The Great Depression that started in 1980 is ending along with WW III.

The US debt and GDP growth from 1980 to 2010 is very similar to the 1920 to 1950 time period. By projecting similar debt and GDP growth as in 1950 to 1980 30 year period we arrive at the following number for 2040 (see hyperlink above for spreadsheet):

US Debt in 2040 = 50 Trillion (Nominal)

US GDP in 2040 = 140 Trillion!!! (Nominal)

So why is the next 30 years going to be similar to the 1950 to 1980 time period?

1) WWIII is ending. Financial Pearl Harbor has lead to currency wars. We are approaching the climax.  Euro will be replaced by Yuan as the second reserve currency. The Euro zone’s contribution to world GDP will diminish. BRICS will be larger than Euro zone soon.

2) Winners will be people who own Assets and make money via capital gains, dividends, real estate etc. Loosers will be everyone else on fixed income (Social Security and/or fixed wages).

3) The new boomers are in BRICS and other emerging BRICS.

4) US will arrest the growth of debt by limiting the growth of entitlements, depreciating the dollar and inflating the assets (same as in 60s and 70s). It is already happening.

5) The US stock market, 80% of the market cap is the S&P 500, will benefit from the deprecating USD since the majority of the S&P 500 corporations have most of their receivables in other currencies and most of the payables in USD. The new healthcare law is also a huge boon for the S&P 500 corporations (see item 6 below).

6) The healthcare law is actually a huge boon for the free marketeers since there is no public option and people need to buy private insurance. This whole fight against this new law is a farce. The insurance industry and the corporations got exactly what they wanted with some minor concessions. Lifestyle change is what is needed to fix the big four root causes (diabetes, high blood pressure/heart disease, obesity, bad diet/no exercise) that are responsible for 80% of the cost. The insurance companies in collaboration with the corporations will enforce this via incentives. Most of the regulations will impact small business that do not provide any healthcare to their employees. This requirement will limit their ability to compete with the S&P 500 corporations.

7) US consumer will eventually benefit once the inflation shows up in the wages (most likely in 2020 and beyond trickle down) and their major expense, the mortgage, is fixed at the current low 4%. So lock in those rates!!

8) The new entrants to the US labor force in 2020 and beyond will not be able to afford homes. They will have to settle for apartment like most of the consumers in rest of the world.

A perfect example of how the wrong objective and misaligned incentive leads to too many short term oriented decisions. As per the above fortune article, the goal for Ms. Bartz was to get the stock price of Yahoo to $25 so she could maximize her payout. Hence Ms. Bartz’s focus was Operating Margin expansion to increase the bottom line. She also  made some alliances with Microsoft for some quick short term top line growth hoping to get the stock price to $25.

While she did that, the market (hedge funds, mutual funds, ETFs, endowments, sovereign funds) were looking at the competition and did not see a clear sustainable profitable growth strategy. Hence the stock went nowhere. It did have some short term gains along the way only to erase those gains in short order.

The board picked the right person for the job they had in mind. The incentive was aligned with their (wrong) goal and Ms. Bartz did what she was expected to do. It was just the wrong objective.

What was needed here is to think outside the box, look at the landscape and completely re-position the company. Take the short term hit instead of focusing on the short term stock price.

Yahoo missed the search, social, app and mobile revolution. Flickr is still the best asset Yahoo has besides its stake in Asian web firms (Alibaba etc). Opening up Flickr sharing via email and social sites was a throwing in the towel move that was most likely needed.

Yahoo needs a bold re-positioning strategy. A Netflix like approach to Flickr might be just what the doctor ordered (among other things like divestitures). Hopefully someday it can be known for something other than the Yahooooo! commercial of the 90s and making Mark Cuban a billionaire-:)

Good summarization of why that is so (see link above for Barron’s article). Some additional points that I have alluded to in my blogs in the past:

1) The depreciating US dollar, the macro trend is down even though there might be pockets of appreciation, will benefit S&P 500 corporations due to the fact that majority of the receivables (sales) are denominated in other currencies and majority of the payables (expenses) are in USD.

2) The looming hyper inflation will benefit the S&P 500 corporation since this allows them to raise prices faster than the inflation in their expenses. For example, the salaries will not rise anywhere close to the inflation rate. This has been the case since the 80s, however, this trend will accelerate and show up in the bottomline (EPS).

3) The 10%+ unemployment in the US is here to stay as is the norm in most of the other countries. The anamoly was the sub 5% rate over the last three decades mostly due to expansion fueled by credit. This higher unemployment will keep a lid on the wage inflation even as the CPI keeps increasing. Prices will rise even though wages do not - a perfect utopia for the S&P 500.

4) Eventhough the economies that will do well are the BRICs and other new emerging BRICs, the stock market that will outperform all indexes in the next couple of decades is the S&P 500 due to the aforementioned reasons.

5) Most of the US middle class will get downgraded from palatial homes to apartments in the next two decades. Eventually only the upper middle class folks will live in large houses as is the case in China and India today.

The $3000 automobile and $30,000 homes of the 50s are $30,000 automobiles and $300,000 homes today. Most of the US middle class has still been able to buy those due to credit expansion. In the not too distant future (in less than 20 years) we will see another ten fold increase and less credit. So the writing is on the wall. The wages will not rise to keep up with this sort of inflation.

Interesting idea in theory (click link above for the Reuters Article). Reality, however, might bite. The Indian subcontinent was united by the British colonization. But for that colonization, India today would have been similar to Europe – Many small nations with different cultures and languages populated by people of similar ethnicity, practicing various religions.

The US was united by the British colonization to an extent and by the prospectors, purchases and civil war. With centuries of history and national identity, this much needed Euro fiscal union will face huge growing pains.

Monetary union leading to a fiscal union does not have a precedent. US was a fiscal union first that eventually lead to a monetary union in a mostly immigrant nation where everybody’s interests were aligned for the most part. Not so in the Euro zone..

Internet and now the mobile internet are clearly transformative innovations enabled by a Diaspora of science, technology, design, arts etc. glued together by software. The applications however, are a different story, which is what Mr. Wadhwa is referring to.

A good analogy would be automobiles. A 100 years ago, people drove them just for the experience, they had nowhere to go! Eventually the society transformed around this new capability.

We are still in the very early stages of this transformation with internet (railroads) and the mobile internet (automobiles)….

Dell reported Gross Margin improvement and almost 300% increase in YoY qEPS (0.17 to 0.49)! The respositioning strategy discussed in my blog posts (link above) appears to be finally bearing fruit.

We are looking for people with industrial plant operations experience in data collection using mobile devices for a temporary field assignment. The initial engagement is expected to last 10 to 20 weeks and will most likely involve travel to the West coast and Southern United States.
 
Applicants need to be US based with authorization to work without restrictions in the US.

Depending on the level of expertise and the years of experience the position and hourly rate will vary. The scope of this project, which is tentative at this point, could be expanded and this could turn into something more permanent.

There is no requirement to relocate. Most of the work will involve travel (100%) or remote work (ie work from home).

Please send your confidential resume to:

scherukuri@ProcessISInc.com

You can call us at (408) 634 4754 for more information and/or visit our website at:

http://process-improvement-solutions.com/home

Finally a reason to get an iPad! HDMI, native Verizon 3G, AT&T 3.5G(HSPA+), dual Cameras. The AT&T HSPA+ (3.5G?) (a CDMA based protocol) is faster than Verizon
CDMA 3G. AT&T and Verizon LTE (true 4G) should be available on iPad 3 in
2012 (my guess). iPad 2 sales should be robust throughout this year
(2011) due to the new product and reach a crescendo during Christmas. iPad3
should pick up the baton in Q1/Q2 2012 -  a typical Apple playbook to
maximize the profits from each product iteration.

The iPad itself can be purchased anywhere (Apple store/online for now) and data plans activated only when needed (for a specific month). So the carriers have given in to Apple. The product is the driver and the carrier/network is ancillary. This was unthinkable just a few years ago when it looked like the carriers would make their own products at the contract manufacturers and make the device makers obsolete. What a difference a few years (and a visionary) makes!

The value of fulfilling unmet hidden consumer needs (or creating anew)…….

Yet another possibility - iPad 2 could be a replacement for ones’ Cable HD/digital box. Apple TV just turned from a hobby to mainstream (most likely was a red herring all along). One could use over the air HD broadcast for sports and other broadcast content and iPad/iTunes for specific content thus saving time and possibly money ($100+ for HD cable service vs download only what you need and watch when you want where ever you want).

Once the super wifi discussed in one of my earlier blogs (link below) is here, this conversion from Cable box to portable on demand content could enter the turbo mode (since one will not even need the wired internet at home).

Could this be why Akamai’s (CDN for wired connections) stock keeps going down (Apple is Akamai’s biggest customer for iTunes content delivery)?

processisinc.com/post/2388493869/at-t-buys-70 0-mhz-block-…

Warren Buffett’s 2010 Annual Investment Letter. Page 18, 19 and 20 make an interesting read - Derivates and index (SP500/FTSE) 2020 put contracts (sold by Berkshire in 2004/2005 thus taking a long position on the index over 15 to 20 years). Some of these contracts (8) have been unwound in 2010 at the instigation of the counter parties requiring payment by Berkshire, but still resulting in a gain since the premiums paid were more than the unwinding cost (plus free use of the float of’course).

http://www.berkshirehathaway.com/letters/2010ltr.pdf

Working Capital Gap. What is it? How do best in class companies like Dell and Amazon manage their Working Capital? Is negative working capital good? For details click the link below or scan the QR Code above:

http://process-improvement-solutions.com/Working_Capital_Gap.pdf