Putin, The Teacher

Long, long time ago I thought that someone who tells others to do differently from what she or he does is called hypocrite. This is the definition from Webster dictionary: "a person who feigns some desirable or publicly approved attitude, esp. one whose private life, opinions, or statements belie his or her public statements". Later on, about 10 years ago, well known then "doctor" Laura said that such person, when applied to her, is called a teacher.

We've just got ourselves new economic teacher: Russian Prime Minister, nee President, Vladimir Putin. In his Davos speech he called others not to allow too much intervention into business, not to fall into protectionism, and a lot of other smart things. Other things were not that smart, for example the idea to have more reserve currencies and to make reserve currencies issuers accountable to other countries. Yeah, right. Putin is talking 3 years about making ruble a reserve currency. He just doesn't understand that you can't appoint reserve currency, it becomes such in decades, if not hundreds of years. In all history there were just a handful world reserve currencies: Roman, then Byzantine denarius, Venetian lira, English Pound, US dollar. Maybe I missed one or two. Yen and Euro both are gradually becoming reserve currencies now, but jury is still out.

But the main thing is: Russia is just set huge tariffs for imported cars. So much for talking about threat of protectionism. As for government intervention in business, Russia is a champion. Any businessman in Russia knows that whatever governments wants from him, it gets. Many give money, shares in business, even abandon businesses to government without fight. Nobody wants to follow steps of Khodorkovsky, who founded the best oil company in the country, was robbed of everything and sent to prison on fabricated charges. Niall Fergusson is absolutely right: “The idea of the Russians lecturing the West about how to run the economy is absurd,”

Of course, the best judge of economic ideas is market. And what mister market told us? Ruble fell another 3.5% against dollar today.

I missed one opportunity to short Russia using Market Vectors Russia ETF (RSX). Maybe it's not too late?

Full disclosure: at the time of publication author did not have any positions in RSX. Positions can change any time.

Swear Roosevelt, Act Hoover

"Buy American" provision in stimulus package, voted by House today, is outrageous. Trade wars is exactly what we need to make current Great Depression 2.0 a long term scenario. It's not even like in 1930, trade wasn't that important then. Countries traded goods, but most production chains were localized in countries. It's absolutely different now. Processors are made in USA, memory chips and disks in Korea, optical drives in China, motherboards in Philippines, everything is assembled in China, US-made operating system installed. Just raise tariffs a little bit and final price can easily jump 50%! Trade wars right now are equal collective economic suicide of the world. Chaos they can bring would be much worse than what we had in 1930. Everybody knows what followed. Do we want World War III as a result of Great Depression 2.0?

They are idiots and don't know what they are doing.

Three Companies, Three Earning Reports

Last quarter earnings for Apple (AAPL), Microsoft (MSFT) and Google (GOOG) are out. The difference is striking.

Apple beat by a mile. And it was expected, I don't understand analysts who accepts company's projections at face value. Google beat, which is no small feat for a company which gets almost all its revenue from advertising. Microsoft missed.

If we were looking at companies by business description, results would look strange. Economy is in a crisis. We have a company which makes retail goods beating expectations. We have company living by advertising beating expectations. And we have a monopoly, which should be much less sensitive to the economic environment, missing.

But things are not what they look like. These companies actually have quite different business descriptions. Apple business is to make the cutest, the easiest to use consumer electronic devices, which become instant fashion once they hit the shelves. Apple is Christian Dior of electronics, company first made computers easy and fun to use, then moved to other electronic devices. Google business is to organize world information, no less. And they are successful, they are doing it much better than anybody else. Being the geekiest company in the world helps as well. As for Microsoft... can you describe Microsoft business in one sentence? "Rule the world" doesn't cut it, ruling is not a business, and competition is way too stiff. "Make all kinds of software which you can sell"? If that's the business, company is not very good in it, once they meet good competition, they are number 2 at best (in databases after Oracle, in publishing after Adobe and Quark). And Microsoft's Web business doesn't fit in this description, no wonder it's wasting close to half a billion every quarter now.

I have my doubts about Apple, wrote about it several times. I still think that Steve Jobs is too big a part of a company and without him it might eventually lose it's fashion value. But it's still one of the greatest companies in the world. I have just an admiration for Google, which found a goldmine on the Web and is making it bigger every day. I don't have any doubts about Microsoft anymore. This is dead company walking. The only way to save it is to split it, as I proposed here. The only problem is that company is not lead by businessmen, it's lead by control freaks. They would die sooner than split company.

Full disclosure: at the time of publication author had long positions in AAPL and GOOG and no positions in other companies mentioned. Positions can change any time.

For Those About To Rule (We Salute You!)

Wall Street congratulated our new President today: Dow Jones fell 332 points. Was it because he is a Democrat? Stocks historically did better under Democratic presidents. Because he is planning to raise some taxes, eventually? Wall Street knew it all along. This is about something which became known today, during inauguration.

Maybe this: "new era of responsibility"? Maybe Wall Street thinks that President really means it and instead of throwing as much money as Fed can print on the problem, he'll start counting it?

Responsibility is good. But it won't fix our current mess. Whatever multiple Japanese governments did in 1990s, they were not irresponsible. Wasn't enough. We are in Great Depression 2.0, and the only way out is to print money and spend it. If deflation takes hold, it would be too late. Mister President, please instruct Treasury to work with Fed to throw more money into the system. Uncle Ben knows that we need it, he'll do his part. Right now I don't even care if this money spend on some good projects or just thrown down from helicopters on poor neighborhoods. Whatever increases amount of money in circulation, not on bank reserve accounts.

Let's be irresponsible. Let's spend tons of money, for good or not, and defeat deflation while it's still a baby. Just drown it in money!

Buying Preferreds

Banks are being destroyed today. There should be some nuggets in all this bad stuff. But buying common is scary, even common of Wells Fargo, the best (in my opinion) US bank. So I bought some preferred shares, Wells Fargo Trust XII (BWF). Maybe I will even keep it, yield is about 9% at current price.


Full disclosure: at the time of publication author had a long position in BWF. Positions can change any time.

Selling Apple.

Sold part of my Apple (AAPL) position today. Big thanks to all fans of the company, they kept price from falling 10%, as it should have.

Full disclosure: at the time of publication author had a long position in AAPL. Positions can change any time.

Time To Sell Apple

No, not all at once. I will be looking for action, trying to figure out trend. But sell I will.

I'm holding Apple (AAPL) since 1999. My greatest pick ever. I started having some doubts last May, wrote about it here. Those reasons are still valid. Apple is becoming almost mainstream in computers, iPod is so mainstream it's hard to see any growth there.

Of course, Apple is a great company. It has great products and religious following among customers. It has great balance sheet: $25 billion of cash and short term investments is a nice pile to have, especially now, when cash is the king.

But there is one problem with Apple which is becoming way too important. Steve Jobs is the Apple. Without Steve, this would be a completely different company. There will be nobody to say about new product "There is no sex in it!". There will be no stop to so-so products which will be released just because it's time for Christmas sale, or MacWorld, or something else.

Steve is seriously ill. I wish fast recovery and excellent health, I wish him live long and happy life. I hope he spends more time at Apple torturing developers and bringing great products to us.

But I don't invest on hope. Health of Steve Jobs is not private matter, not when he is the soul of Apple. We never had good information since his cancer scare. Jim Cramer says that accounting irregularities mean "sell". I say that any information irregularities mean "sell". I am selling at least half of my position on Thursday. Remaining part will be sold depending on action, but no later than May.

I always claim the right to be wrong. I can be wrong about Apple. Company can stay great without Steve. Maybe. If I see something to change my opinion, I will buy Apple back.

Full disclosure: at the time of publication author had a long position in AAPL. Positions can change any time.