Friday, March 1, 2013

If we don’t adopt a bunker mentality, there will be amazing opportunity for those that take it. Aivars Lode

I have become well-known in financial circles for doom-and-gloom themes.  

That's mainly because my professional life as a financial writer and analyst happened to correspond with the largest speculative bubbles in history.

As a result, I spent most of my 30s writing about one disaster or another… from the collapse of MCI-WorldCom and the dot-com/telecom bubble… to the mortgage/housing bubble… to today's sovereign-debt bubble (which, by the way, is the largest and most dangerous bubble yet… by a wide margin).

Here's the thing… I'm not a pessimist. Not at all.  

What I know about human history and the evolution of technology makes me unbelievably optimistic about my future and the future of my children. I have no doubt that the next 25 years will contain the greatest creation of wealth in human history.  

All around the world, technology is allowing people to move from the Stone Age into the Computer Age. The growth potential for humanity has never been greater. And I believe it will accelerate.

I've been writing for the last year or so about the future of computing – how computers will come to greatly augment human sensory perception and human action. We call the companies involved in this latest expansion of computing "Sensory Masters." (This video from Googlegives you a peek into this new world. And by the way, all the technologies in this video exist right now. This isn't science fiction.) 

These new technologies will continue to change our world at an ever-accelerating pace. They will create demand for additional global bandwidth, computer storage, and computer processors… demand we can't even imagine today.  

And I'm helping my subscribers follow the best ways to make money in these trends in our newsletters. So please, don't ever mistake me for a pessimist.

Now… just because I believe the future will be better than we can imagine doesn't mean I'm not still very concerned about the finances of the U.S. government. And it doesn't mean I'm not still convinced that the U.S. dollar will lose its status as the world's reserve currency – a crisis I've been calling the "End of America."  

It doesn't mean I doubt pain and trouble await millions of Americans who still don't understand the absurd risks our leaders are taking with our financial system.

Anyone with basic math skills should be able to understand that we will never repay our $20 trillion-plus federal debts (if accounted for honestly) – an amount equal to a staggering $175,000 per taxpayer. And that's only if you treat taxpayers equally, which, unfortunately, in America, we do not. As things stand today, we're counting on about 10% of the population to repay about 90% of these obligations. And that, my friends, will never, ever happen. What will happen will be a truly epic financial disaster.

Here's the worst part… these financial problems have been staring us in the face since 2009. We know exactly what's causing them – vastly too much debt and not enough savings. But what has changed? Not a damn thing. The government's debts continue to grow and grow.

So… how do you reconcile these two views? How can you simultaneously believe that life will get tremendously better… and that our government, our way of life, and our financial system are all on the verge of an epic, generational crisis?  

Simple. That's the way progress happens.  

Progress isn't uniform. Just consider the 20th century. More people were violently killed in the last century than in all of human history before that point, combined.

That 100-year period saw the rise of communism and socialism, two of the greatest wealth-destroying ideas ever planted in the human mind. It saw China, the single-largest ethnic population, succumb to a civil war and spend most of the period locked in a totally senseless, self-imposed isolationism. It saw two World Wars, the Great Depression, Stalin, the Cold War, and the "Domino Theory" that sent so many U.S. citizens to die in jungles, for nothing. And yet…

During the last 100 years, we also saw the discovery of antibiotics – the greatest medical advance of all time. We saw average life expectancy double, from around 30 years to more than 60, globally.

See the point? We expect a financial crisis because we understand accounting and math. But we expect prosperity because we understand history, technology, and progress. There's no contradiction…

While I believe the sovereign-debt bubble will end badly, huge fortunes will also be made during the next phase of the computer revolution.

I recommend readers keep a large portion of their wealth in gold,silverincome-producing real estate, and very safe "capital efficient" companies.  

But you're crazy not to take a portion of your capital and invest it in technology businesses that will profit from the tectonic shift taking place in our world today. In 10 or 20 years, they will be 10… 20… or 100 times their current size.  

It's inevitable… just like the computer revolution was inevitable in the 1970s… or the automobile revolution was inevitable in the 1920s.


Porter Stansberry 

Thursday, February 28, 2013

Pandora Caps Free Mobile Listening as Royalty Costs Soar

Another supply chain internet disruptor; Pandora watch the effect of this company on people like Apple and others. Aivars Lode

Pandora Media Inc. (P), the Internet radio service, is capping free mobile listening at 40 hours a month in the absence of sufficient advertising sales to pay for rising music costs.
The change, which begins in March, applies to U.S. users and will affect about 4 percent of the 65.6 million listeners, Chief Executive Officer Joe Kennedy said in an interview. Fans can pay 99 cents to continue listening on mobile devices, the Oakland, California-based company said yesterday on its website.
Pandora is seeking to contain music expenses that climbed 81 percent in the nine monthsended Oct. 31, outpacing a 59 percent increase in advertising sales. The company pays for each song streamed, with costs ballooning as usage grows, and collects revenue through subscriber fees and ad sales.
“At this moment in time, this is the right lever to pull,” Kennedy said. “We see this as a smart way to manage monetization and growth.”
Listeners who exceed the mobile threshold can still use Pandora for free on computers, or pay 99 cents for unlimited mobile use for the remainder of the month. Pandora One subscribers, who pay $4 a month or $36 a year to skip commercials, aren’t subject to the limit.
Pandora, scheduled to report fourth-quarter results on March 7, fell 4.2 percent to $12.20 at the close in New York. The stock has climbed 33 percent this year. Excluding items, analysts forecast a loss of 6 cents a share, the average of 20 estimates compiled by Bloomberg, on revenue of $122.3 million.

Ad Shortfall

“It is a statement about their inability to monetize,” Michael Pachter, an analyst with Wedbush Securities in Los Angeles, said in an e-mail. He has a neutral rating on the stock. “If they could sell ads for the extra hours of listening, they wouldn’t have to do this. Their costs are rising faster than revenues.”
The company is sending out e-mail messages today to users who regularly exceed the 40-hour mobile limit, Kennedy said. Going forward, Pandora will also send e-mail alerts to users who reach 85 percent of the limit, he said.
“Limiting listening is a very unusual thing to do, and very contrary to our mission,” Tim Westergren, co-founder and chief strategy officer, wrote on the website. “This is an effort to balance the reality of increasing royalty costs with our desire to maximize access to free listening on Pandora.”

User Options

The cap isn’t expected to create meaningful revenue, Kennedy said. Some users will pay the 99 cents or sign up for Pandora One, he said.
“Some will choose one of those options, but we would be surprised if most people did that,” Kennedy said.
More than three-quarters of Pandora listening occurs on mobile devices, which includes smartphones and tablet computers, with most not exceeding the cap, the company said.
The mobile cap doesn’t apply to factory auto-sound systems or consumer electronics devices, such as Web-connected television sets and a Samsung refrigerator, the company said. Pandora is available in 85 car models from Toyota, Honda, Ford, Mercedes-Benz and others, and 760 consumer electronics products.
Pandora is increasing mobile ad sales, Kennedy said. In the quarter ended Oct. 31, mobile advertising revenue more than doubled to $73.9 million, outpacing the 85 percent gain in mobile listening for the first time.
“We continue to grow mobile at a rapid pace,” Kennedy said. “We expect to maintain and grow the size of our mobile audience while managing the growth in hours.”

Royalty Rates

The company supports federal legislation that would lead to lower royalty payments. Rates for music used by over-the-air, online, satellite and pay-TV radio stations are determined every five years by a three judge panel at the Copyright Royalty Board, part of the Library of Congress.
Pandora and other online radio services paid 0.11 cent per song in 2012, a fee that will rise to 0.14 cent in 2015. The royalty board has yet to set rates for 2016 and beyond.
Those costs added up quickly, Kennedy said. The company reported its 65.6 million active users streamed 1.39 billion hours of programming in January, a 47 percent rise from a year ago. Pandora has estimated royalty costs of $250 million for the year ended last month, about 25 percent of all payments by made radio companies worldwide, Kennedy said.
In July 2009 the company set a 40-hour limit on desktop listening that was lifted in September 2011. During that time, the company held music costs steady while building advertising sales, Kennedy said. Pandora may remove the mobile cap when mobile ad revenue catches up, he said.
“We look forward to the day, just as with desktop, that the monetization rate rises and we can lift this cap on mobile, too,” Kennedy said.

PE Cropping up Agricultural Deals

 I wrote an article about the price increase in farm land and why that was happening some two years ago; now we are seeing it become more mainstream from a reporting perspective. Aivars Lode

Private equity firms have been getting their hands dirty (in a good way) in Agriculture-related deals. Since the beginning of 2003, PE investors have backed97 U.S. or Canadian companies over a total of 105 deals in the industry, according to the PitchBook Platform. By deal count, California rules the roost, being home to over 18% of the activity during the time frame. Following behind are Washington and Texas, which brought in 7% and 6%, respectively. Ohio and Illinois are in a tie for fourth place with just over 5% apiece. Overall, most of the activity (58%) involved deals below $50 million in size.

Tuesday, February 26, 2013

Chinese Junk Patents Flood Into Australia, Allowing Chinese Companies To Strategically Block Innovation

Future trend taking root in the land of OZ. Aivars Lode

Techdirt has been writing for a while about China's policy of providing incentives to file patents -- regardless of whether those patents have any worth. That's led to a na├»ve celebration of the large numbers now being granted, as if more patents corresponded to more innovation.
Until now, this problem of junk patents has been confined to China, and the companies that operate there. But last year China went even further with its subsidy system, offering to pay the fees for filing overseas, presumably to encourage Chinese companies to build up patent portfolios in foreign markets that can be used for defensive or even offensive purposes. We're now beginning to see the effects of this further distortion to the patent system, as Australian businesses struggle with the flood of new patents there. The Patentology blog explains:
A Chinese government scheme providing financial incentives for small and medium sized enterprises, public institutions or scientific research institutions appears to be resulting in abuse of the Australian patent system, and the 'dumping' of numerous low-quality innovation patents on the Australian Register.

These 'junk' patents are not being examined or certified. They therefore represent no more than potential enforceable rights. Even so, they generate costs to companies operating legitimately in Australia, which may need to obtain advice on the likely scope and validity of these patents in order to avoid possible infringement. In extreme cases, the existence of junk patents could result in an Australian business choosing not to take the risk of bringing a new product to market, even though the Chinese owner of a patent is not itself offering any products or services in this country.
This is a perfect example of how granting more patents actively harms innovation. Thanks to China's incentive scheme, which encourages patent quantity rather than quality, Australian businesses must now spend more time searching through them all to see if they are likely to affect their own products, deciding if they are a threat, and what to do about it. All that costs money that could have been spent on real innovation, developing new products. Thanks to the patent system, and China's new incentives, that money will now go to the lawyers.