The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

I wonder if you could go to a Bank CEO’s home, break into his house, and throw out all of his personal possessions — family heirlooms, photos, awards — then claim a paperwork error.

That is the excuse they have been using:

“In an era when millions of homes have received foreclosure notices nationwide, lawsuits detailing bank break-ins like the one at Ms. Ash’s house keep surfacing. And in the wake of the scandal involving shoddy, sometimes illegal paperwork that has buffeted the nation’s biggest banks in recent months, critics say these situations reinforce their claims that the foreclosure process is fundamentally flawed . . .

Identifying the number of homeowners who were locked out illegally is difficult. But banks and their representatives insist that situations like Ms. Ash’s represent just a tiny percentage of foreclosures.Many of the incidents that have become public appear to have been caused by confusion over whether a house is abandoned, in which case a bank may have the right to break in and make sure the property is secure.

Some of the cases appear to be mistakes involving homeowners who were up to date on their mortgage — or had paid off their home — but who still became targets of a bank.”

The reason this keeps coming up is the fraudulent, half assed, on the cheap, illegal, mass production of fraudclosures by banks. They made their Ford Pinto calculation, and decided that tossing out a few people illegally — even those who had no mortgages — was worth the cost savings of actually doing this correctly (i.e., legally). I hope that some AG or judge recognizes the systemic bank perjury and tosses some of these jackals into prison.

When I befriended the order of ninja assassins, I had no ulterior motive in mind — I merely thought they did some . . . let’s call it interesting work. (We run some money for them, and they are the last client you want to screw up with). I hope I never have to ask them for a favor — but if this happened to me personally, I certainly would not hesitate to ask . . .

>

Source:
In a Sign of Foreclosure Flaws, Suits Claim Break-Ins by Banks
ANDREW MARTIN
NYT December 21, 2010
http://www.nytimes.com/2010/12/22/business/22lockout.html

Quick housekeeping note: IF I write an e-letter this week it will be earlier in the week. There will be no letter’s next week then we launch the first Saturday morning in January with my annual predictions letter. And just for fun, one of my readers said that the title of last week’s letter should have been “Kicking the Grenade Down the Road.” Better check that pin! Now, this week’s OTB.

I am fascinated to watch the world change at an ever accelerating pace. Today’s Outside the Box looks at some of those changes, specifically the future of Apple, Google and media. I found this to be a fascinating exchange. Whether you are an investor in tech or simply a consumer of media services ( and if you area reading this, you are), the world id getting ready to change in ways that boggle my mind at least.

I shot this week’s OTB to my friend David Brin, the sci-fi writer, social critic and one of the world’s leading futurists. Here is what he said:

“John, I found the Whalen interview brilliant and very informative.  I always like guys who take the big, big picture. (Note: I bought AAPL in 1983 at 20…. after Splitting twice, it is now at 320, so I am biased by happiness.)

“It does seem to me that Whalen touches on a key point when he says: It will be interesting how this all gets monetized.”

“He correctly sees the monopolistic control model of content-delivering “pipes” collapsing into a vast lake of content. Though this won’t benefit the content owners, either. Moreover, the makers of specific mobile hardware will matter less and less. Money will still be made by each year’s best device maker, but it will remain a hardscrabble, highly competitive world. Device-making will not be a robust business model for steady and ongoing profit.”

This is an interview of Michael Whalen (see more on him below) that was done by my fishing buddy friends at The Institutional Risk Analyst. Chris Whalen is one of the honchos there and he rounded up his brother for the interview. Contact numbers for them (and a free trial subscription) are at the end of the piece.

So put on your thinking cap and let’s jump in.

Your thinking high-speed wireless broadband is the future analyst,

John Mauldin, Editor

Outside the Box

In this issue of The Institutional Risk Analyst, we speak to Michael Whalen, [Emmy] award winning composer and new media observer about the outlook for the business of creating and delivering content.  Since graduating from Berklee College of Music, Michael has taught a business for music class that has saved thousands of young artists from making terrible mistakes with content and other contractual rights.  Think Frank Zappa and Warner Brothers.   And yes, Michael is IRA co-founder Chris Whalen’s younger brother.

The IRA: So Michael, let’s start with kudos for the call on iTunes years ago. You first gave your brother a heads up about Apple Computer’s (AAPL) move into music via iTunes a decade ago, correct?

Whalen: Thanks. Yes…back in 2000 – 2001, I saw that Apple was getting ready to take a monumental step by shifting its business away from just computers and software towards mobile devices. To see how big a deal this decision was, you have to travel back to that time… When people thought of downloadable music the first thing they thought of was Napster (remember them?) and to the general business community the idea of all entertainment being sold and distributed digitally through a SIMPLE platform was “risky” and truly visionary. The music business was all about CDs (still) and the traditional model of physical product. Interestingly, iPod was not first to market. The digital music players that did exist beforehand were clunky and big. In 2001, concepts such as iTunes and the iPod made it look like Steve Jobs and the management at AAPL were crazy or at least losing “confidence” in their core business. People asked with more than a tone of criticism: “why diversify”? “Has Microsoft (MSFT) beaten you”? Now 10 years later, their gamble looks like genius. It was…

The IRA: Indeed. How do you view the AAPL strategy going forward, especially with the apparent decision to let Droid handset take overall share? Is AAPL still well advised to keep proprietary control over the hardware and not allow third-party produces to make handsets that run the AAPL OS?  Click here ( http://us1.irabankratings.com/mobile/home.asp ) to see IRA’s new digital widget for handsets.

Whalen: I think handicapping the handset/mobile device market with just a hardware conversation is short-sighted, frankly. In my opinion, the near-term future is all about content streaming. The profit margins in these handset devices is so small that staying in the game will be very tough if you are not already in it and buying your way into the market may not pay off because the margins might not cover the cost of entry unless you are hugely successful. For investors interested in AAPL, watch what they do with their huge new cloud-computing center in North Carolina. As already reported in the media, this facility is going to go far beyond simply turning iTunes into a streaming subscription service. AAPL is going to start to be very visibly aggressive with all that cash they have and this location is but a bellwether of other centers and a very interesting future that is unfolding.

The IRA: Do tell. So, to ask the same question from a different perspective, will AAPL push all content to all devices or just the iPhone/pod/pad? Maybe layers?  Your reply suggests that the hardware origin no longer matters, even for AAPL.

Whalen: Hardware only matters as a platform for content streaming and customized applications. The future is here right now: the iPad, iPhone and even the new Macbook Air have no hard drives…. they have flash drives which suggests that the data you need to operate the device can live on a flash drive or the data will be usable at the other end of a network someplace. AAPL has aggressively inserted “data pushing” into nearly every app now. So, from now – - look 24 months into the future when the mobile phone companies finally have their networks together here in the USA and we are talking about something ever more huge on the horizon: imagine making broadcast television and radio totally irrelevant – - even to captive audiences like commuters, which has been the life blood of radio. People will be able to stream any kind of content in any definition in real time -everywhere in the United States. Countries like Korea and Japan are years ahead of us in this technology. However, the USA is “entertainment thirsty” and on the move. The real question is how much will this new streaming content cost and where will the market balk when it is so used to getting so much content for free now.

Read the rest of this entry »

NEW YORK (Big Picture Exclusive) – Gargantuan money manager Blackrock reported on Friday that assets in U.S.-listed exchange-traded funds and exchange-traded products have surpassed the $1 trillion milestone for the first time.  Combined assets in U.S.-listed ETFs and ETPs reached $1.027 trillion late Thursday, BlackRock said. That includes 894 ETFs with assets of $887.2 billion from 28 providers on two exchanges and 185 ETPs with assets of $115.5 billion from 20 providers on one exchange, it said.

There is growing speculation surrounding what is believed to be the next breakthrough product in the ETF marketplace:  Single stock tracking ETFs.  Unlike their index-based cousins, these new single stock trackers would, as the name implies, track only a single stock, trade at exactly the same price as the stock to which they’re linked and consequently eliminate the need for single stock ownership.  A top executive with a money management firm who is familiar with his company’s plans to launch such a product and was granted anonymity so he could speak freely, put it this way:  “Think about the prospect of, say, a GE tracking ETF — an investor could capture over 99% of the movement of GE while simultaneously forfeiting any claim to a dividend and paying us up to35 basis points to manage the ETF.  What’s not to like?  We think this product paves the way for the ETF marketplace to collect its next trillion in assets.”

Greenlight’s David Einhorn appeared on “In the Loop” with Betty Liu and Jon Erlichman. He said that too-big-to-fail sentiment curbs concessions and that he is not looking at the jobs story when he’s deciding on an investment right now. He also said Apple is a premium opportunity and that a St. Joe buyout would be would be “very tough

~~~

Greenlight Capital’s David Einhorn on Bloomberg Television. Einhorn appeared on “In the Loop” with Betty Liu and Jon Erlichman.

~~~

Washington’s Blog strives to provide real-time, well-researched and actionable information.  George – the head writer at Washington’s Blog – is a busy professional and a former adjunct professor.

~~~

President Obama has “compromised” on everything from financial regulation and healthcare to taxes.

Obama claims that all of his “compromising” shows that he’s getting things done. After all, politics was long ago defined as “the art of compromise”.

On it’s face, it makes sense that if both conservatives and liberals hate legislation, it must mean that there was give-and-take, and it ended up somewhere in the middle.

But that isn’t necessarily true.

Specifically, as I pointed out last month:

Conservatives tend to view big government with suspicion, and think that government should be held accountable and reined in.

Liberals tend to view big corporations with suspicion, and think that they should be held accountable and reined in.

Okay, stay with me here for a minute …

Conservatives hate big unfettered government and liberals hate big unchecked corporations, so both hate legislation which encourages the federal government to reward big corporations at the expense of small businesses.

As an example, both liberals and conservatives are angry that the feds are propping up the giant banks – while letting small banks fail by the hundreds – even though that is horrible for the economy and Main Street.

The Dodd-Frank financial legislation wasn’t a compromise where things landed somewhere in the middle between liberal and conservatives ideas. Instead, it enshrines big government propping up the big banks … more ore less permanently.

Many liberals and conservatives look at the government’s approach to the financial crisis as socialism for the rich and free market capitalism for the little guy. No wonder both liberals and conservatives hate it.

And it’s not just the big banks. Americans are angry that the federal government under both Bush and Obama have handed giant defense contractors like Blackwater and Halliburton no-bid contracts. They are mad that – instead of cracking down on BP – the government has acted like BP’s p.r. spokesman-in-chief and sugar daddy.

They are peeved that companies like Monsanto are able to sell genetically modified foods without any disclosure, and that small farmers are getting sued when Monsanto crops drift onto their fields.

They are mad that Obama promised “change” – i.e. standing up to Wall Street and the other powers-that-be – but is just delivering more of the same.

They are furious that there is no separation between government and a handful of favored giant corporations. In other words, Americans are angry that we’ve gone from capitalism to oligarchy.

So if both liberals and conservatives hate something, it doesn’t necessarily mean it’s a compromise. It may mean that they feel disenfranchised from a government that is of the powerful and for the powerful.

Here’s the latest additions to my Instapaper:

• The great bank heist of 2010: Wall Street wins, Main Street pays — again  (MarketWatch)

• How to navigate the bond rout (Fortune)

• (Cat fight!) Why Is CNBC Trying So Hard to Defend Insider Trading? (Hub Pages)

• Saxo’s outrageous predictions for 2011 (FT Alphaville)

• Keeping an email address secret won’t hide it from spambots (Guardian)

• A New THEORY of AWESOMENESS and MIRACLES (short term memory loss)

• Suitably dressed: The lounge suit, battledress of the world’s businessmen, is 150 years old—possibly (The Economist)

I have been saying that I think this rally could end sometime next year.

That was before I saw the word of the year: Austerity.

I am wondering if this isn’t the most bizarre contrary and Bullish indicator we have seen:

Time:

The word, which seems to have been in every story about the world’s troubled economies this year, became the reference publisher’s most looked-up word thanks to the policies of euro zone countries following the European Union debt crises, which forced many EU member states to drastically cut government programs and social safety nets.

Is that odd, or what?

Market inflation signals stat update: The prospect of higher inflation continues to join the rise in equity prices. Since Aug 26th, the CRB index is up by 23.7% and the S&P 500 is up by 19.8%. With this, the debate over whether the rise in nominal interest rates are more a response to improving growth instead of inflation has been growing but here’s evidence that its more the latter than the former. Since Aug 26th, the implied inflation rate in the 5 yr TIPS (highest since May today) is up by 67 bps while the nominal 5 yr Treasury yield is up by just 59 bps. The impact is less so looking out 10 years but inflation still makes up a big chunk of the move. The 10 yr implied rate is up by 77 bps while the nominal rate is up by 87 bps.

Doug Kass has been teasing Fast Money watchers, dribbling out his “Unexpected Surprises.” (He will be dropping two more per week every Monday).

Surprise No. 1: I expect a series of populist initiatives by the current administration beginning by a frontal assault on mutual fund 12b-1 fees.

Surprise No. 2: The Internet becomes the tactical nuke of the digital age. Cybercrime likely explodes exponentially as the Web is invaded by hackers.

No. 3: Scarcity of water boosts agricultural prices and causes a military confrontation between China and India. The continued effect of global warming, and the increasing scarcity of water drives agricultural prices higher. Biggest aspect of this: trade sanctions, then military actions, by India against China.

4: Food and restaurant companies are among the worst performers in the S&P 500 Index.

5: In 2011, Microsoft (MSFT) launches a tender offer for Yahoo! (YHOO) at $21.50 a share. With the company tee’d up, News Corporation (NWS) follows with a competing and higher bid. (Microsoft is successful)

6: Vice President Joe Biden and Secretary of State Hillary Clinton switch jobs by midyear 2011, 18 months before the 2012 Presidential election.

An Obama/Clinton ticket would be viewed by many as unbeatable. Clinton is a relentless campaigner and she would be a far more effect drawer of votes than Biden. (Consider how many votes Obama and Clinton combined received in the 2008 Presidential primary campaign.)

7: Partisan politics cuts into business and consumer confidence and economic growth in the last half of 2011.

8: The market moves sideways during 2011.

9: The price of gold plummets by more than $250 an ounce in a four-week period in 2011 and is among the worst asset classes of the new year. The commodity experiences wild volatility in price (on five to 10 occasions, the price has a daily price change of at least $75), briefly trading under $1,050 an ounce during the year and ending the year between $1,100 and $1,200 an ounce.

10: The SEC’s insider trading case expands dramatically, reaching much further into the canyons of some of the largest hedge funds and mutual funds and to several West Coast-based technology companies.

As always, thought provoking stuff from the Uncle Dougie . . .

>

Source:
More Surprises Are in Store for 2011
Doug Kass
Fast Money, 12/20/2010

http://www.cnbc.com/id/40754977/