*michael parekh on IT*

ON YOUR SUGGESTIONS FOR POSTS

BESPOKE BLOG POSTS HERE

As I highlighted a few weeks ago, I've been blogging here consistently for over three years now, and it's been a terrific experience thus far. 

I've tried from the beginning to hopefully have something interesting to say and/or point to in a post every single day.

That's been easy on some days and distinctly hard on others. And in most cases, I've been governed in my choices with what piqued my interest at the time.

A new site called Skribit thinks there may be an additional option for bloggers.  Here's what they're about:

"Skribit is a user-generated content suggestion application for blogs. Effortlessly assemble what your readers really want to hear."

And it offers bloggers an easy way to add a widget to their blog in order to drive this reader democracy.

It may not be a bad idea, and I'm game to try it if you are.

I've added the Skribit widget on the far right column, right under "Recent posts".  Would be happy to entertain suggestions on topics for this blog, or for that matter, my Twitter blog (www.twitter.com/mparekh).

A resulting blog post may not come immediately, but all suggestions will be most welcome, not to mention read and considered.

Happy Skribiting to us all.

ON A WAR STORY TO REMEMBER

IOUs

One of the movies most seared into my memory over the last 25 years, is "The Killing Fields", about the real-death Killing Fields in Cambodia. As this Wikipedia entry describes the movie:

"The Killing Fields (1984) is an award-winning British film drama about the Khmer Rouge regime in Cambodia.

It is based on the experiences of three journalists: Dith Pran, a Cambodian, Sydney Schanberg, an American, and Jon Swain, a Briton. The film, which won three Academy Awards, was directed by Roland Joffé and stars Sam Waterston as Schanberg..."

What made me think of this today, was the passing away of Dith Pran this weekend, as the New York Times reports:

"Dith Pran, a photojournalist for The New York Times whose gruesome ordeal in the killing fields of Cambodia was re-created in a 1984 movie that gave him an eminence he tenaciously used to press for his people’s rights, died in New Brunswick, N.J., on Sunday. He was 65 and lived in Woodbridge, N.J.
The cause was pancreatic cancer, which had spread, said his friend Sydney H. Schanberg."

Dith Pran's story is a heart-moving one of how a local citizen helped American citizens in a vicious conflict, suffered unimaginable consequences for picking the "wrong" side, and escaped his captors for a new life eventually in America.

This story is all the more important to remember in current times. 

Hundreds of thousands of Iraqis who've helped our military and civilians in Iraq the last five years potentially face a similar fate in coming months, as we bring our involvement in the country to a close, one way or another.

Dith Pran's story is a reminder of our obligations to those local brave souls and their families, long after we've withdrawn from conflicts and begun to forget them.

ON SOME COMMODITIES BULL

UNINTENDED CONSEQUENCES

One of the earliest things drilled into my head as I started my Wall Street career in 1982 was that commodities are cyclical.

A person starting his/her career in the same place a quarter of a century later would likely be taught something a bit different.  They'd be told that commodities are in a secular bull market growth trend, thanks to near-perennial demand from the developing world lead by China and India.

But the other thing I learned a bit earlier in kindergarten, was that trees don't grow to the skies. 

And that's why it's good to see the cover story in Barron's this weekend, titled "Commodities:  Who's behind the boom?" It's the one near-mainstream piece in recent months that does a very good behind-the-scenes job in explaining the drivers of the current commodities boom, and how it may end one of these days:

"CHINA, AS EVERYONE KNOWS, IS A BIG FORCE IN THE extraordinary boom in commodities. Its voracious appetite for everything from corn and wheat to copper and oil has helped push up U.S. commodities prices by some 50% over the past 12 months.

But China is by no means the whole story. Speculators -- including small investors -- are also playing a huge role.

Thanks to the proliferation of mutual funds and exchange-traded funds tied to commodities indexes, speculative buying has gone way beyond anything the domestic commodities markets have ever seen.

By one estimate, index funds right now account for 40% of all bullish bets on commodities. The speculative juices are even more plentiful -- nearly 60% of bullish positions -- if you count the bets placed by traditional commodity "pools..."

"Indeed, the great commodities bubble started springing its first leaks two weeks ago: Oil, gold and other major commodities posted their steepest weekly drop in half a century. Though prices have since firmed, they could eventually drop 30% as speculators retreat. The only real question is when."

The entire piece is worth reading, perhaps even a couple of times.  It explains particularly well, the regulatory quirks that provided the exceptions for the commodities mutual funds and index funds, to side-step the position limits on commodities speculation posed by the regulatory authorities in 1936.  And it provides some eye-opening statistics on how much these funds that can mostly make only bullish calls, are driving the prices up.

First, here's the scope of what we're talking about:

"...the index funds hold about $211 billion worth of bets on the buy side in U.S. markets.

Applying a similar method, but with slightly different assumptions for indexes tracked, Bianco Research analyst Greg Blaha puts that figure at $194 billion. Either figure is enough to turn the index funds into the behemoths of the commodity pits, where total bullish positions now stand at $568 billion."

Next, their influence to date:

"...the index funds have effectively bought 36.6% of the domestic 2007 crop, and that if you add the commodity pools, the figure climbs to 59.1%. In wheat, the figures are even higher -- 62.3% for the index funds alone, and the figure jumps to a whopping 83.6% if you add the pools. Betting against them as never before are the commercials, who deal in the physical commodity (SEE CHART ABOVE).

The CFTC provides these figures on index trading for only 10 commodities. Why are such major commodities as crude oil, gold, and copper excluded? The agency's rationale, which even certain insiders question, is that it would be hard to get reliable information on these other commodities from the swaps dealers."

The one small nit I'd pick with the article is that it doesn't include an additional booster to some commodities prices in recent months.  I'm referring of course to the highly politicized government policies that have provided a subsidy driven-boost to corn-based ethanol prices, as part and parcel of the "greening" of America.

But that nit aside, the Barron's piece is a terrific primer on the current forces driving the commodities Bull market.

And these trends don't just influence the financial markets.

This bull run in turn has contributed meaningfully to boosting grain-based food prices world-wide, causing economic pain to millions of folks in the developing world.  This New York Times piece is a must-read on this sad and politically unsettling development.

It's a question of when, not if, these forces driving the "secular" bull market in commodities, abate. 

And when we do, we're likely to have a different view of inflation than we do now.  And we'll again re-learn a lesson in Bubble economics.

ON A SUCCESS STORY FOR MAINSTREAM MEDIA

POSSIBILITIES

It's good every now and then to see evidence that traditional mainstream media (aka MSM), can make organizational and business model changes to meaningfully address online opportunities.  This Wall Street journal piece titled "BBC Chief has radical designs on Internet" seems to be a case in point:

"The world's oldest and largest public broadcaster may emerge as a pioneer of new ways of delivering TV news and entertainment. The taxpayer-financed BBC doesn't have to worry about advertisers or delivering results to Wall Street. It owns most of its own shows, so it can control how they appear online. As such, the 85-year-old global behemoth can focus on the industry's most pressing problem: keeping viewers in the Internet age."

Here was one of the challenges they were trying to address:

"One-quarter of 15-to-24-year-olds didn't watch, read or listen to the BBC at all in an average week. Many preferred to play computer games or socialize online. If the BBC stayed as it was, by 2015 only 60% of people in Britain would get some form of BBC news each week, the study found, down from 81% today.  If that happened, the British government could argue it doesn't need to give the BBC as much money."

This was the solution the new Chief came up with:

"Mr. Thompson, who envisioned the BBC becoming a global media force, quickly concluded the broadcaster needed to try to make everything it created available online in some form, so viewers, particularly younger ones, could watch BBC shows whenever they wanted. "Everything should be digital," he says. "That was maybe the only really big idea I was going to bring into the place."

And despite a lot of head-winds in implementing the solution that the article explains in detail, here's the report card on the changes thus far:

"Unlike U.S. networks, which have only made tentative steps on the Internet for fear of losing advertising revenue, the BBC has thrown almost its entire schedule online. To do that, the broadcaster has bet big on iPlayer, a free computer program offered via the BBC's Web site and Apple Inc.'s iPhone, which allows anyone in the U.K. to download and watch BBC shows that have appeared in the past week.

Launched on Christmas Day, the iPlayer is already emerging as a cultural phenomenon, particularly among young viewers. About 17 million BBC shows were downloaded in the seven weeks after iPlayer's launch, compared with one million videos sold in the first three weeks after TV shows were put on Apple's iTunes store."

Young people seem to be liking this new way to access "old" content.  And new mobile platforms like the iPhone, are potentially part of the solution.  Good to see these types of data points at this early stage.

ON SMARTER BRAKE LIGHTS TO GO

EARLY WARNINGS

I'm a total believer in technology innovations and/or innovations that can make our driving experience better, no matter how prosaic. So this innovation reported by Engadget, that's still in the world of academia caught my eye:

"It's only taken about a million years, but someone has finally decided that improvements are possible in automobile braking lights. Students from Virginia Tech have developed a new system that can show not just whether you're stopping, but if you're slowing down, when you're about to stop, and how quickly you're pressing the pedal.
The concept uses an array of horizontally arranged LED lights -- when you begin to slow, lights in the center glow orange, after a certain threshold side lights turn to red, and if you're slamming on the brake, they'll all flash red.
The team, led by mechanical engineering Professor Mehdi Ahmadian, has plans for the system beyond the lab, though they speculate that it will be easier to add them as additional indicators on commercial vehicles at first. If this pans out, someday soon we may all be tailgating a totally psychedelic light show."

It'll be a while if something like this is available as a commercial product, but it's definitely something that could improve the rush-hour stop-and-go driving experience anywhere.

ON 21st CENTURY POLICE GADGETS

EYE IN THE SKY

Being a geek fan of unmanned flying objects, one can't but note that the Miami police department may be the first in the country to take us into the 21st Century we know via science fiction movies and books.  Here's the report from Engadget:

" We didn't even flinch when we heard that hovering drones employed by Big Brother were going to work in the UK, but somehow those buggers have managed to wander over to America's east coast.
Granted, the pilotless drones -- crafted with good intentions by Honeywell -- that are slated to report in to the Miami police department aren't exactly the same, but they are expected to be used for similar duties.
More specifically, they'll be loosed in order to oversee "urban areas with an eye toward full-fledged employment in crime fighting."
According to a department spokesman, the fuzz are only looking to use it in "tactical situations as an extra set of eyes," but don't be shocked to see flashing lights from a vehicle without wheels next time you're rolling (a little too) quick down South Beach."

Now if they only make it look like a little flying saucer in the next version.

ON "THE AUDACITY OF HOPELESSNESS"

ABOUT TIME

David Brooks of the New York Times has this to say about Hillary Clinton in his op-ed piece titled "The Longest Defeat":

"Last week, an important Clinton adviser told Jim VandeHei and Mike Allen (also of Politico) that Clinton had no more than a 10 percent chance of getting the nomination. Now, she’s probably down to a 5 percent chance.

Five percent...

For the sake of that 5 percent, this will be the sourest spring...

When you step back and think about it, she is amazing. She possesses the audacity of hopelessness."

He then asks the obvious question and then provides his own answer with some eloquence:

"Why does she go on like this? Does Clinton privately believe that Obama is so incompetent that only she can deliver the policies they both support? Is she simply selfish, and willing to put her party through agony for the sake of her slender chance? Are leading Democrats so narcissistic that they would create bitter stagnation even if they were granted one-party rule?

The better answer is that Clinton’s long rear-guard action is the logical extension of her relentlessly political life.

For nearly 20 years, she has been encased in the apparatus of political celebrity. Look at her schedule as first lady and ever since. Think of the thousands of staged events, the tens of thousands of times she has pretended to be delighted to see someone she doesn’t know, the hundreds of thousands times she has recited empty clichés and exhortatory banalities, the millions of photos she has posed for in which she is supposed to appear empathetic or tough, the billions of politically opportune half-truths that have bounced around her head.

No wonder the Clinton campaign feels impersonal. It’s like a machine for the production of politics. It plows ahead from event to event following its own iron logic."

As a moderate Republican, I'm supposed to prefer Clinton over Obama, the theory being that the Republican machine would have an easier task promoting McCain vs. Clinton.

But I'm tired already of the one-note "Wright" play-book that the right-wing elements of the party are playing non-stop against Obama, and it's corrosive for the country in the extreme.

So here's hoping that the Democrats will do themselves and their party a favor, sooner rather than later.

ON FAST TALKING CHIPS

NO LIGHT TASK

Sun Microsystems is trying to pull of a technology innovation that has a 50/50 probability of success but a thousand to one payoff if it works.  Here's how the New York Times piece describes it:

"Sun has found a way to reconnect the chips so they can communicate with each other at such high speeds that computer designers can build a new generation of computers that are faster, more energy-efficient and more compact.

The computer maker, which is based in Santa Clara, Calif., plans to announce on Monday that it has received a $44 million contract from the Pentagon to explore the high-risk idea of replacing the wires between computer chips with laser beams.

The technology, part of a field of computer science known as silicon photonics, would eradicate the most daunting bottleneck facing today’s supercomputer designers: moving information rapidly to solve problems that require hundreds or thousands of processors.

Processor and memory chips are currently made by etching hundreds or thousands of identical circuits onto a single wafer of silicon and then slicing that wafer into fingernail-size chips. That manufacturing process ensures that if there is a defect at a single spot on the giant wafer it will not ruin the entire batch of chips.

The drawback in the approach is that wires have to connect the chips in a computer. This causes a fundamental limit in processing power because data moves between chips at lower speeds, creating significant bottlenecks."

The piece goes on to explain how a number of computer companies around the world are engaged in making this approach work, and how it'd be an end-run around Moore's Law if it succeeds.

From my perspective, it's an interesting twist on the holy grail of optical computing, that's been pursued by the industry for so many years.  It'll take a few years to know if all this has a commercial payoff, but it's a cool development nevertheless.

ON BANK RUNS 2.0

A PREVENTABLE MESS

This Paul Krugman op-ed titled "Partying like it's 1929" in the New York Times, gives a timely reminder of a lesson from history:

"Contrary to popular belief, the stock market crash of 1929 wasn’t the defining moment of the Great Depression. What turned an ordinary recession into a civilization-threatening slump was the wave of bank runs that swept across America in 1930 and 1931."

What follows is a Banking 101 lesson on one of the several contributing factors of the Great Depression, and an  explanation of how it's potentially happening again:

"The financial crisis currently under way is basically an updated version of the wave of bank runs that swept the nation three generations ago. People aren’t pulling cash out of banks to put it in their mattresses — but they’re doing the modern equivalent, pulling their money out of the shadow banking system and putting it into Treasury bills. And the result, now as then, is a vicious circle of financial contraction.

Mr. Bernanke and his colleagues at the Fed are doing all they can to end that vicious circle. We can only hope that they succeed. Otherwise, the next few years will be very unpleasant — not another Great Depression, hopefully, but surely the worst slump we’ve seen in decades."

Part of yesterday's post dealt with a possible solution to slow down this vicious cycle.

Another major contributing factor to the Great Depression of course was the simultaneous Protectionist political sentiments that turned politically expedient wishes into laws, that then lead to  a harsh global financial recession lasting years. 

We have the seeds for the same thing being planted again, with both Democrats and Republicans taking a step back from America's much-needed commitment to Global Trade.  The recent Nafta-bashing populist politicking by the Clinton and Obama campaigns is a case in point.

Sorry to point out what should be well-known history lessons on an Easter Sunday.  But sometimes we need to remind ourselves of some of the basic, presumably well-remembered foibles from our past.  And this is one of those times.

ON SOLUTIONS FOR THE CREDIT CRISIS

AVOIDING THE BRINK

Steve Forbes has two prescriptions on how to end our current financial crisis.  Both make sense, but the second one especially deserves some attention since it's not been as discussed by the investment community as perhaps it should be.  Here's what he suggests to start:

"The Bush administration must take two steps immediately to quickly halt the unending, enervating credit crisis: shore up the anemic dollar and, for the time being, suspend "marking to market" those new financial instruments, such as packages of subprime mortgages."

The piece then goes on to discuss both in detail, but I'd like to highlight in particular what says about the second suggestion:

"The other measure: The Treasury Department and the Fed should get together with the SEC, the Comptroller of the Currency and other bank regulators and announce that financial institutions for the next 12 months will no longer write down the value of exotic financial instruments (primarily packages of subprime mortgages).

Instead, writedowns will occur only when there have been actual losses on those assets. If a mortgage defaults, a bank will then--and only then--recognize the loss.

It's preposterous to try to guess what these new instruments are worth in a time of panic. Such assets are being marked down to increasingly arbitrary low levels. But when a bank books such a loss, it must replenish depleted capital, even though cash flows for most financial firms are still positive.

Worse, when forced by panicky regulators and lawsuit-fearing accountants to write down the value of these securities, institutions will dump assets in a market where there are temporarily few or no buyers. The result is a spiraling disaster. So let's have a time-out on markdowns until we actually have real experience in what kind of losses are actually going to occur."

There are of course negative consequences and execution issues surrounding both suggestions. 

But these are extraordinary times, and many other suggestions to address the crisis are far more motivated by political considerations (the $150 billion plus "bipartisan" Growth package, comes to mind) than the Forbes prescriptions.

The "marking to market" suspension is one that should be considered in some form.