Andy Kessler

Fox Business Interview with Brian Sullivan: What's Wrong With Wall Street?

WSJ: What's The Matter With Wall Street?

 

What's wrong with Wall Street? I don't mean the painfully slow and dreadful new Oliver Stone movie. I mean the real Wall Street. The stock market has been on a tear this month and is up a few percentage points for the year. But the stocks of most Wall Street firms are actually down close to 15% for the year.

It wasn't supposed to be this way. The Federal Reserve's near-zero interest rate policy makes it almost impossible for Wall Street not to make money by borrowing at next to nothing and buying anything, especially Treasury bonds. This gives banks easy profits and the wiggle room to write off the toxic mortgage assets that never got cleared out.

While most firms won't release earnings for another three or four weeks, Jefferies investment bank set off air raid sirens last week by announcing disappointing earnings, which CEO Richard Handler blamed on "painfully slow trading." And there's more trouble down the road.

Charts of Household Debt showing 7 years of overhang

Here is my conclusion, that we are 3 years into a 7 or more year deleveraging of household debt. The blue is actual through the first quarter of 2010. The red is trendline and the transparent blue box is my estimate for household debt to get back to trendline. You can download the data from this St. Louis Fed page.

 

Here is the same chart with data from 1980 instead of all the way back to 1953.

 

The original Fed chart looks like this:

OK, and now to show you there is nothing up my sleeve, here is the chart showing trendline. I used household debt data from the fall of 1983 start of the economic expansion through the spring of 2004, which was when Alan Greenspan declared that there was no deflation, but oddly didn't raise rates fast enough, the seeds of the credit bubble to follow. I used the Excel trenline function, using a simple linear trendline. You can select your own data and get different results, but I think I am pretty close.

WSJ: We Should Have Eaten Those Toxic Assets

TARP and the Continuing Problem of Toxic Assets

It was a bold bet that the Treasury and Fed could engineer an economic recovery without allowing the repricing of U.S. housing stock.

We should have eaten those toxic assets instead of sweeping them under the carpet.

The Troubled Asset Relief Program (TARP) was a foolish bait and switch. To prevent the 2008 financial crisis from worsening, TARP was originally designed to buy toxic mortgage derivatives weighing down banks and Wall Street, but no one could decide what price to pay for them. Too high and TARP would look like a government handout. But if the Treasury paid what they were worth, which was not much, financial firms would have to take huge write-offs, forcing many of them into insolvency and even nationalization.

So Treasury Secretary Hank Paulson switched plans, investing TARP funds directly into banks for a piece of equity. The idea was that banks would "earn out" their toxic portfolio—i.e., slowly write them off against the profits gained by the Federal Reserve's zero interest rate policy. It was a bold bet that the Treasury and Fed could engineer an economic recovery without allowing the bottoming action of a sharp but swift repricing of the U.S. housing stock. It turns out they only bought time, not a recovery, and now we are paying for that mistake.

Fox Business Interview with Brian Sullivan: Get used to market volatility

Interview with Andrew Warner at mixergy.com

Starts at 1:40. Andrew Warner is a terrific interviewer. Got me talking way too much...

Real world catches up to (Grumby) fiction - Sighting #2

Glenn Reynolds at Instapundit points out these video camera sunglasses. In Grumby, the shades are a lot cooler - Oakleys, naturally - and without the dorky extra plastic. Still, all these zShades30 need are Bluetooth and self generating power and a little code and ...

An excerpt below.

3:31 p.m., April 27, Milpitas

The counter on the plasma TV reads 387,428. Software sales are tracking pretty well to Grumby sales. People are buying at least one application, many two or three. The office is hopping as usual. People are everywhere. I saw someone sitting on the torture chair using a laptop. We’ve got a lot to do.

RecordAll is a hit. Meeta set the price at $20 if you store all your conversations on your own PC. Or for $1 a month, we can store them for you, on Amazon’s servers. We figure that even if someone leaves it on 24 hours a day and records everything, our cost from Amazon for storage and bandwidth won’t come to much more than 10 cents. Not bad.

Meeta walks up to my desk. I have to do a double take. I’ve never seen Oakley sunglasses quite like the ones Meeta is wearing.

“Cool shades, where’d you get them?” I ask.

“This guy,” Meeta says, pointing to a guy in a Hawaiian shirt at his desk.

“Does he work for us?”

“No.”

“Oh.”

“Oakley.”

“I can see.” I say, focusing on my screen.

“He’s from Oakley.”

“Ohhh,” I turn around. “Any more of those?”

“Sure, I’ve got a whole bag. The name’s David.”

I shake his hand, and then eye his bag as he reaches in and pulls out similar sunglasses and hands them to me. They have that classic Oakley tear drop shape and wire rims, but something is different. An expanded frame maybe. More of a tube than a wire. It looks spectacular.

“Awesome. You selling these?” Oakley’s are expensive, I figure these were probably $150 or $200. I don’t think I’ve ever spent that much on sunglasses. I lose them too often.

“No, not yet. That’s why I’m here,” David says.

“Well you can’t have these back.” I put my face in front of my Grumby and then look at the image of myself on my screen. arMirror, Meeta calls it. I’m definitely stylin’.

“We bombed with our Thumper,” David says.

“Excuse me?”

“Our MP3 sunglasses. Right idea, wrong execution. And way too early,” David admits.

He’s talking about those huge Oakley sunglasses with an MP3 player built in and clunky ear pieces.

“I remember seeing those. Too bulky, right? And the earphones were awkward.”

“Guilty.” David pauses. “So we’ve been playing around with carbon fiber and Bluetooth and…”

“Oh, I get it,” I interrupt. “You’re not here to sell us sunglasses are you?”

David looks at Meeta, who just shrugs and then looks back at me.

“No. Well yes, sort of. I’m here to sell you ON sunglasses.”

“Uh-huh?” I’m confused but curious.

“Here, give those back to me for second,” David says as he reached for my face.

I backed up. “No way. Take Meeta’s.”

“OK, sorry, my bad.”

David digs through his bag and pulls out another pair.

“Here, check this out,” he says.

He pops off a small translucent cover on the front of the glasses, which I hadn’t noticed before. It seems part of the design. Inside is a small imager.

“Wow, is that what I think it is?” I ask.

“We pried that out of a Grumby. I was reluctant to do an autopsy, er, maybe biopsy on a Grumby, but Meeta had sent down about a dozen of them and we designed these sunglasses to precisely fit the same imagers you use in your Grumby.”

I looked over and Meeta smiles. I just shake my head.

 “And those tiny holes there are for the microphones?” I ask.

“Precisely.”

 “And speakers.”

“Nope, we weren’t going to make that mistake again. It’s all Bluetooth. We figure someone will have a phone in their pocket and a Bluetooth headset…”

“in-yer-ear,” I mumble.

“We tried those. They’ll work. We want to do sunglasses and even designer prescription glasses and what you guys have is the perfect front end.”

 “So what about power? We can shove tons of lithium ion batteries in our Grumby, you don’t seem to have any room.”

“Great question. We use tiny hearing aid batteries,” David answers.

“Won’t the imagers and Bluetooth kill those in a few minutes?” I ask.

“We think we can get a couple of hours in standby mode and maybe 15 minutes active.”

“Oh, that’s all.”

I must sound disappointed.

“Hold on. We’re experimenting with a motion charger into the tube of the frame.”

“Huh?”

“Try holding your head still for more than a few seconds. It’s always in motion. We put in these tiny magneto-motion sensitive chargers, every time your head moves, it recharges the hearing aid batteries. If you need a good charge, you just shake your head around for a few seconds and you get another couple of minutes of juice.”

“Too cool. I love it. We’re in. We can work out a deal pretty quickly so that…”

David reaches into his back pocket.

“Meeta warned me.”

He hands me a check, made out to Grumby Mogul Limited Company Inc., for $20 million.

“And I understand that’s against $5 per unit and your cut of application software that we sell?” David asks.

 “Perfect. Meanwhile, can you send a hundred of these new ones?”

“Three hundred thirty seven,” Meeta corrects.

“Is that how many people we have?” I ask.

Meeta just nods.

“Well, thanks,” I say to David, fingering the shades on my head.

“No. Thank you, thank you, thank you,” he almost seems to bow as he walks backwards away from my desk. “This is going to be our biggest runner.”

After the Oakley dude left, I say “Meeta?”

“Yes, your lordship.”

I just laugh. “Cable?”

“Tolkien,” Meeta smiles.

“Well, at least he wrote his own stuff. Do we really need all these people?”

“More.” Meeta answers.

“For?”

“The ring.” Meeta quickly states.

“The…?”

“At this point, we’re going for it, are we not?”

“I guess so,” I mumble.

“It is very much too late to guess,” Meeta tells me.

“OK, the ring.”

 “Or else what?” I mumble.

“No else. Just the ring.”

I hear a chorus of, “One ring to rule them all…” from every Grumby in the building.

http://www.amazon.com/Grumby-ebook/dp/098271632X/ref=andykessler-20

 

 

WSJ: The Yo-Yo Market and You

Bull markets, it is said, climb a wall of worry. Smart investors buy in early when worries about profits or inflation or wars scare away the faint of heart. Latecomers then bid up stocks as each worry becomes unfounded, until there is nothing left to worry about. Once there is only good news, the market peaks as there is no one left to buy.

Bear markets, on the other hand, fall into what I like to call the pit of doom. Forget about worries—actual bad stuff happens, until nothing bad is left to happen and the market bottoms as there is no one left to sell. 

From early May through last week, the market dropped 1500 points into the pit, on the backs of gushing BP oil, riots in Europe, a 30% drop in pending home sales and the news that maybe your next door neighbor is a Russian spy. But now we've seen 680 Dow points added over seven straight up days before a slight decline yesterday. What the heck is going on?

Interviews with Andrew Keen and Techcrunch

Here are parts 2-5:

Part Two: Kessler on The World Economy

Part Three: Kessler on Productivity

Part Four: Kessler on The Next Big Thing

Part Five: Kessler on Where To Invest

Real world catches up to (Grumby) fiction - that was fast!

Not a week after getting my book Grumby up for sale on Amazon, Steve Lohr and John Markoff write a front page article for the New York Times with an almost, but not quite, real world example of a Grumby in action.

Eric Horvitz at Microsoft and others are using speech recognition and voice technology to displace medical assistants and receptionists.

Here is the Microsoft medical assistant:

“Hi, thanks for coming,” the medical assistant says, greeting a mother with her 5-year-old son. “Are you here for your child or yourself?”

The boy, the mother replies. He has diarrhea.

“Oh no, sorry to hear that,” she says, looking down at the boy.

The assistant asks the mother about other symptoms, including fever (“slight”) and abdominal pain (“He hasn’t been complaining”).

She turns again to the boy. “Has your tummy been hurting?” Yes, he replies.

After a few more questions, the assistant declares herself “not that concerned at this point.” She schedules an appointment with a doctor in a couple of days. The mother leads her son from the room, holding his hand. But he keeps looking back at the assistant, fascinated, as if reluctant to leave.

Maybe that is because the assistant is the disembodied likeness of a woman’s face on a computer screen — a no-frills avatar. Her words of sympathy are jerky, flat and mechanical. But she has the right stuff — the ability to understand speech, recognize pediatric conditions and reason according to simple rules — to make an initial diagnosis of a childhood ailment and its seriousness. And to win the trust of a little boy.

And here is a very short scene from Grumby:

I’m sitting in a somewhat stark room at Stanford Hospital. Lots of equipment is attached to the wall and on carts in the room. I’m talking to my friend Mark, who has been hounding me for more Grumbys to play with. What a doctor wants with all that technology, I have no idea. Don’t they just bang your knee with a rubber hammer? Mark explains that he got a pile of money from Cisco, the networking company that has had an effort to create doctorless clinics over the last five years with not much traction until Mark suggested a Grumby.

“Hey, it looks just like Meredith Grey…Grey’s Anatomy, right? The TV show?” I ask. It’s a stunning replica, cat like eyes, medium length brownish hair, everything, down to the funny smirk.

“We argued back and forth whether to use her or some old TV doctor, Dr. Kildare or something, but it became clear that no one over about 35 would use this thing, so we went young.”

“Can I try it?” I ask. “Sure. It’s an early model, but ought to work pretty well. Just say hello and introduce yourself.”

I look Meredith Grumby in the eye and say “Hello.”

And in Meredith Grey’s voice, the Grumby says, “Well, it’s about time you show up. We don’t have any information on you. Let’s get going.”

“OK.”

“Good. Now strip down to your skivvies.”

“Um,” I look at Mark, “is this part of the program?”

“I’m a doctor. Grow up.” Meredith scolds me.

“OK. OK.” I strip quickly.

Mark laughs and whispers, “It’s a power thing.”

“Wow, is that a roll of quarters or are you just…OK, I’m kidding. But I do need some personal information.”

She asks, I provide.

“OK, great, beats filling out forms, doesn’t it? Now grab that blood pressure device and wrap it around your upper arm.”

Mark whispers to me, “Grab the stethoscope instead, just for fun.”

I grab a stethoscope attached to a wire coming from the wall and put it up to my heart.

“That’s not the blood pressure monitor. You need to watch a little more TV. It’s that one over there, labeled blood pressure. Jeez, another Einstein,” Meredith berates.

I obey.

“A little high. Looks like we’ll be sucking out some of your blood in a moment. Meanwhile…stick that cone looking thing in your ear, will ya?” she says with a chuckle.

Over the next few minutes, I use the stethescope, a tongue depressor with a little mini-camera attached to it, I get weighed, my height read, all seemingly entered into a database.

“A little overweight there, aren’t you fella? Lay off the cheese doodles or I’ll get you on some unbearable no beer or martinis diet. That won’t be fun.”

“Well, I missed a couple of weeks of basketball and…”

“Yeah, whatever. OK, now bend over, grab your ankles and say yee-ha.”