Arto Bendiken

We’ll never agree on every point with The Daily Show, but most could probably agree that this one is hilarious… “You know, they said Obama was going to redistribute the wealth, they never said which direction. You see I figured this out, Obama’s a Socialist, but he’s also dyslexic. He’s redistributing the wealth… it’s just going the wrong way.”

The video below came to our attention via Rolfe Winkler’s Capital Jungle.

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Turns Out, Obama is a Dyslexic Socialist originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

According to the US government statistics, we have nothing to fear any longer with regards to our economy, inflation, deficit spending, interest rates, etc., for you see, the fourth quarter GDP had a preliminary print of +5.7%! It’s all seashells and balloons for us now, folks… That’s what the cable news guys said, and that’s what’s all over the newswires. Forget about saving; go out and spend… Everybody’s doing it, they say! Just fork over those gold coins; there’s no reason to buy them any longer… Everything is fine here in the US. There’s nothing to see here, move along…

BUZZZZZZZZZZ, thank you for playing, but that’s a wrong answer! There’s a nice parting gift for you at the door! Johnny… Tell them what they take home with them today!

Geez Louise… I mean even the economic propeller heads in Davos, Switzerland we’re drooling all over themselves at the US economic growth. Of course, none of them took the time to look at the number, and question it… 5.7% growth? With 20% unemployment? As the robot used to say on Lost In Space, “Will Robinson, that does not compute”…

OK… Let’s take a step back for a moment… Remember the third quarter GDP that was supposedly showing strong economic growth? Well… A funny thing happened on the way to the forum… Growth in the third quarter was originally estimated at an annualized rate of 3.5%, but was revised down to 2.2% after more information was received. And… Most of the fourth quarter growth came from increased manufacturing to rebuild inventories. Consumer spending – the biggest component of the US economy – was down…

So… What happened in the currencies with all this trumped-up euphoria? The currencies, led by the Big Dog, euro (EUR), got sold versus the dollar, and I mean sold… Not a tight range, no resistance levels got in the way, they were sold, along with gold and silver!

There was lots of talk about the euro in Davos this past weekend, and most of it was not good talk… Most of the economic propeller heads were talking about the break-up of the euro, etc. all because of Greece…

Again… With the Greece thing! Greece WILL NOT DEFAULT! In the words of European Monetary Affairs Commissioner, Joaquin Almunia… “In the euro area, default does not exist”… But that doesn’t stop the boys from having fun with the euro.

So… With such stalwarts as Aussie (AUD), Norway (NOK), Switzerland (CHF), Canada (CAD), following the euro down the slippery slope, you’ve got the “this is a reversal of the weak dollar trend” guys coming out of the woodwork again… We heard all this after the collapse of Lehman Bros., didn’t we? We heard all this in 2005 when the EU Constitution got battered with no votes, didn’t we?

I think, just like those previous dollar rallies, we just need to do some REO Speedwagon – Riding the Storm Out! Do not panic, I would tell you if I believed this was a reversal of the weak dollar trend… And I do not see that in the least bit! If you’ve battened down the hatches with us in 2005, and 2008, then you know what’s in store… If you’re new to this, keep to your reasons for diversifying… Don’t let the “it’s all clear in the US” dolts get to you!

So… Did you hear about the budget that the president sent to Congress this past weekend?

I was throwing things in my basement at the computer desk when I read about how the budget calls for a “receding of the deficit in 2011 to $1.3 trillion”! Here’s the skinny… Put away the sharp objects, folks…
President Barack Obama’s proposed budget predicts that the national deficit will crest at a record-breaking $1.6 trillion in the current fiscal year, then start to recede in 2011 to $1.3 trillion, a congressional official said Sunday.

Still, the administration’s new budget to be released Monday says deficits over the next decade will average 4.5% of the size of the economy, a level which economists say is dangerously high if not addressed.

OK… Let me take you back to 2001… This is when I wrote the white paper about the decline of the dollar, for it was in 2001 that the US deficit reached 4.5%, which historically meant that a country running up a deficit like that would experience a currency crisis… When the deficit reached 4.5% of GDP I knew it was time to sell the dollar.

But what to buy back then? The euro which had been introduced in 1999, had fallen to 82-cents, from its introduction level of 117, and nothing looked good to buy… But! You had to have faith that this 4.5% level would hold out and come through with a currency crisis… It took a year, but eventually, the rest of the traders around the world figured this out, and in 2002, I wrote the whitepaper “The Year of the Euro”… And the rest is history…

So… This is one of the reasons I tell you that this current dollar rally is not a reversal of the weak dollar trend. The fundamental reason the dollar entered the weak trend, was that its deficit level hit 4.5%… And what does the president’s future budgets say? That the deficit will AVERAGE 4.5% for the NEXT DECADE! And… That’s sure to change on the upside.

Did anyone else notice that the president was talking about a “jobs Bill” during his 70-minute campaign speech the other night? Notice he didn’t use the word, “stimulus” but instead “jobs bill”. One has to wonder just how big this “jobs bill” will be, and if it was even counted in the budget presented to lawmakers!

Here’s another spanner in the works for those calling for a reversal of the trend… Unemployment in the US… Now, when most people hear about our unemployment problem, they think that it is centered in the big cities on either coast, and Las Vegas… But that’s not the case… This job loss problem is widespread.

For instance… In the decade that just ended, we lost jobs here in St. Louis. The Bureau of Labor Statistics says the St. Louis metro area had 28,600, or 2.1%, fewer people working at the end of 2009 than it had 10 years earlier.

The nation as a whole added a few jobs – 0.2% since 1999 – but St. Louis wasn’t alone in experiencing a lost decade. Pittsburgh, Cincinnati and Memphis saw jobs disappear at roughly the same rate as we did, and the losses were heavier in Great Lakes cities such as Chicago (down 6%), Milwaukee (down 9%) and Cleveland (down 12.5%).

Yes… Here in St. Louis, we were once the 5th largest city with company headquarters in the Western Hemisphere… But, those companies are all gone, save a few. Manufacturing has disappeared from the region, and probably from all those cities listed above, and replaced with service workers, casino workers, and other service jobs, but at much lower numbers.

So… The unemployment problem is for real, folks… And will be a drag on our economy for years to come.

One of the economists who is usually on my list of people to read – Nouriel Roubini – said that the “US growth outlook looks VERY DISMAL.”

The Brazilian real (BRL) has sure fallen on difficult times, as the government’s attempts to weaken the currency versus the dollar have garnered an 8% drop in January. So… To date, I’ve been wrong about the Sovereign Wealth Fund (SWF)… The SWF has sold reals by the truckload since the beginning of the year, and that’s been difficult for the markets to offset.

The fear in the markets is that the Aussie dollar will follow the real down, since it followed the real up last year, almost matching the real’s 35% gain versus the dollar. The Aussie dollar lost 1.6% last month… But, I’m at a loss as to why the markets fear it will follow the real down, as long as there is no government Sovereign Wealth Fund to sell it!

The thing I see for the Aussie dollar is that when the Reserve Bank of Australia (RBA) meets this month, they’ll see an opportunity to raise rates again, for the Aussie dollar has lost 1.6%, thus keeping the exporters happy… An interest rate hike by the RBA could be the cure to what ails the Aussie dollar.

Today in the US we’ll see two of my fave data prints… Personal Income and Spending and the ISM Manufacturing index… So, a couple of market moving pieces of data… The way the books are cooked here in the US these days, it just doesn’t make sense to take a stab at where these pieces of data will print…

We have a few central bank meetings this week around the world… The RBA, European Central Bank (ECB), Bank of England (BOE) and the Norges Bank (Norway), will all meet to discuss rates…

So… It’s time to look at our “pros and cons” ledger we kept since the last RBA rate hike… And as far as I can see, the “pros” far out-distance the “cons”. So… I’m here to say that the RBA will hike rates this week. As for the rest of the lot… I don’t expect a rate hike from any of them, ECB, BOE, or Norges Bank…

Then there was this… Sorry, but I have to come back to the president’s budget… The $1.6 trillion deficit will be equal to 10.6% of our GDP! That’s a post WWII record! One has to wonder what the debt rating agencies are doing right now… Sitting on their hands, I guess! Look… I don’t want bad stuff to happen to the US… I just want to see things handled in a different manner, so that maybe, just maybe someone in the government wakes up and smells the coffee, and goes about doing something to stop this deficit spending!

Better-Than-Expected US Economic Growth originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

You might remember that a while ago, Drupal was promoted to the 'Visionaries' category in Gartner's Magic Quadrant for Social Software in the Workplace. For someone unfamiliar with all the social software vendors and projects, the choice can be overwhelming and Gartner's reports can carry a lot of weight in the decision making process. Drupal's promotion to the 'Visionaries' category was a big win for all of us.

The social software market is evolving fast, and in response Gartner is working on a presentation that compares all of the different social software players in the enterprise market, including open-source projects like Drupal. As part of that process, Acquia was invited to review the presentation and provide comments about the social software landscape and Drupal's success stories. These success stories are important to help Gartner position Drupal against its many competitors. We will also be having a followup meeting with Gartner for further discussion.

Gartner considers three different use cases for social software: (i) team collaboration software, (ii) community software and (iii) networking software. Each of these scenarios have different requirements and emphasize different features of social software. User profiles and group support seems to carry a lot of weight in their evaluations. In addition, for each of these use cases, Gartner considers two different deployment scenarios: (a) sites inside the workplace and (b) externally facing websites. This effectively creates a 3x2 matrix or grid.

To help prepare for our meeting with Gartner, and to help further Drupal's competitive positioning in the enterprise we're looking for good examples in each of those categories. Good suggestions? Post them in the comments of this blog post. Remember that Gartner is focused on the enterprise, so we're looking for examples in the enterprise that carry a lot of weight. Thanks for your help!

The Drupal Association is a non-profit organization dedicated to helping the Drupal community with fun­ding, infra­structure, events, promotion and distribution. The current Board of Directors was elected almost a year ago, so it's election time again!

On March 1st, 2010 we will elect new Permanent Members to the General Assembly. The General Assembly wil then select our Board of Directors, who are responsible for oversight of day-to-day operations. All the details can be found in the Drupal Association's Statutes.

We are looking for people who aspire to become Directors on the Drupal Association's Board and who can provide leadership and experience to expand the reach of the Association and its activities. All current Board positions, except the President and Treasurer, are up for election, including Secretary, Legal Officer, Marketing and Communications, Infrastructure Manager, Fundraiser, and Events Manager.

The Association is also looking for new General Assembly members with skills in marketing, drupal.org webmaster coordination, project management and more. People interested in becoming a Permanent Members are invited to apply. While Permanent Members don't have the defined responsibilities of board members, membership implies a commitment to work for and promote the goals of the Association.

The Drupal Association is run by unpaid volunteers and we expect that our board members will spend a considerable amount of time working on Association responsibilities and obligations. If you think you're a good candidate, and you have the time it takes, find an existing Permanent Member to support your candidacy (i.e. find a supporter) and submit your application. Applications are due by February 22th and on March 1st, we elect the new Permanent Members and the new Board of Directors.

If you have questions, don't hesitate to ask them in the comments, or to contact the Drupal Association.

Ross Anderson reports:

Online transactions with credit cards or debit cards are increasingly verified using the 3D Secure system, which is branded as "Verified by VISA" and "MasterCard SecureCode". This is now the most widely-used single sign-on scheme ever, with over 200 million cardholders registered. It's getting hard to shop online without being forced to use it.

In a paper I'm presenting today at Financial Cryptography, Steven Murdoch and I analyse 3D Secure. From the engineering point of view, it does just about everything wrong, and it's becoming a fat target for phishing. So why did it succeed in the marketplace?

Quite simply, it has strong incentives for adoption. Merchants who use it push liability for fraud back to banks, who in turn push it on to cardholders. Properly designed single sign-on systems, like OpenID and InfoCard, can't offer anything like this. So this is yet another case where security economics trumps security engineering, but in a predatory way that leaves cardholders less secure. We conclude with a suggestion on what bank regulators might do to fix the problem.

William Lafferty has penned a short novel on the excesses of the BATFE, imagining three 80-year-old World War II veterans beginning a campaign of retribution that eventually takes down that rogue agency. Didn't cause me to cheer, as did the feeding of the hogs in Unintended Consequences or the first chapter of Absolved, but kept me turning pages. Available at Amazon, from the author, for $11 + $4 shipping. Mr. Lafferty gave me a copy after finding and enjoying my copy of Mike Vanderboegh's What Good Can a Handgun Do Against an Army?.

Rama Lakshmi at The Washington Post - gun owners in India are fighting the regulations imposed on them by long-gone British rule. Far out!

All accomplished with a Swiss Army Knife and Duct Tape.

I have always carried a pocket knife of some sort and, over the years, I have found the Swiss Army Knife to be the most useful. My good friend Eric calls this my "MacGyver knife." I never was much of a Richard Dean Anderson fan and the series' plots often strained credulity to the endangerment of suspended disbelief. Still the knife IS useful. I like tools that are multi-useful (see my praxis on the spork).

But when TypeAy fowarded this to me, I was amazed.

Mike
III

http://www.dailymail.co.uk/news/article-1247230/The-Roman-Army-Knife-Or-ingenuity-Swiss-beaten-1-800-years.html

Inspired: The Roman army pen knife, a precursor to today's popular Swiss Army accessory

The Roman Army Knife: Or how the ingenuity of the Swiss was beaten by 1,800 years

By Daily Mail Reporter
Last updated at 9:07 AM on 30th January 2010

The world's first Swiss Army knife' has been revealed - made 1,800 years before its modern counterpart.

An intricately designed Roman implement, which dates back to 200AD, it is made from silver but has an iron blade.

It features a spoon, fork as well as a retractable spike, spatula and small tooth-pick.

Experts believe the spike may have been used by the Romans to extract meat from snails.

The Roman army pen knife

It is thought the spatula would have offered a means of poking cooking sauce out of narrow-necked bottles.

The 3in x 6in (8cm x 15cm) knife was excavated from the Mediterranean area more than 20 years ago and was obtained by the museum in 1991.

The unique item is among dozens of artefacts exhibited in a newly refurbished Greek and Roman antiquities gallery at the Fitzwilliam Museum, in Cambridge.

Experts believe it may have been carried by a wealthy traveller, who will have had the item custom made.

A spokesman said: 'This was probably made between AD 200 and AD 300, when the Roman empire was a great imperial power.

The knife is on display at the Greek and Roman antiquities gallery at Cambridge's Fitzwilliam Museum.

'The expansion of Rome - which, before 500 BC, had just been a small central Italian state - made some individuals, perhaps like our knife-owner, personally very wealthy.

'This could have been directly from the fruits of conquests, or indirectly, from the 'business opportunities' the empire offered.

'We know almost nothing about the person who owned this ingenious knife, but perhaps he was one of those who profited from the vast expansion of Rome - he would have been wealthy to have such a real luxury item.

'Perhaps he was a traveller, who required a practical compound utensil like this on his journeys.'

The spokesman added: 'While many less elaborate folding knives survive in bronze, this one's complexity and the fact that it is made of silver suggest it is a luxury item.

'Perhaps a useful gadget for a wealthy traveller.'

Modern Swiss Army knives originated in Ibach Schwyz, Switzerland, in 1897 and were created by Karl Elsener.

The knives which provide soldiers with a 'battlefield toolkit' have since become standard issue for many modern day fighting forces thanks to their toughness and quality.

Nationalist Elsener decided to design the knives after he realised the Swiss army were being issued with blades manufactured in neighbouring Germany.

Other popular artefacts include an intricately designed Greek make-up box which was custom made almost 3000 years ago for a women of 'wealth and status'.

The round clay make-up container from Athens dates back to 740BC and experts believe it may have been stored in a grave in the Ancient Greek city for the last 2,700 years.

The six inch high and 12 inch diameter box would have contained precious gems and make up from the era made from a variety of naturally occurring substances.

A lot of people think that American politics, even American society, has become increasingly polarized in the last ten or twenty years, marked by a widening chasm of left vs. right, liberal vs. conservative, secular vs. religious, etc. On the surface, that’s true. But I think the deeper division is the elite vs. the people, the political class vs. the productive class, those who govern and those who are governed. Indeed, once you notice that nothing ever changes in the District of Columbia or your state capitol — that the elites follow essentially the same policies no matter which gang is in charge — you start to realize that the supposed divisions among the people are extraordinarily convenient for the political class, because they keep the people from realizing that their real enemies are not the folks to their left or their right, but the elites up above. And while I am duly cautious about the dangers of popular rule (as were the Founding Fathers), I think Americans have much more to fear from elitism than from populism, especially in an age when knowledge and information are more dispersed than ever.

Go here.

Faye and Irving Porter are shown with their infant son Jack in the Ukraine in 1945. They settled in Milwaukee in 1946.

My thanks to Irregular JWF for forwarding this obituary from last month of Faye Porter-Arenzon. There are several practical lessons in her life's story.

Mike
III

Porter-Arenzon escaped Nazi massacre in Ukraine

After she moved to Milwaukee, she raised a family, lived to 100

By Amy Rabideau Silvers of the Journal Sentinel

Posted: Dec. 18, 2009

Everything in Faye Porter-Arenzon's life was measured by what happened Sept. 24, 1942.

She could not save her family - two young daughters, her parents, all her siblings, other relatives - from massacre by Nazi SS officers and local Ukrainian police.

But she survived, later rescued by her husband, a partisan with the resistance movement in the Ukraine. Together they lived in a partisan community in the forests of their homeland and began a family again. Together they came to America.

And she became the matriarch of a new family in a new land.

"It was a miracle," said her son, Jack Nusan Porter, a Holocaust and genocide scholar. "She survived to produce all these generations."

Porter-Arenzon - she married again after the death of her first husband - died of natural causes Dec. 1. She was 100. She last lived in St. Louis Park, Minn., where she moved to be near her daughter after the death of her second husband. Services have been held.

Born Faygeh Merin, she married Srulik Puchtik in 1937. They lived in Maniewicz, a small town in northwestern Ukraine. Later, they took the more American names Faye and Irving Porter.

By 1941, however, the Nazis had taken away most of the town's Jewish men.

"Luckily, a good Polish man gave my father a rifle and 150 bullets," Jack said. "My father started the nucleus of a mostly Jewish fighting group - the majority were Russian Jews - with other Polish and Ukrainian and Russian fighters."

On Sept. 23, 1942, the Nazis and police began rounding up all the remaining Jewish residents of the town.

"They took us out, put us in the middle of a road and counted everyone," she later recalled in a news article. She was then a 32-year-old mother, holding the hands of her daughters, ages 4 and 2.

The situation was still fluid. She tried to get people to do something, anything, saying they should burn the town and run for the forests. People were too afraid to try.

"So she told her mother and sisters and daughters, 'Let me try to find a place for us to hide,' " Jack said.

A policeman stopped her as she left the area. "Why waste a bullet on me now?" she argued. "You're going to kill us all tomorrow."

He let her leave.

She found a barn and tried to go back for her family, but by then there were too many guards. Even if she managed to get back to her family, there was no way they could escape together.

"She went back to the barn," her son said. "And the next morning she heard the shots."

Twenty-five members of her family and her husband's family were killed.

"Three-hundred-eighty Jews were rounded up and taken to the edge of town, shot and buried in a mass grave," said daughter Bella Smith.

Nazis began searching the countryside, including the barn where she was hiding. She was grazed by a bayonet as a Nazi stabbed the hay pile. That night, she crawled into the forest, alone for months.

"She didn't know my father was alive," her daughter said. "He didn't know she was alive. He heard there may have been survivors and found her. She was down to 80 pounds and he carried her back to the partisan unit."

The partisan group, which became known as the Kruk-Max Otryad, grew to include 150 fighters and more than 250 civilians in a family camp, the third-largest such group in Europe, Jack said.

"Mom was the nurse and a cook with the fighter group," Jack said. "Theirs is like the story of the movie, 'Defiance,' about the Bielski Otryad."

After liberation by the Russians in 1944, they lived at the Bindermichel displaced persons camp near Linz, Austria. There they were a rare married couple who survived the war, becoming surrogate parents to young people who had lost their own.

"They would walk these girls down the aisle when they married," Jack said.

His father's brother, in the U.S. since the 1920s, heard they were alive. He sent $100, enough for steerage tickets for the couple and son Jack. They first lived in Chicago, but soon settled in Milwaukee in 1946.

Irving Porter became a scrap dealer. Faye Porter took care of her family, becoming the mother of another son, Shlomo, and daughter Bella, and later a grandmother and great-grandmother.

Her husband died in 1979. Porter took in young women boarders, always interested in trying to find everyone a marriage partner.

She also played matchmaker for herself.

"Do you know someone who wants to get married?" she asked a nice man at a neighborhood senior center.

"Yes," said Yehuda "Judah" Arenzon. "Me."

They married in 1980. He died in 1986.

She remained warm and giving, hopeful and kind.

"She was a tzadakis, a righteous person," Jack said. "People actually came up to her and asked her to bless their children and themselves."

"Don't be stingy with a blessing," she would say. "It doesn't cost anything."

As Porter-Arenzon got older, her blessings took on special meaning.

"She would say, 'God should bless you that you should come in my age and be healthy,' " her daughter said.

The III Patch passes into history.

This just in from Raven's Wood Enterprises:

Guys,

If you would please post this on your blogs, I'd really appreciate it.

Raven's Wood Enterprises would like to thank all those who purchased the "III" (Threeper) 'Fortune Favors the Bold' patch.

The time has come, due lack of demand, to no longer carry the "Fortune Favors the Bold" patch. Most everyone seems to have what they want, or have decided they like the Nyberg III Flag patch better.

So, all "Threeper" patch orders received to date (1/31/10) have been processed and sent. Any other orders received for the Threeper patch will be returned.

Nyberg III Flag patches will contine to be offered for the foreseeable future.

Thanks again!

Raven's Wood Enterprises, LLC

The Nyberg "III" Flag Woodland patch is still available from Raven's Wood Enterprises, LLC, $3 each post paid. The patches measure approximately 1.9 X 3 inches and are of the same quality that the "Threeper" patches were.

USPS Money Orders, Cashier's & Certified Checks and cash (though any orders in cash are at the sender's sole risk) get immediate processing and shipment. Personal & business check orders are held 10 days until the check clears.

Send all orders to:

Raven's Wood Enterprises, LLC
PO Box 962
Birmingham, MI 48012

Institutional investors are revered because they know more than the little guy. Indeed they always do, but knowledge does not always guarantee them better performance than the market gets as a whole, because in essence they are the market. They are subject to the same blindness and emotion as the rest of us. Humans are predisposed to seek out facts in the present, but we are poor at crafting these into descriptions befitting inflection points, or even during the considerable period of time that follows.

By nature most will fall back upon the comfort of possessing expert knowledge and be dismissive of almost any hypothesis well outside the range of current forecasts. The best kept secret is one that is told to everyone, but not believed (the verbal equivalent to Poe’s Purloined Letter ). Perhaps the reason is that collectively our ability to forecast, even among those who are emboldened to stake out turf outside the boundaries of evidence, is poor. Among us are too many boys crying wolf who are perennially wrong that the evidence-based majority of investors would reject any true prophet.

For those who have managed institutional money on Wall Street for decades, one of the most memorable outside-the-box forecasts came from First Boston strategist Suresh Bhirud, who in the spring of 1983, at a time when the Dow Jones Industrial Average was at 1,200, predicted correctly that it was headed much, much higher. Titled On a Clear Day You Can See 2,000, the research report seemed unbelievable, since the market had been stalled beneath 1,000 for about a decade.

On the other side of the coin is a graveyard filled with the intellects that have sought to challenge the wisdom of compounding credit growth at a rate significantly greater than real economic growth. There is a good reason for this: as Ibbotson and Sinquefield have shown, long-term returns of the stock market have been high, reflecting risk and a premium over inflation. From 1925 to 2007, large-cap stocks averaged a total return of 10.4 percent, while inflation was just 3 percent (using the official yardstick).  There are no straightforward decision rules for asset allocation that can be gleaned from fundamental data that are stable and reliable over time; so the conventional wisdom is that it is best to stick with stocks unless you have some need for money in the next few years.

In the late 1980s, Charlie Minter and his partner Stan Selvigson warned of a coming credit crisis. Although they were utterly wrong, their convincing graphics and articulate commentary was welcomed (but rarely acted upon) by institutional investors weary of continuously upbeat forecasts from other strategists. This duo was among the most requested in the infotainment office-visit circuit run by the big brokers, which provided them a foundation for leaving their employer, Merrill Lynch, and forming Comstock Partners.

Public figures have mistakenly sounded the alarm of excessive speculation, too. In 1955, the Senate Banking Committee investigated the stock market, issuing a report concluding there was too much speculation, even though dividend yields on stocks were about 40 percent above those available in the bond market, indicating continued public wariness of equities caused by memory of the Great Depression. (Currently dividend yields are 60 percent lower than bond yields, and bond yields themselves are near record lows). Federal Reserve Chairman Alan Greenspan thought the stock market was giddy with “irrational exuberance” in December 1996, only to find it would ascend more rapidly than ever, by 27.6 percent annually from the beginning of 1997 through the end of 1999.

There is a long list of others who have bucked the conventional wisdom by being bearish. In fact, a cottage industry exists that exploits investor fears with dire predictions usually recommending ownership of gold coins or Treasury bills. They may have gained some converts during downturns, but each time the central bank has acted swiftly to spray more cheap credit out of its hose to put out the fire. With the exception of the malaise of the Jimmy Carter era, prolonged credibility has eluded those who would sound a systemic alarm.

[Editor's note: This passage is reprinted from William W. Baker's book, Endless Money: The Moral Hazards of Socialism, with the permission of John Wiley & Sons, Inc (©2010). You can get your own copy here.]

Blindness and Emotion in the Market originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

By Ari Hyytinen and Tuomas Takalo [1]
The Lydian Payments Journal
November, 2009

http://www.pymnts.com/who-owns-mobile-money/

It has long been predicted that the digital revolution will transform the way people pay at their point-of-sale transactions. The end of the cash era could indeed have dramatic consequences, not least since it might eventually even lead to the obsolescence of central banks.

While many digital payment media innovations have failed to take off and the paper form of cash has turned out to be surprisingly resilient, many commentators argue that mobile phones and other similar portable electronic devices finally enable digital cash to solve its chicken-and-egg problem.[2] For example, mobile phones can currently be easily equipped with payment features, and since almost all consumers in the developed countries carry mobile phones, shopkeepers are willing to install systems to handle mobile money. The prospects of mobile money are even greater in poorer countries where it often constitutes the only feasible digital payment medium. Moreover, mobile phones' display and ability to act as a mobile ATM add to mobile money's utility. But in contrast to the supply of paper cash, which is the monopoly of central banks, it is not clear who owns the property rights over mobile money.

Since the mid-1990s it has been clear that the emergence of new mobile technologies represents an untapped business opportunity. But who has tried to seize the opportunity and invested in the development of mobile payment technologies? What kinds of firms have tried to enter into this new, promising market? Where do these entrants come from?

At least two distinct industries should have had an incentive to innovate in and compete for the market for mobile payments. On the one hand, traditional incumbents in the market for payment media are financial institutions, such as banks and payment card companies, who obviously had a head start in capturing the emerging new market. On the other hand, ICT firms, equipment makers, and telecommunications operators, for example, are specialists of mobile communications technology and have been vying for new applications and revenue sources for their devices and services. Moreover, the economics of payment media markets is quite similar to that of the communications industry: both are two-sided markets characterized by network externalities and platform competition.

It is, of course, equally possible that new entrants could come outside these two main candidate industries. For example, Internet marketplaces and service providers, software and operating system producers (such as Microsoft and its rivals and collaborators), or completely new research-based entrants with unconventional business models could be interested in developing mobile payment media applications and entering the market.

The new mobile and digital payment media markets are emerging. While their eventual landscapes are yet unknown, patent statistics provide a window to the future and potential entry, characterizing innovative activities and intellectual property strategies of potential entrants at the birth of new mobile payment media.

Based on our own preliminary data analyses and Hall, Thoma, and Torrisi's research, some clear and interesting patterns seem to emerge from the patenting data.[3]

First, as Table 1 shows, patenting activity picked up late 1990s and accelerated after the millennium. This pattern emerges from the world-wide patent data on mobile payment technologies to which we have had access (covering publications from 42 patent offices and coming from Derwent World Patent Index -database). The same pattern can also be extracted from the European Patent Office (EPO) data on European financial patents compiled by Hall, Thoma, and Torrisi. While their study aims at covering a broad range of financial patenting, their data appear to cover a lot of payment methods and technologies. Hence their results could be seen as providing an upper bound for payment innovation patenting in Europe.

Table 1: Average Number of Patent Applications per Year

Second, U.S. firms are the most important source of mobile payment patent applications. In Hall, Thoma, and Torrisi's research, it is reported that 49.9% of EPO financial patents originate from the U.S. In our technologically targeted but geographically broad data, the U.S. innovators account for 31% of the (global) patent applications.

Third, the involvement of incumbents (financial institutions) is modest. Some payment card platforms figure in the statistics, but banks and other financial intermediaries are nearly absent. In our patent data on mobile payment technologies, traditional financial institutions are virtually entirely absent; among the top 20 patentees, none is coming from the traditional financial sector. From Hall, Thoma, and Torrisi's research, we can infer that out of 52 top financial patentees in EPO, nine (17%) come from the financial and insurance sector. These nine include four major payment card platforms and service providers (First Data, Mastercard, Visa, and American Express) but only few financial intermediaries.

In contrast, established ICT firms, device manufacturers, and operators in particular, seem to account for most of the mobile payment and European financial patents. In Hall, Thoma, and Torrisi's data, top five patentees include IMB, Citicorp, NCR, Fujitsu, and Siemens. In our (unweighted) data, they are Ericsson, Siemens, Nokia, Motorola and IBM. This suggests that ICT firms, which are entrants into the financial service sector, have begun to create and compete for a new market.

Interestingly, the patterns of patenting of mobile payment technologies are in stark contrast to some other areas of financial innovation, such as financial exchange systems and infrastructures. In this area, most innovations (according to the patent statistics) arise from the traditional incumbents, such as investment banks and financial exchanges.[4]

There are a couple of potential explanations for the absence of financial institutions and dominance of the ICT firms in the patenting of (mobile) payment technologies.

The first potential explanation is that the different industry backgrounds of the most likely entrants have repercussions for their innovative strategies. Investments in R&D and IPR management have long been the core competitive strategies in telecommunications industry, whereas financial institutions have hardly bothered to document their R&D investments. This view suggests that both incumbents and entrants may innovate equally but use different intellectual property strategies. It is possible that financial institutions waive patent protection, resorting to their traditional appropriability strategies (e.g., lead time and secrecy) to protect their mobile payment innovations, whereas ICT firms just follow their patent-based intellectual property management systems.

However, it is well documented that the Court of Appeals for the Federal Circuit's landmark 1998 decision in State Street Bank & Trust Co. v. Signature Financial Group, Inc[5] has raised the awareness of intellectual property issues not only in the U.S. but also in the global financial services sector. In some cases the State Street decision is also known to have drastically changed the management of financial innovations in financial services, prompting a large scale use of patents as an appropriability strategy. For instance, the active innovators and patentees in the field of financial exchange systems and infrastructures have been investment banks and exchanges themselves. It therefore seems a bit unlikely that different levels of awareness and interest would account for the difference in the patenting patterns over the past ten years, i.e., over the period when the most of mobile payment patent applications have been filed. Indeed, if one only looked at the overall patenting of payment inventions over time and across regions, one could easily make the misleading conclusion that the State Street decision prompted the U.S financial institutions to patent their payment method and technology innovations, too.

The State Street decision also implies that the research and innovations of financial institutions are hardly unsuitable for patenting. Moreover, many of the (mobile) payment innovations are inherently technological and as such have been always patentable. For example, according to the USPTO, one of the first U.S. patents was granted on March 19, 1799, for an invention used for "Detecting Counterfeit Notes".[6]

An alternative explanation for the lack of patenting by financial institutions in the area of mobile payment technologies is that they do not innovate. This fits well with the classic argument, associated with Kenneth Arrow, according to which incumbents generally may have weak incentives to innovate since they recognize that the new innovations cannibalize the revenues from their existing products.[7] More recently, Raghuram Rajan and Luigi Zingales emphasize that incumbents may prefer to conspire with the politicians to preserve the status quo and to prevent entry rather than to engage in innovative activities and competition for new markets. This could account for the cross-country variation in the pace of financial development over time.[8]

Whether some firms can eventually create and conquer the market for mobile payments and enforce effective property rights over the mobile money so created is a question on which existing data or research has little to say. Since this is an industry in which network externalities are crucial, it would be tempting to predict that the market will eventually "tip" towards a dominant solution. But politics and regulation creates a particular source of uncertainty, as the global financial industry and therefore a large part of the payment media markets (e.g., deposit services) still operate under extensive regulation. The limited prospects for further deregulation in this area suggest that potential entrants with the most radical mobile payment media innovations face a rocky road ahead.

If we had to bet a euro now on the future of mobile money, we would bet it on a rather fragmented market outcome, with different technological solutions and business models co-existing in different geographical and business areas.

Ari Hyytinen is Professor of Economics at University of Jyväskylä and Associate Research Fellow at the Research Institute of the Finnish Economy (ETLA), Finland. Tuomas Takalo is Research Supervisor at the Bank of Finland and Professor of Economics at University of Jyväskylä, Finland. This article has in part been prepared as part of ETLA-BRIE collaborative research program "Networks, Services and Global Competition." The underlying research has partially been funded by the Jenny and Antti Wihuri Foundation.

[1] Hyytinen is Professor of Economics at University of Jyväskylä and Associate Research Fellow at the Research Institute of the Finnish Economy (ETLA), Finland. Takalo is Research Supervisor at the Bank of Finland and Professor of Economics at University of Jyväskylä, Finland. This article has in part been prepared as part of ETLA-BRIE collaborative research program "Networks, Services and Global Competition." The underlying research has partially been funded by the Jenny and Antti Wihuri Foundation.

[2] See, e.g., our own work (Ari Hyytinen and Tuomas Takalo, "Consumer Awareness and the Use of Payment Media: Evidence from Young Finnish Consumers," Review of Network Economics 8 (June 2009): 164-188), and the references therein.

[3] For details, see Bronwyn Hall, Grid Thoma, and Salvatore Torrisi, "Financial Patenting in Europe," NBER working paper no. 14714 (2009); Bronwyn Hall, Grid Thoma, and Salvatore Torrisi, "Financial Patenting in Europe," European Management Review 6 (2009): 45-63.

[4] See Mari Komulainen and Tuomas Takalo, "Does State Street Lead to Europe? The Case of Financial Exchange Innovations." Bank of Finland discussion papers 22/2009 (2009).

[5] 149 F.3d 1368.

[6] Patentability of payment media innovations is discussed further in Robert M. Hunt, Samuli Simojoki, and Tuomas Takalo, "Intellectual Property Rights and Standard Setting in Financial Services: The Case of the Single European Payment Area," in Financial Innovation in Retail and Corporate Banking, eds. L. Anderloni, D.T. Llewellyn, and R.H. Schmidt (Edward Elgar: Cheltenham, UK, 2009).

[7] Kenneth J. Arrow, "Economic Welfare and the Allocation of Resources for Inventions", in The Rate and Direction of Inventive Activity: Economic and Social Factors, ed. R.R. Nelson (Princeton University Press: Princeton, 1962).

[8] Raghuram Rajan and Luigi Zingales, Saving Capitalism From the Capitalists (Princeton University Press: Princeton, 2003). As also Rajan and Zingales point out, the notion that in particular (financial) intermediaries have an incentive to lobby for restrictions in competition goes back at least to Adam Smith (see Adam Smith, The Wealth of Nations, Book I, Chapter XI, ed. E. Cannan (1776; Chicago University Press: Chicago, 1976, p. 278).

I have been quite busy here with work, and have not had a chance to follow the blog as I should. First I would like to express my heartfelt thanks to all of those who sent birthday wishes. It is truly humbling to see the outpouring of gratitude from perfect strangers on this website. I am ashamed that I have not reciprocated the good wishes of the readers of this blog. Please pass on my gratitude on behalf of myself, Nicole and the kleine mann.

Second I would like to address the postings of LTG Hertling. My current assignment is with the Command Group of the 1st Armored Division. The same division that LTG Hertling just left. My time with the General was albeit brief and in an indirect support role, but I was extremely impressed with his candor and professionalism. Respect is earned and not given. From speaking with others who did, I can say that have not seen a General (to include GEN Petraeus) more respected or admired then LTG Hertling. There are those that might doubt his gasp upon reality but I would offer the Generals own comments about his resume and add that I doubt that any of his detractors have led anything higher then a squad during combat operations in Iraq. Big Army makes decisions for the whole of the Army because of decades worth of Army experience. Bottom line; this guy is not a career staff officer nor is he an armchair General. Your readers should probably listen to him.

Yes, it is quite true that the Army has moved away from many Cold War common tasks. Ask any Infantryman when the last time he applied camouflage to himself or dug a foxhole and I am sure he will tell you "basic training". He can, however, raid and cover ground quicker then his predecessors. It is just the nature of how the war in Iraq is being fought. I would offer that when they did away with things like Sergeant's Time Training, a lot of fieldcraft was lost. So it is with bayonet drills. For better or worse it is just not the Army that many of the readers knew from the 80's and 90's.

The Army aside, the decision to take away the bayonet makes little to no difference to your mission focus. I would not doubt if your readers would prefer their KaBar's to the bayonet anyway.

Now it is obvious that I raised my kids to think for themselves and equally obvious that we disagree on this issue. However, the only time I winced was when reading this: "I doubt that any of his detractors have led anything higher then a squad during combat operations in Iraq."

If I may exercise a father's prerogative to gently chide his son, this is gratuitously and needlessly insulting to those of you, veterans of World War II, Korea and Vietnam, who have emailed me and posted to the contrary of LTG Hertzler's opinion -- some of you who have told me you owe your lives to the bayonet and bayonet training. I'm sure he didn't intend it to be insulting to them, but that is how, I am positive, that they will take it.

Well, as I have said before many times, us Vanderboeghs are opinionated so-and-sos.

And since we are on the subject of bayonets, here are two photos of a Marine outfit in Iraq in 2004, forwarding by Irregular RCB with this comment:

K/3/1 USMC Fallujah assault 2004. Bayonets fixed. Photo from an embedded photographer with our unit.

The latest from the Vanderboegh forward operating base somewhere in Germany:

Enclosed are pictures of Gabriel doing foreign weapons training. He said "Those of us in a civilian defense role should best look first to our midsections before we get into minute doctrine pissing matches."

Not even close to being three, my grandson is awful young to be having opinions on doctrinal disputes, but then us Vanderboeghs always were opinionated so-and-sos.





"Gitsum!"

The rubber AK is a training aid that I bought off of a Special Forces sergeant over twenty-five years ago. I have pictures somewhere of Matthew, in VN era cammies and boonie hat with the same "weapon."

Mike
III

LATER: Many thanks to the anonymous Irregular who told me how to fix the photo orientation!

Charlie Mitchener, the Las Vegas business owner who was handcuffed and disarmed after presenting a concealed weapons permit along with his drivers license to a police officer responding to a burglary call at his place of business Jan. 3 (see my column of Jan. 10), has provided me with his Jan. 19 follow-up letter to [...]

My second book was published by Individual Sovereign University late last year. And almost immediately sent in for major format revision. The second printing is now available.

The book is "Being Sovereign" and is available here:

http://www.lulu.com/content/paperback-book/being-sovereign/8116211
This book should also be available, soon, from Amazon and other book distributors.

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