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Monday, October 27, 2014

Regarding Kurdish Oil Exports

The decision is the Iraqi governments to make and they had better make it soon. Do they want a new neighbor that is thriving and prosperous? Do they want a new border country that has proved it is willing to put its sons and daughters on the line to defend, not only its own borders but Iraq's vast frontiers?


The Kurds are shaping up to be one of the most important new emerging economies in the entire world. The acronym that investors use to refer to emerging markets will be spelled this way: BRICKS. Brazil, Russia, India, China, Kurdistan and South Africa are the nations emerging from developing status into major world economies. Actually India, China and Brazil are already firmly there but with so many issues still to work out.
Looking Beyond the Occuped Area, West Bank 000011
Kurdistan is as much an idea as it is a place. The region developed mostly by the Kurds includes parts of Syria, Turkey, and Iraq. They are excellent at commerce and educating their people and quite united when compared to divided nations like Iraq or the not very United States right now.

The Kurds are ready to send grounds troops to defend their borders, often without air support. The Kurds are ready to develop energy resources, build new cities and let their people participate in the governing their new nation.

Do not scoff at the idea of a Kurdish nation. With all of the failed or nearly failing nation states all over the world, begging for foriegn aid why not let one that sincerely wants to pick itself up succeed? Does the developed world really want to add Kurdistan to the list of aid-dependent regions that include Haiti, North Korea, Syria, Burma, Bangladesh and too many sub-Saharan regions? Wouldn’t make far more sense to let the Kurds sell the oil they pumped from ground they fought hard to defend against the so-called murderous Islam State of Hell?

Consider the alternatives U.S. and Iraqi leaders. A close analysis of the situation proves there are no effective alternatives. Let the Kurds exist and thrive in the region they have always inhabited or watch Iraq quickly join the list of failed nation states.

Sunday, October 26, 2014

Is Deflation Really All That Bad?

Lately people are noticing the price of gas really dropping. It went from $3.37 per gallon to $2.87 per gallon in one month at a gas station in Millersville, Maryland. To someone who drives 300 miles a week or 1200 miles a month that represents a twenty dollar bill back in their pocket (assuming their car gets 30 miles per gallon).
Royal Dutch Shell Station, Annapolis 48997
Wonderful.

350 million-year old Nautlius Ammonoid 70495
(downward spiral to be continued)

However there were some other things that started to happen during that time. The first was that the driver avoided going to the gas station until the tank was almost empty. This was because she expected the price of gas to drop even lower a few days later.

If it doesn't last very long deflation is not so bad. But deflation is like a house guest, if he stays around too long, he starts to stink up the place. Deflation often does hang around and it eats all the food in the refrigerator too!

When an economy is in deflation people delay purchases of big ticket items like houses, cars and washing machines as well. People figure the price will be lower next month so they wait before buying.

When prices are dropping employers cannot afford to give people big pay raises or possibly even any pay raise at all. In fact, overtime offers will dry up and some part-time workers will get fewer and fewer hours of work.

Suddenly this deflation thing does not sound like such a good deal.

It gets worse. People who make less money spend less money, they don’t go out to eat as often, they don’t take expensive vacations, and Grandma’s monthly Social Security check stays the same every year. That's okay, she can always come to live with you, right?

Businesses delay expanding factories or opening new locations if they think it will be cheaper to do so next year. People who have a lot of money already tend to hold on to it even tighter when there is deflation. That means less work or pay for all of us who work for people that are wealthier than we are.

Tax revenue drops. That may sound cool but not if you work in any type of government job or have holes in your roads or need a cop, ambulance or firetruck to come around once every so often. Despite certain politicians cries for “No new taxes,” tax rates will need to go up or else government services and government jobs will need to go away.

But wait, there’s more! If you buy into this idea that deflation is a good thing, then we’ll throw in rising unemployment, more business closings and a much lower 401k balance at no extra cost!

Interest on any savings will drop even lower than the measly rates a savings account brings now. Investment income typically drops during times of deflation. The stock markets fall. You probably don’t think about it but if you have a 401k at work you buy stock or mutual funds every time you get a paycheck. If you want to retire some day, you’ll need retirement savings along with Social Security. It is very difficult to live on a Social Security check alone. Deflation eventually undermines all income, including retirement income.

Deflation is described as a downward spiral because all of the above happens but somehow college tuition, health care costs and home mortgage payments do not seem to go down with everything else. You might be able to re-finance that mortgage, true, but you will have a lower or stagnant paycheck to use to make the payment.

So the next time you get happy about the lower price of gas at the pump, consider some of the other complications. Start saving more now or at least start to save some of your paycheck now, or else you may get stuck at the bottom of a downward spiral yourself.


Sunday, October 19, 2014

Bose Beats Apple

All the other background noise in my life apparently drowned out the recent sound of Bose accusations against Beats. Bose headphones are known for their superior noise-cancelling features. Beats headphones, recently acquired by Apple Inc. (AAPL), make similar claims about their audiophile ear muffs. Bose threatened to fight to block importation of Beats products through the International Trade Commission. Apparently Apple did not like the sound of this and settled privately with Bose.

Paris France 1492904

One cannot help but remember the prominent display location Bose headphones once held in already crammed Apple retail outlets. Recently when I went to apple.com and specifically searched for headphone accessories to go with a new 64GB iPod Touch for my niece, I was not offered Beats or Bose products. A search of all accessories on the Apple site initially turned up neither Beats nor Bose headphones. Eventually Beats by Dr. Dre headgear did show up. I wonder if I was browsing during the implementation of a new policy?

This seems like a very unusual way for Apple to profit from their multibillion dollar acquisition of Beats. Yet, when I went to the beatsbydrdre.com site there was a prominent link “Buy now on the Apple Store” which was functional and took me to a Beats check-out page at apple.com.

Further investigation brought to light the way Beats headphones are offered as accessories for the iPhone but not the iPad or iPod. This strikes me as odd, but perhaps dictated by the terms of some out-of-court settlement?

Next I searched for “Bose Bluetooth Headset” at apple.com. The search box still prompts the user with several Bose products. However the search results included everything except Bose products. A search for “Bose Speaker System” returned only the Beats Pill speaker. “Bose Quiet Comfort” returns Apple Care offers. “Bose headphones” returns only a bluetooth headset by a vendor called “Aftershokz.”  In any event, Sennheiser, Bang & Olufsen and even BlueAnt ear candy still appear for sale through apple.com.

Annapolis Maryland 1447234 Luckily Bose Corporation, headquartered in a very shiny building in Framingham, Massachusetts, is privately held and therefore immune to the fickle tastes of hedge fund managers and other stock traders. Bose achieved $2.5 billion in revenue in 2013. Otherwise the carnage might be even a little too loud for a set of their Custom QuietComfort® 25 Acoustic Noise Cancelling® headphones to drown out. Personally I do prefer their A20® Aviation Headset when sitting in the left-hand seat of my favorite mode of transportation. Apart from weekends up in the air, my daily ride, a Cadillac (GM), sports a Bose Sound System.
1969 Cadillac Convertible

In 1977 my buddy in college installed four shelves in the corner of his dorm room and mounted Bose 901s on each, my interest in jazz and rock was forever changed. But that’s another story entirely…

Annapolis Apple Store - June 24, 2010

My suspicion is that Apple’s rather experienced intellectual property law team wanted to send a clear message to any other businesses considering future patent litigation claims. Apple’s “you may win the battle but expect to lose the war” message seems to come straight from Sun Tzu. Of course once you shell out $3 billion for a line of products and services like Beats By Dr. Dre you may not necessarily want the top competition sitting in your showroom. I have never seen a Lincoln parked inside the local Mercedes Benz (DAI) showroom though they do get parked in the used car lot quite often.

I think the moral of this story is be very careful with whom you pursue lawsuits. Apple also appears to no longer be selling Bose products in their retail outlets. This could put a serious dent in Bose 2015 sales results but these days saavy shoppers often head over to amazon.com (AMZN), alibaba.com (BABA) or ebay.com (EBAY) prior to making accessory purchases. Reliance on a single channel for a significant portion of sales is a mistake few consumer product manufacturers have made since Tupperware.

In fact these days viral marketing through social networks seems to be the focus of many marketing strategists. Perhaps taking a cue from William Gibson’s cutting-edge novels, Zero History and Pattern Recognition, getting your product seen and discussed on Instagram or Facebook garners more market share than appearing in Apple’s online catalog.
Apple logo and Thomas Jefferson 000299
Speaking of Gibson, his latest adventure, The Peripheral, is about to show up in e-readers and remaining brick and mortar shops in less than 10 days. I can’t wait to study it, twice.

Disclosure: This author proudly researches, invests and discusses all manner of businesses, all over the world. From energy firms in Norway to Mexican telcos to Brazilian banks to Cupertino consumer product designers, I learn what makes a firm successful and invest accordingly.