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Monthly Archives: December 2012

The Fed and Interest Rates

In response to today’s column, I’m getting a lot of the usual: namely, the claim that low interest rates don’t prove anything, because the Fed has been buying up all the federal government’s debt issue. This is always said with an air of great wisdom; in fact, it’s remarkably foolish, managing to be wrong in three distinct ways.

First of all, it isn’t true that the Fed has consistently been buying a lot of Federal debt issue. Sometimes it has, sometimes it hasn’t; when QE2 stopped, there were widespread predictions that interest rates would spike, but they didn’t — as those of us who have been getting it right predicted.

Second, the idea is conceptually wrong. Asset prices should be determined mainly by the stocks of assets, not the changes in these stocks over short periods. If bond investors lose confidence in federal debt, there’s a huge outstanding stock of that debt for them to try to sell, driving rates up, no matter how much of the new issue the Fed might be buying.

But maybe the killer is this: since when do the kinds of people who worry all the time about deficits believe that the Fed can monetize a substantial part of a large deficit, for four whole years, without any negative consequences? If you believed in the framework these people have, all that expansion of the monetary base should have produced runaway inflation by now, as many of them did in fact predict early in the game. It hasn’t — and no, don’t give me the bit about the government hiding the true rate of inflation. Independent estimates are not significantly different from the official gauges.

Now, back in late 2008, contemplating the situation we were in, those of us who saw it in terms of basic IS-LM macro made a twofold prediction: as long as the economy stayed depressed, interest rates and inflation would both stay subdued despite both large deficits and a huge expansion of the Fed’s balance sheet. There was much scorn for that prediction at the time; how do you think it has looked since?  Read More

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Why startups shouldn’t be afraid of Facebook cloning them

It’ll take more than a Poke to knock out Snapchat.

(Credit: Screenshot by Ben Parr/CNET)

How long does it take a multibillion-dollar technology juggernaut to clone a popular social networking app? The answer: less than two weeks.

I am, of course, talking about Poke, Facebook’s clone of Snapchat, the app whose messages self-destruct after 1 to 10 seconds. As many people like to point out, it’s perfect for sexting, but there are a lot of other fun and innovative uses for this clever type of messaging.

For all intents and purposes, Poke is almost identical to Snapchat. Snapchat is focused on photos and videos, while Poke adds self-destructing messages and the classic Facebook poke feature to its arsenal. Poke relies entirely on your Facebook friend network, while Snapchat can dig into your contacts and let you share (sexy) photos with strangers.

One key difference: Snapchat already has a loyal user base that sends more than 50 million photos across its network every day, with many of its users teenagers. But Poke is quickly catching up. Within a day of its release, the app rocketed up the iOS charts to become the No. 1 free app in the App Store (it’s now at No. 3). Snapchat currently occupies the No. 7 spot.

It’s an impressive feat to hit No. 1 in the App Store, even for the world’s largest social network. Facebook, unlike other giants, has the ability to quickly approve, build, and release products. The fact that it took just 12 days for this app to become a reality is simply mind-boggling.  Read More

Dollar edges higher as U.S. fiscal talks eyed; yen drops

U.S. dollar bills are displayed in Toronto in this posed photo, March 26, 2008. REUTERS-Mark Blinch
A one Euro coin is displayed in water in Munich August 20, 2012. REUTERS-Michaela Rehle

1 of 2. U.S. dollar bills are displayed in Toronto in this posed photo, March 26, 2008.

By Wanfeng Zhou

Volatility could increase as the year-end deadline on the U.S. “fiscal cliff” approaches with little progress on reaching a deal to avoid $600 billion in tax hikes and spending cuts that could tip the U.S. economy back into recession.

A deal in the coming days could spark a rally in currencies like the euro, the Australian and Canadian dollars as investor appetite for risk increases, while no deal may spur demand for the safe-haven U.S. dollar and Japanese yen, analysts said.

“The end of the week therefore sets up as possible volatility event for the market with some analysts expecting a 1 percent rally for risk FX if a deal looks to be done, but a possible severe selloff of 2 percent or more if it fails to materialize,” said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York.

“The risks are skewed to the downside as market remains complacent about a compromise, but for now traders are betting that a deal gets done.”

Many investors opted to stay on the sidelines in thin pre-holiday trading on Monday, awaiting headlines from Washington.

The Democratic president and Republican House of Representatives Speaker John Boehner, the two key negotiators, are not talking and are out of town for the Christmas holidays. Congress is in recess, and will have only a few days next week to act before January 1. Some lawmakers voiced concern that the country would go over the “cliff”.  Read More

Google (GOOG) Said To Develop New Motorola ‘X-Phone’ To Compete Apple (AAPL), Samsung

Google Inc. (NASDAQ: GOOG : 709.3, -7.4) and Motorola Mobility is reportedly developing on a new smartphone — codenamed “X-phone” — in a move to grab market share from Apple Inc. (NASDAQ: AAPL : 519.75, -0.28) and Samsung Electronics in the smartphone market.

Motorola is designing its marquee handset with cutting-edge features to stand apart from existing phones when it is released next year, according to the Wall Street Journal, citing people familiar with the matter.

Motorola is primarily working on two fronts: devices that will be sold by carrier partner Verizon Wireless, such as the “Droid” line of smartphones, and the X phone, the WSJ reported citing the people. Motorola is also anticipated working on an “X” tablet after the phone.

Google’s new hardware unit has run into hurdles associated with manufacturing and supply-chain management that have caused the company to rethink some initial plans for the X phone, such as using a bendable screen, the people told the WSJ.

Motorola plans to enhance the X Phone with its recent acquisition of Viewdle, an imaging and gesture-recognition software developer. The new smartphone is due out sometime next year, the business daily said quoting the people.

Google Chief Executive Larry Page has told the Motorola team to “think big” and aspire to reach the scale of Samsung’s mobile business, and promised a significant marketing budget for the unit, the newspaper reported citing the persons.  Read More

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