consequence. Anyway, six months in and I’m LOVING it. Huge time saver for me.

Alarmingly Stupid Compromise On Health Care

In short, there is a report saying the health care compromise between the Senate and house would exempt any tax on "Cadillac" health plans for Unions until 2017.

It's bad enough the UAW made crappy cars for 30 years and flushed Congressmen Dingles pockets with money to keep mileage standards lower than the rest of the world making our auto industry uncompetitive during fuel shocks.

But now they want to keep their "Cadillac" plans while some Americans go without health insurance at all? It's bad enough many have gotten guarantees on their retirement accounts (pension plans) where many elderly have had their pensions wiped out with no government guarantees. Americans should be treated equally, even if they are not in the UAW. What is so virtuous about working for the UAW that these Americans get special exemptions while auto workers in other parts of the country do not?

Many of these "Entitled" auto workers have not worked since they have been 50 and get all these benefits so refuse to take another job out of "pride".

I can understand pride, but what about practical common sense and cutting the deficit and our huge spiraling debt? How much pride will we have as a nation when we keep borrowing beyond our means to ever repay?

It feels like both parties, Democrats and Republicans, are so focused on getting their pockets lined, they've forgotten the people they represent.

More via TPM.

Google's War on China Is a Great Leap Backward

From the very beginning when the United States gave China MFN (Most Favored Nation Trade Status) the wager has been that through increased trade and interaction, China would be brought closer into the western world. This bet has worked --some say a little too well.

Similarly, the way to introduce more free speech in China is to do so in small moves within their laws step by step.

I'd rather Google stay in China, be sneaky, get a ton of users and provide those users technology tools to evade government censorship. If I were to take bets on Google programmers versus government censors, who wouldn't wager on Google?

The attacks most likely by internal Chinese agencies are disturbing but it appears as though Google's internal security was able to fend most of this off. If Google tries to get the U.S. government involved it will only make the situation worse and the Chinese are unlikely to back down or modify their laws. This all puts at risk a 20% share in China which aside from it's impact on state control in China, is valuable monetarily.

Sun Tzu said "If you know not the enemy or yourself, you will succumb in every battle". This move strikes me as showing evidence of neither and rather naive.

The right strategy for Google is to continue to offer its services and encourage openness and discussion by skirting around the rules as much as possible. As this openness prevails, the Chinese citizens will demand less censorship over time from their government.

Over time, by working within the ridiculous system that China has set up, the openness that the internet engenders will bring liberty to China. Staging a fit now with little leverage is a big leap backwards.

Disclosure: Long Google.

Lots of Travel in the Next Few Days So Light Posting

Lots of ideas though.

America Can Rise Again Via "The Atlantic"

Some good historical observations. Competitiveness, national focus, and infrastructure. Here.

8% of All Human DNA is From a Virus

Interesting paper that says that 8% of our DNA came from a virus. Just for the record, when the alien lizards from outer space take over, this will be how they do it. Or wait, maybe they already have. Fascinating stuff here:

The assimilation of viral sequences into the host genome is a process referred to as endogenization. This occurs when viral DNA integrates into a chromosome of reproductive cells and is subsequently passed from parent to offspring. Until now, retroviruses were the only viruses known to generate such endogenous copies in vertebrates. But Feschotte said that scientists have found that non-retroviral viruses called bornaviruses have been endogenized repeatedly in mammals throughout evolution.

Bornavirus (BDV) owes its name to the town of Borna, Germany, where a virus epidemic in 1885 wiped out a regiment of cavalry horses. BDV infects a range of birds and mammals, including humans. It is unique because it infects only neurons, establishing a persistent infection in its host's brain, and its entire life cycle takes place in the nucleus of the infected cells.

Feschotte said this intimate association of BDV with the cell nucleus prompted researchers to investigate whether bornaviruses may have left behind a record of past infection in the form of endogenous elements. They searched the 234 known eukaryotic genomes (those genomes that have been fully sequenced) for sequences that are similar to that of BDV.

"The researchers unearthed a plethora of endogenous Borna-like N (EBLN) elements in many diverse mammals, " Feschotte said.

The scientists also were able to recover spontaneous BDV insertions in the chromosomes of human cultured cells persistently infected by BVD.Based on these data, Feschotte proposes that BDV insertions could be a source of mutations in the brain cells of infected individuals.

A Promising Public Servant

Image via Wikipedia

The FCC hasn't been the home of the best broadband policy. Stacey over at GigaOM has a post talking about how the new FCC chief is shaking things up.

I couldn't agree more. At least so far, the policy seems well reasoned to the point that it is changing the way I view the FCC. He's doing a great job, and I hope it continues. Via GigaOM

Texas vs California as a Model for America

Via The American:

The whole study is fascinating, and provides solid evidence that America’s schools are in need of some creative destruction (something Rick Hess has been writing a lot about).

One thing in the paper jumped out at me: how much better Texas does than California in educating students. Both states have similar demographics (although California has many more Asians). But California has what should be significant advantages—it is much richer ($42,102 per capita GDP to $37,073) and it spends 12 percent more on educating each student than Texas.

Despite this, Texas kids are one to two years of learning ahead of California kids of the same age. And blacks, whites, and Hispanics all do better in school in Texas than they do in California.

Ryan Streeter’s recent post on America as Texas vs. California was one of the most widely emailed

Bill Gross on Political Lobbying and Advice --"Go to Germany"

Bill Gross makes an argument that money should flow to Germany due to significant deficit pressure and quantitative easing. Interestingly, he's not a big fan of our elected representatives basically accusing them of being easily bought by lobbyists. He puts it in terms of ROI, $500 million spent on health care lobbying for a $50-$100 billion annual return.

My main question on the "go to Germany" strategy is even though the German fiscal situation looks fantastic--and let's face it, when doesn't it-- what happens to your real return if you get a sharp drop in the Euro.

This could unfold quite simply with debt problems in Greece, Spain or elswhere putting pressure on the Euro. Even if US deficits stay at 8-10% of GDP for one more yea, the Euro would likely suffer severely.

More here:

What amazes me most of all is that politicians can be bought so cheaply. Public records show that combined labor, insurance, big pharma and related corporate interests spent just under $500 million last year on healthcare lobbying (not much of which went to politicians) for what is likely to be a $50-100 billion annual return. The fact is that American citizens have never been as divorced from their representatives – and if that description fits the Democratic Congress now in control – then it applies to Republicans as well – past and present. So you watch Fox, or is it MSNBC? O’Reilly or Olbermann? It doesn’t matter. You’re just being conned into rooting for a team that basically runs the same plays called by lookalike coaches on different sidelines. A “ballot box” pox on all their houses – Senators, Representatives and Presidents alike. There has been no change, there will be no change, until we the American people decide to publicly finance all national and local elections and ban the writing of even a $1 check for our favorite candidates. Undemocratic? Hardly. Get on the internet, use Facebook, YouTube, or Twitter to campaign for your choice. That’s the new democracy. When special interests, even singular citizens write a check, it represents a perversion of democracy not the exercise of the First Amendment. Any chance that any of this will happen? Not one ghost of a chance. Forward Don Quixote, the windmills are in sight.

Distressed as I am about the state of American democracy, a rational money manager cannot afford to get mad or “just get even” when it comes to investing clients’ money. Still, like pilots politely advertise at the end of most flights, “We know you have a choice of airlines and we thank you for flying ‘United’.” Global investment managers likewise have a choice of sovereign credits and risk assets where stable inflation and fiscal conservatism are available. If 2008 was the year of financial crisis and 2009 the year of healing via monetary and fiscal stimulus packages, then 2010 appears likely to be the year of “exit strategies,” during which investors should consider economic fundamentals and asset markets that will soon be priced in a world less dominated by the government sector. If, in 2009, PIMCO recommended shaking hands with the government, we now ponder “which” government, and caution that the days of carefree check writing leading to debt issuance without limit or interest rate consequences may be numbered for all countries.

Byron Wien's 2010 Surprise List

Byron Wein's 2010 Surprise List is out. He has a spike up in the S&P and a smack down to 1000. That's a relatively consnesus view as most people expect a large uptick in the first half and a downdraft in the 2nd half. The market almost always makes as many people look as foolish as possible and consensus views are no fun.

I had the Supreme Leader out in my list, and he had the President out. Very possible.

One thing I missed in my list and have been thinking about is North Korea. Lots of rumblings there are about real change. An opening there and some kind of path to reunification could be the change nobody expects.

1. The United States economy grows at a stronger than expected 5% real rate during the year and the unemployment level drops below 9%. Exports, inventory building and technology spending lead the way. Standard and Poor’s 500 operating earnings come in above $80.

2. The Federal Reserve decides the economy is strong enough for them to move away from zero interest rate policy. In a series of successive hikes beginning in the second quarter the Federal funds rate reaches 2% by year-end.

3. Heavy borrowing by the US Treasury and some reluctance by foreign central banks to keep buying notes and bonds drives the yield on the 10-year Treasury above 5.5%. Banks loan more to corporations and individuals and pull away from the carry trade, thereby reducing demand for Treasuries. Obama says, “The suits are finally listening”.

4. In a roller coaster year the Standard and Poor’s 500 rallies to 1,300 in the first half and then runs out of steam and declines to 1,000, ending where it started at 1115.10. Even though the economy is strong and earnings exceed expectations, rising interest rates and full valuations present a problem. Concern about longer term growth and obligations to reduce leverage at both the public and private level unsettle investors.

5. Because it is significantly undervalued on a purchasing power parity basis, the dollar rallies against the yen and the euro. It exceeds 100 on the yen and the euro drops below $1.30 as the long slide of the greenback is interrupted. Longer term prospects remain uncertain.

6. Japan stands out as the best performing major industrialized market in the world as its currency weakens and its exports improve. Investors focus on the attractive valuations of dozens of medium sized companies in a market selling at one quarter of its 1989 high. The Nikkei 225 rises above 12,000.

7. Believing he must be a leader in climate control initiatives, President Obama endorses legislation favorable for nuclear power development. Arguing that going nuclear is essential for the environment, will create jobs and reduce costs, Congress passes bills providing loans and subsidies for new plants, the first since 1979. Coal accounts for about 50% of electrical power generation, and Obama wants to reduce that to 25% by 2020.

8. The improvement in the US economy energizes the Obama administration. The White House undergoes some reorganization and regains its momentum. In the November Congressional election the Democrats only lose 20 seats, much less than expected.

9. When it finally passes, financial service legislation, like the health care bill, proves to be softer on the industry than originally feared. There is greater consumer protection, more transparency, tighter restriction of leverage and increased scrutiny of derivatives, but the regulatory changes for investment bankers and hedge funds are not onerous. Trading volume and merger activity increases; financial service stocks become exceptional performers in the US market.

10. Civil unrest in Iran reaches a crescendo. Ayatollah Khameini pushes out Mahmoud Ahmadinejad in favor of a more public relations adept leader. Economic improvement becomes the key issue and anti-Israel rhetoric subsides. Talks with the US and Europe begin but the country remains a nuclear threat. Pakistan becomes the hotspot in the region because of the weak government there, anti-American sentiment, active terrorist groups and concerns about the security of the country’s nuclear arsenal.