The Age of Balance Sheet Recessions

This afternoon I received a twitter asked us to check out the presentatdion by Nomura Chief Economist Richard Koo. He compared the situation USA is in now with the situation Japan has been through for the past twenty years. He concluded that USA is indeed in the same boat. This recession is a balance sheet recession instead of an inventory recession (We are all familiar with inventory recession, sort of, Karl Marx pointed out the inventory recession more than a hundred years ago). 

Richard Koo's presentation

New Economic Thinking

A balance sheet recession happened when the private sectors are paying down the debt even in a zero interest rate environment combined with saving/paying down debt by house hold. Zero interest rate won't have much affect when facing a balance sheet recession, i.e., monetary policy itself is not enough. We need fiscal policy, i.e., the government needs to come in and borrow money and stimulus the economy. So said Richard Koo. 

The recession cause Richcard Koo presented is very convincing. The zero interest policy was introduced more than 18 months ago, and $800B stimulus later (no doubt that Krugman argued many times in his NY Times Column that the stimulus is too small) the unemployment is still around 10 percent. It is maybe why in the second quarter earning reports season that Wall Street punished any company that dares to mention any expansion plan.

I am just not sure about the solution. Should the government borrow more and throw more money at random direction to hope some would stick? Or could the government just cut the tax -- both personal income tax and corporate tax -- so private sectors would have more money at hand and be able to pay down the debt quick and start to spend and expand out quickly. I remember I read somewhere someone mentioned the tax holiday. It is share the FinReg bill didn't mention anything like what Richard Koo presented.

Your 401k portfolio

So most of us have a 401K plan. The 401K portfolio maybe our largest investment besides house. Yet after two brutal downturns from 2002 to 2003 and from 2008 to 2009 401K plan is under serious doubt/attack. I just don't know what could be an alternative (please don't say pension plan. Pension plan, which is kind of like social security, is a ponzi scheme.)

This brings us back to yesterday's entry, there is no need to replace 401K plan, instead there should be low cost ETFs or their peer mutual funds available for 401K investors to select. I haven't done a thorough study on the 401K investment option but I believe the low cost ETF portfolio we constructed in last blog provides a better option than what are available today on majority on the 401K plans out there. It's a shame  the FinReg bill doesn't address this issue.

What can you do then? Well, first you could still construct a portfolio with the similar asset allocation as the low cost ETF portfolio has, albeit suffering higher expense cost, with the selection that you have been dealt in your 401K plan. Second you should call your Senator and Congressman to ask them to do something about it, to force employer/401K plan provide to provide the lost cost option.

An essential portfolio building block

In the last blog I talked about the ETF traps that we should be aware of, i hope that message is getting through and you would avoid those traps in your coming investments. In today's entry I want to mention building an essential core portfolio with appropriate low cost and diversified ETFs.

Here is an excellent article that covers it in details. It is a long article but it covers not only just ETFs but also touches many general investment practices and ideas. It is really a must read if you are going to read just one investment guide (or whatever it might be called).

http://seekingalpha.com/article/15134-the-seeking-alpha-etf-investing-guide

Now It is only human nature that we sometimes (or most of times for some people) think we could do better than others do. Since we are small investors we might/tend to think we could be much nimble than the big guys such as hedge funds and mutual funds "monsters", that we could beat them with a quick movement. Your adrenaline will run high when your pick outperforms. That is all fine but whatever you do you do want to diversify it out. When it comes to diversify you should diversify not just on the assets but also on fund managers, you have to consider yourself as a fund manager since you are handling your own investment. So do yourself a favor, open two broker accounts, one you would be the fund manager in charge, the other one, please let this ETF core portfolio be in charge. After a year you could do a comparison yourself which fund manager delivers (don't forget the tax man effect when doing the comparison).

Beware of Short term ETF trap

I always suspect ETF like USO is for short term investors, I.e., traders but cannot figure out exactly why. Then I came across this article and it explained the issue in a details.

http://seekingalpha.com/article/123577-is-the-uso-etf-a-piece-of-junk

This probably applies to other commodities ETF as well since normally the fund would not hold the real stuff in inventory, unlike the GLD, which means those ETFs would have to use future instruments as their trading strategy which suffers the same contango as USO does.  Even though not exactly the same for comparing purpose, but you could get a good idea how a short term focused ETF would perform by looking at uyg (short term) and xlf (ling yerm) at 5 year horizon.

I hope SEC could force ETF vendors to make this short term/long term distinction more clear.

Not all index based ETF are pass investments. Buyers warned.

Apple should be more arrogant

When Steve Jobs came out on the iPhone 4 press conference and only offered a free bumper case I was furious. At that time I am a iPhone 3G user, have iMac, iPad, extreme base station and extreme express. So you could say I am an apple loyal. And I am waiting to see how the antenna issue would be solved. And I am kind of angry after the press conference.
Then I got an email from the local apple store that my iPhone is waiting for me to pick up. At one point I was thinking that I am going to just let it go. But somehow somewhere deep down a voice just told me to just give it a try and I could always bring it back to Apple within 30 days. I am glad I followed that voice.

After 4 days of usage, I wish Apple and Steve Jobs could offer a better defense and actually say this: folks, look, we think we have in iPhone 4 is the best balance of function and form factor. It is a result of hundred human years of research, design, feedback, testing to get to what we have today. It is beautiful and miracle. We do our best to be perfect but sometimes we found we are restricted by the law of physics. We are digging deeper and trying harder. Hopefully in the next version, or the next next one we could do better and have another break through. But folks, at the mean time, can I have a show of hands, from people who have used iPhone 4, iPhone 3G/3GS for more than two weeks, given what we know now, that you prefer a 3GS form factor? I know what my answer would be. I love the iPhone 4 and there is no way I would trade for a 3GS form factor. Not in a million year. I would not mind to hold it in a right way.

Rich can be arranged

"If you've got an area of excellence - you're good at something; you're the best at something; Anything; Then, rich can be arranged. I mean rich can come fairly easy."


from which movie? You should pause here and read these quotes again. We could replace the rich with success, or power, or anything. The point is that we need to find an area that we are really good at it, and we need to slow, pause and ponder this idea. 

iPhone shortcuts for wifi, bluetooth, 3G

Have you ever wish there is a fast way to turn off the bluetooth, wifi, or 3G on/off on the iPhone? Here is how Android does it: there is a bar that hosts icons that represent these functions. Of course, this is not standard cause the bar span across the whole screen sort of. Apple won't do it that way. 

And it has been bothered me for a while. and last night on the way to the airport something simple yet elegant struck me. A shortcuts screen left to the spotlight search screen could just easily solve this issue. 

One shortcuts screen (16 shortcuts with each icon represent one) ought to be enough.

this is simple, easy, and elegant. Personally I would like these icons:

1. wifi

2. bluetooth

3. 3G

4. Brightness (need two icons, one for brighter, one of dimmer)

5. What else? maybe shortcuts to favorite phone numbers, contacts?

iPhone 4 first day impression

After playing with the iPhone 4 for a day, the feeling is like this: this is a phone should be from day 1.
It is snappy, it is solid, it is cool.
1. Love the multitasking, put the Pandora to background for an hour, put the NPR news to background for another hour. it is crazy. the drawback, the battery went down like hell. Need better, much much better battery in the next incarnation. Wondering what does Apple do with it? maybe in the iPhone 5, that would be the killer selling point
2. The display is absolutely beautiful, but I am from the iPhone 3G camp. Watched some movies, and then the Harvard Justice iTune U video. The quality is stunning.
3. Many apps I used yet to get compiled and small changes to support at least the fast app switching.
4. Maybe I did something wrong. I restored from my 3G but the folders were not completely restored. I have to spend about 30 minutes to organize apps into the folders the way I have it with the old 3G. The synch speed is super, 10 times (i may exaggerate a little bit) faster than 3G. 

Signing off today's blog with a special signature: GCB.

From iPad

So I just want to try it out to see how easy/difficult it would be to use iPad to write a blog. It turns out the iPad exceeds my expectation.
1. It renders the page as expected. No issue whatsoever on displaying the page
2. The virtual keyboard is pretty good to use
3. I expect apple to continue improve the dictionary and the AI of the virtual keyboard
4. I will use more and more on iPad and reduce my usage of my iMac. My Dell notebook has basically been coverted to a entertainment center that hook to my TV and play netflix etc. I expect to move on to AppleTV when the next hardware upgrade hit.
5. I am eager to see iPad to be upgraded to have a better display and more memory. Really looking for the next version as well as the ios 4 for iPad.

look ahead in anger

http://chronicle.com/article/Look-Ahead-in-Anger/66152/

This is a very very good article i have read in a long time.

"Are not all civilizations, either openly or in secret, always archives of collective trauma?" 

Sloterdijk asks in his recent book.


wow!!!

Apple's bargaining

http://en.wikipedia.org/wiki/Kübler-Ross_model

It is pretty clear that Apple is still in the third stage. It is bargaining with its user base: could you please forgive us if we just give you a free bumper?

Apple really needs to own up to the issue. I expect there will be more ads from rivals poking fun at the Apple's antenna issue. Eventually Apple's hand will be forced to admit the flaw. And if iPhone radically change the antenna design I could imagine class action law suit will be brought up to target the iPhone 4 design issue.

Even though Apple didn't really hide their head in the sand, they also want to just spin around the issue as long as they could. We will how if would play out. At the mean time I am still waiting for my iPhone 4.

Apple's most important conference

There is no doubt today's conference will be the most important conference in Apple's history. It will be even bigger than the 2007 Keynote when Steve Jobs revealed the first iPhone.

Apple would either win over its fan base's heart or break them. And every other companies are watching to see how Apple could pull off in the face of such a PR nightmare. 

Warren Buffet's word on how to handle disaster is very refreshing: get the facts out and get them out quickly. (You really need to read his testimony before the Congress on the Solomon Brother's scandal to appreciate it.)  It is amazing that after all these years no one seems to be able to grasp this simple concept. American people (and maybe just the human being) are very forgiving as long as you admit your wrong doing and admit the wrong doing sincerely, show remorse and put together a plan to prevent it from happening again.

Omni-communication

Is human being wired to or capable of handling an omni-communication life style?
How much information is too much information?

I mean do I really need to follow my friend's activity on Facebook and Twitter? Do I really need to check CNN for break news once every 5 minutes?

SLOW DOWN A BIT

A few good men

I always like this movie. But lately I have come to like the following line by Capt. Jack Ross more and more. On the scene at the bar he told Kaffee: "I represent the government of United States without passion and prejudice, and my client has a case." I like the way that he refers to the government of United States as his client. What kind of government it is that it could be referred to just as a client.

This piece of opinion by Thomas Friedman regarding the spy case "The Spies Who Loved Us" http://www.nytimes.com/2010/07/14/opinion/14friedman.html?_r=1&hp is very interesting. I would just add to that whenever the Russia government could be referred to by an attorney as a client then they are moving in the right direction.

A worried sign in the States that has been developing over the past year is the government think that it could do no wrong, and that given it more power that it could do more good. And I have a very simple argument to it: no matter. I just don't want the government gets into my face. No matter whether they could do better or worse in the short term. We are almost 100% certain that it would do great harm in a long term.

About nothing?

Maybe you are too young to remember "Seinfeld". In that case you should go on line or go to Netflix and rent some to watch over the weekend.
George Costanza was intrigued by the idea of a show about nothing would be watched by many people because it was on TV. I think it is a good darn clever for Seinfeld to declare what it wants to do like that. A sitcom about how the sitcom becomes what it is.
So I changed the blog title to A Blog About Nothing. Hopefully by not setting a topic we would be free to discuss everything, trivial or important current affairs. Bear with me here cause I haven't really figured out what I want to take this blog to yet. Nevertheless A Blog About Nothing is very fitting.

Exciting Events

Life could seem boring at some point

That is why I just added a description to this blog. It has been a while since I setup this blog and posted the first thought about the 2007 stock market. I find it is pretty interesting in re-reading that post. I would even say that it is fascinating that I was thinking looking deeply into the market at that time. It seems somehow I was able to recall the memory with the blog.

That would be the point of the blog. To record some history. My own history as the way I live through it. I hope by stumping upon this blog it would raise your interest into doing the same: recording your own history. maybe you have a blog already and write blogs on a daily basis, great. maybe you "have" a blog but rarely touch it. maybe you don't have a blog yet. no matter, start one then and work on it. If you could keep doing it for say 3 months and then looking back, you won't be disappointed and you would find that you achieve something. Maybe these blogs would pave a way for you to different career path, different live perspective etc.

So long for now. And I will keep writing blogs on a daily basis for the next 3 months. Wish u could join me and do the same thing.

Small investors?

Can small investors beat the market?

1. What exactly is the "market"? Is it that special?

2. Small investor could move more nimble than bigger ones, together with low transaction cost thanks to the discount brokers.

3. So there is a great chance by small investors to beat the market

4. Do set your goal to high though.

5. Say 65% of your money would still go the traditional way of investing. You could follow the ETF portfolio guide from Seeking Alpha to build it out with super low cost. (http://www.seekingalpha.com)

6. That leave 35% for you to play with.