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Thursday, 25 February 2010

Interesting Links

Here are some interesting links that cover some of the investment themes we have talked about in the last year.

Cool, sensible talk on US and Chinese relations, given by an expert at the Carnegie Institute. Likely rise in value of RMB ahead of April is discussed, and there are some useful comments on the Google dispute and the need for the US to upgrade its internet infrastructure.

Useful New York Times article on the battle by chip companies to dominant the smart phone market.

Paolo Pellegrini was the right hand for John Paulson, he now runs his own fund, PSQR. This link will take you through to his latest letter to the investors. Lots of meat and some interesting comments on what could happen to US corporate tax rates.

This one is for Geeks. A technical comparison of the Oled screen used in the Nexus Android handset and the LCD screen in the Apple iPhone. The older, cheaper, LED screen wins the contest hands down.

When I was in Washington, just before Christmas a well known billionaire, speaking at a conference I attended, said that the biggest investment theme out there was working out how to profit from the coming collapse in US government finances. The billionaire said we had three years before the shoe dropped. Here is Charlie Munger saying a similar thing and on a similar time scale. He thinks the ship goes down in 2012.

Here is another brilliant Ted lecture, this time on how smart-phones and other wireless devices are leading to a revolution in medical monitoring and diagnostic technology. Today, when stuck in a meeting, we check our emails; now you can check your heart rate and glucose levels instead. You see, with technology there are endless things to worry about.

This link will take you through to a presentation about Japan from the really rather good, Contrarian Investing website.  Not surprisingly, Japanese economic growth stalled around the time that the aging workforce started to shrink. Japan could be our future, it certainly looks as though it could soon be South Korea, which of all the Asian countries most resembles it in terms of culture and demographic profile. Lots of good data here.

OLEDs- an overhyped technology

OLEDs - Overhyped and Over Priced.
If you have heard of Motorola’s Nexus One handset, you probably know that it supports Google’s Android operating system. What you are less likely to know is that it sports an Oled - organic light emitting diode - screen. Oled screens are supposed to be brighter and have a wider viewing angle than conventional LCD screens. Last year, 15 mobile handsets, supplied by Samsung, Nokia and Sony Ericsson, were equipped with Oled screens. Few people know this and fewer people care.
According to Display Search, the leading independent experts on screen technologies, in 2008, the global market for Oled was worth $600m. The two companies offering the most exposure to Oled are Universal Display (PANL US), and DS Hi Metal Display (077600 KS).
Samsung SDI, which has a 50/50 joint venture with Samsung Electronics, also offers exposure. LG Display and AUO of Taiwan are two of the other leading Oled wannabes. For each of these quoted companies, Oled is a miniscule part of sales. 
In the last two weeks, Sony announced that it was closing its Oled effort because of technical problems. Oled screens work fine for the small screens used in mobile phones unfortunately, they are between three to five years away from prime time as far as TVs are concerned. More worrying are the latest results of an independent test carried out by Displaymate, which found that for all the excitement, the Oled screen on the new Nexus was inferior to the conventional LCD screen found on Apple’s iPhone.  Oled’s and most other hardware innovations are a side issue. In the era of the Smart Paradigm, content, applications and brand determine the success of a product. This is bad news for Asian handset makers who depend on hardware innovations to make their products stand out.
Superior Technology
Besides the brighter colours and the greater viewing angle, Oled technology will, one day, be cheaper than TFT LCD screens to produce. To understand why, a basic comparison of the two technologies will suffice.  TFT LCD is made by laying an array of thin film transistors upon a glass substrate. Then, when an electrical current is applied to this matrix, some of the transistors are turned on while others remain turned off. This combination of on and off transistors create pixels, which are the basic element of any electronically created video, or picture. 
Like a TFT LCD, an Oled screen also requires a back pane, but instead of a matrix of thin film transistors a layer of organic diodes are deposited. When an electrical current is applied to the back pane the organic diodes emit different coloured lights. 
A TFT LCD screen requires a back light source, which increasingly is supplied by LEDs; in addition, various colour filters have to be applied to the glass. Non of this is required in an  Oled screen, which is why the technology promises, one day, to be cheaper to produce. In addition, to cheapness, Oled screens are thinner, consume less power and eventually will be flexible. What’s not to like? 
Unfortunately, the technical problems behind creating Oled are daunting, which is why Japanese manufacturers, such as Sony and Kyocera, have either abandoned or moth balled their Oled efforts. For the time being, Oled screens are expensive, as a quick analysis of the handset market will underline.

Today, an Oled screen in a mobile handset costs about 50% more than a comparable LCD screen. Even by 2013, it is believed that Oled screens will still be 8% to 10% more expensive than LCD screens. For televisions the comparisons are worse. By next year the production cost of a 42 inch Oled TV panel is expected, according to standard industry estimates, to be 73% more costly than LCD. By 2013, Oled screens will still be almost 40% more costly than LCD. Therefore, Oled is unlikely to be a significant feature in the TV market before the second half of the current decade. This is why Sony has just withdrawn from the market. 
Oled, therefore, will remain a side issue for a few more years. Any investor wishing to keep abreast of Oled should monitor Universal Display in the US. This company is the world’s leading supplier of both Oled intellectual property and the chemicals used to make the diodes. In particular, Universal Display is a leading supplier to the Samsung joint venture that is currently the biggest producer of Oled screens for smart phones.  

Friday, 19 February 2010

US corporate taxes to rise?

The enclosed link will take you to the latest fund letter from Paolo Pellegrini's new fund. Pellegrini was John Paulson's right hand man when he did his greatest ever trade. . There is lots of good meet in this letter. In particular, it makes a logical case for US corporate taxes rising. US corporate is the only sector of the economy that is increasing its cash holding, yet capex and employment continue to be light. Therefore hitting this sector with higher taxes could play to the larger electorate and helps plug a fiscal whole. As Hewlett Packard's results made clear, corporates are not spending a lot on new computers, growth is still coming from consumers and emerging markets. A rise in taxes has not been factored into US equity valuations yet.

I thought the following paragraph, which argues for a one off Yuan revaluation, was also interesting:

We all know a revaluation of the RMB is likely and there is at least one New York listed ETF I know of that gives exposure to this trade. The interesting thing is then what happens? Commodities will rise, that's a given because of the impact on the dollar. However, a  revaluation surely signifies a more concerted move to tilt the Chinese economy away from exports and fixed asset investment to consumer. As this sinks in will commodities continue to be strong?

Another -though unlikely thing to look out for - is that if the revaluation was much more than 5% it could hit other Asian exporters. China adds little value, it is essentially an assembly point for parts and subsystems supplied by the rest of Asia. A sharp revaluation of the RMB therefore runs the risk of hitting Asian exporters .

Thursday, 18 February 2010

Interesting Links

The Apple iPad will probably change the face of traditional print media. With stocks like News International on single digit PEs, having just increased the earnings forecasts, it is time to examine the future of media. Just as telco operators are beginning to show signs of life, there are some signs that old style media might have a future. Here is a debate between Arianne Huffington and Axel Springer’s ceo. Now watch the Facebook mobile strategy video below.

Wired magazine gives a demonstration on how the iPad will lead to great magazines and content that we will pay for.

Here is a video discussion with Nassim Taleb, Marc Faber and Hugh Hendry about where and in what to invest.  The panel session takes place in Russia; when you click on the link make sure you hit the English button, otherwise you’ll hear it in Russian. Hugh Hendry sounds like Scott Fitzgerald in the Crack Up, or a foot note from one of Nietzsche’s minor works. Someone should tell him to loosen-up; this is investment, not a Satanic struggle. As for investing in Russia itself, which one delegate argues for, it might worth remembering what Chekov said: Russia is an enormous plain across which wander mischievous men. I would also recommend that any potential investor read, The Oligarchs by David Hoffman, and Black Earth by Andrew Meier anything by Anna Politiskaya, and listen closely to people like Bill Browder and George Soros, both of whom know the market intimately.

This is a video lecture of Sir Paul Nurse, speaking at the Royal Society earlier this week about the biggest ideas of biology. Nurse, a leading geneticist, has won a Nobel prize, explains that the most recent Big Idea is cells are highly complex systems built of networks that carry out the processing of information. The implications of this are not encouraging for drug discovery and the curing of disease because Nurse suggests we do not yet have the tools to unravel these systems.  I attended this lecture and   bumped in to both Mike Lynch (Autonomy) and David Potter (founder of Psion, the company that originated the Symbian mobile phone operating system). They, like other IT people, grasp the use of powerful computing systems is one of the ways that we will better grasp the inner workings of cells.

CNBC interview with Mark Gerstenharber, former right hand man of Julian Robertson and now head of a hedge fund called Argonaut. He has some interesting things to say on Greece and the lack of jobs and consumer demand in the US economy. Growth will be hard to come by, which backs up our notion that the right areas of tech will outperform.

Here is a 16 minute video presentation given by a senior Facebook executive outlining the company’s mobile strategy. This is the big year for mobile content, as this video underscores. One interesting nugget, Facebook believes that mobile users are more engaged with the service than those on a desk top. For ‘engaged’ read more like to pay for stuff.

This link takes you through to a short video presentation by a senior executive from Facebook. He explains all about Facebook Connect, which could become a very important development for media companies and their hopes of getting paid. Very interesitng.

A video of a presentation just given to MIT by Paul Krugman.  One point he highlights is that it is still too early to end the fiscal stimulus. Sober and provocative.

An interesting report from the frontiers of medical research. In some cases stemcells might be able to reverse premature aging.

This comes from the American Thinker and focuses on the resurgence of Republican fortunes. This is likely to be a bad year for Democrats.

Fascinating news story abour a cyber attack that has affected 75,000 computers.

Ronald Dworkin, a noted US legal expert, examines the bizarre and dangerous decision of by the US Supreme Court to allow companies and pressure groups to make political donations. Against the opposition of their four colleagues, five right-wing Supreme Court justices have now guaranteed that big corporations can spend unlimited funds on political advertising in any political election.

Wednesday, 17 February 2010

Apple and Facebook Equal Content's New Golden Age

Without bandwidth everything sucks. But the big bandwidth problem is not the speed of your ADSL or your 3G connection. The bandwidth of human consciousness is the real bottleneck that slows internet access. Anyone who cracks this has a chance to be rich and  powerful like Steve Jobs, Mark Zuckerberg, Page & Brin or Rupert Murdoch 
The human bandwidth problem has googlesque implications for the sale of content and applications on the internet. One of the best surveys of the problem can be found in The User Illusion
We are only consciously aware of about one millionth of the data flooding into our subconscious minds from our senses. Apple, Google and Facebook grasped the issue of human bandwidth better than any other companies. Their success might lead to a golden age for media companies like New Corp. That's the good news. The bad news is it might lead to the balkinization of the internet.  The human bandwidth problem is easy to describe but close to impossible to solve. Apple cracked it, which is why the iPhone is so successful. Google cracked it too, which is why it is the dominant internet company.  
When you're sat at a desktop you have the time to doodle around the internet. You don’t have that time when you use a smart phone or an iPad. This year, according to Ericsson, most access to the internet will come from  mobile devices. Over the coming two to three years the number of users on the internet is likely to increase from 1.7bn users to close to 3 billion - nearly half the population of the world. The masses will not be able to use smartphones and other handheld devices unless designers crack the human bandwidth problem. Make access easy and quick. This will change the nature of the internet. 

The Future
The future of the Web is all around us. It is Facebook, and Facebook Connect; it is Twitter; it is the Apps Store and maybe it's Google Buzz. It probably isn’t Google Wave because this service requires too much time to master, it is aimed at Geeks.  The successful applications make life easier and more convenient in a way that Google search did for the desktop. Facebook Connect allows us to use our friends and contact group to filter our content. That is the neatest way of working with our bandwidth limitations. This method also allows Facebook to learn more about us so that it can better target content, services and ads. Better targeting is good for our limited conscious bandwidth.  
This could mean that content companies will find it easier to get paid. First off, there is likely to be a bidding war for good content as the world fills up with mobile devices.  When the iPad launched Macmillan books were pulled off Amazon's web site because the two companies couldn't agree a price for e-books. Instead, Macmillan did a deal with Apple. A day or so later Amazon relented and paid Macmillan more. This, I think, will become the sign of the times. There will be more bidders for content as the Android fiefdom, the Facebook fiefdom and  the Apple fiefdom - just to name a few- need content to keep their customers satisfied.
And what of those customers? You can still get free music and TV problems on the internet so why bother with iTunes? The reason we do is that these services make it easy to download and pay for content. We trust the service and know that we aren't breaking the law. 
Apple has a payment platform that works. The iPad will see the company expand this to other forms of content, such as newspapers, magazine subscriptions and books. This means that News Corp and content providers have a platform on which they can reach an enormous audience. In a world of specialist devices, like e-readers, iPads and smart-phones, it will be easier to get paid than in a world dominated by PCs. There is evidence that consumers find it easier to use a phone to pay for something than they do a computer.
From an investment point of view it's time to look at content again. As the internet becomes more dominated by fiefdoms, controlled by Apple, Google, Amazon, Facebook or someone else content is likely to become more valuable. Apple’s attempt to win Macmillan from Amazon is therefore a sign of the times. Some of the world's biggest media companies are selling on single digit PEs, have just increased earnings and are unloved. They also have good yields and global franchises. 
The flip side of all this is that the Web is going to become more corporate. Each of us is going to have to make a Satanic bargain - ease of use and richness of user experience in return for a lack of privacy and freedom. Are you prepared to make that bargain?