Technology Watch: In-building wireless is a space I’ve poked around a bit in. Here is an equipment deal where ADC is buying LGC wireless (which provides in-building wireless networking gear) for $169MM. Perhaps it is time for another look at the sector…
Month: October 2007
More opposition to Cablevision buyout
Technology Watch: Clearbridge has joined Mario Gabelli in opposition of the proposed buyout of Cablevision by the Dolans. I agree with Clearbridge and Gabelli on this one. If the cable industry is going to gird itself for long term competition with Verizon and AT&T, they should be bulking up thier scope now, and not retreating into family-owned fiefdoms. Cablevision should be a part of Time Warner Cable, or perhaps Comcast.
Niels Jensen on why Modern Portfolio Theory should be junked
Long term trend watch: On this week’s Outside the Box column, John Mauldin features a Niels Jensen column on how models that use normal distributions for risk management are manifestly false and should be junked in favor of those that use power law distributions (known as the "80/20 rule" to us mortals).
This theme was also hit on in two books that I have recently read, the Black Swan by Nassem Taleb and The Origin of Wealth by Eric Beinhocker.
The net effect is that hedge funds and investment banks end up taking on too much leverage because they are lead astray by their risk management models. Leverage itself creates high levels of correlation within asset classes during times of crisis, which are in turn exacerbated by high levels of leverage, creating a "vicious cycle" like what we saw this summer during the Subprime Crisis, but also during the LTCM collapse and the 1987 stock market crash. This theme was well explained in Richard Bookstaber’s A Demon of our own Design.
My advice at this (relatively late) stage in the business cycle: reduce leverage voluntarily, becuase not too far down the road, the market will make you do it involuntarily.
3 Ed Gubbins Articles on the coming explosion of fiber traffic
Technology Watch: At Telephony Online, Ed Gubbins has three pieces on the coming explosion of internet traffic due to video, video calls, virtual worlds, P2P file sharing, business IT traffic, and remote backup services. In the first, he discusses how the carriers are scrambling to catch up; in the second, he discusses George Gilder’s claim that demand is increasing so quickly that bandwidth prices may start rising soon; and in the third, he says the problem is even worse than the carriers think, and that they need to get ahead of it rather than just catching up.
Facebook vs. LinkedIn
Technology Watch: TechCrunch asks whether new features added by third-party developers could allow for Facebook to usurp LinkedIn as the business-social networking tool of choice. I have seen some social networking deals recently and am wrestling with the same question…is the network effect of a Facebook all-powerful, or is there room for specialized social-networking sites to co-exist?
Inverted Yield Curves Around the World
Long-term Trend Watch: Econbrowser discusses the predicitve power of inverted yield curves with respect to recessions, and decides that the jury is still out. I have noticed that the UK and Australia have had inverted curves for years apparently without effect, and the US just had one that has since steepened. They also notice that the EU has recently acquired an inverted curve. My understanding is that inverted curves were more common back in the 19th century, back before central banks were as powerful as they have been in recent times.
It could be that global capital markets are now swamping the central banks in those nations that are the most open to foreign capital flows (i.e. the Anglo-Saxon countries and the EU). Long-term rates are more anchored and the short part of the curve fluctuates from slight a upward-slope (during a period of accelerating growth) to a slight downward-slope (during a period of slowing growth).
I have long believed that the Fed’s big monetary mistake in the early 2000’s was not lowering the rate to 1%, which was a necessary risk-management move to fight the threat of deflation (remember how strong the dollar was at that time and how low the price of gold was). The big mistake was not raising rates faster when the 10-yr spiked to 4.80% in the matter of weeks. The signal sent by the incredibly steep curve was that the financial markets had loosened and growth would accelerate, but the Fed kept pumping money anyway. It should have responded to the market signal and raised rates into the low 3% range a bit faster and moved the curve to a moderately postitive slope (provided the long end behaved appropriately).
Right now the signal the market is sending is that the Fed should lower rates to the 4.00%-4.25% range. If the long bond yield continues to spike up, then it can take away the cuts just as quickly.
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Seybold on the demise of the Disney MVNO
Technology Watch: Andrew Seybold wonders if the demise of the Disney MVNO could have been avoided with some better strategic decisions. I’m not so sure. They can get the same effect by syndicating their content through the wireless carriers, while avoiding subsidizing the phones and billing customers. Virgin Mobile’s IPO (VM) notwithstanding, I am happy we have so far avoided the MVNO sector.
Patriots’ weak victory over the Browns
The Onion does a good send-up of a dejected Patriots squad after their worst performance all year.
Gold breaks $750
Investing watch: Adam Michael at Minyanville makes the argument that record net longs of gold futures are actually bullish, and that we could be off the the $1,000 an ounce races if gold breaks $750, which it did briefly today, let’s see if it holds…
The falling trade deficit
Business Cycle Watch: The trend is in: the trade deficit is falling. It is down 2.4% from last month, and trade is now solidly adding to GDP growth (1.3% of 3.8% total GDP growth last quarter). Imports were down 0.4% and exports were up 0.4%, up for the sixth straight month, to a record. The odds of avoiding near-term recession continue to rise.