The ECB Targets 1752 (Part 2)

(New Gold Supra-Theory Salon des Refusés - Post 2)

 

Let’s take a look at the ECB’s TARGET2 system. Here’s a very brief outline of the similarities between the ECB and the Federal Reserve system from the blogger ‘DP’.

Now let’s play spot-the-difference between them. The ‘Fed’ was created to deal with the kind of liquidity crisis that almost brought down the financial system in America in 1907. It’s brief wasn’t to “create a payments system”. According to the ECB (here) “TARGET2 was developed in close cooperation with its future users. One of those users’ main requests was that the new system would offer a harmonised, state of the art payment service.”

So the ECB wears at least two hats. It’s a central bank for the Eurosystem central banks and it operates the payment system in the EU. Now I have to digress here. One area where the “fathers” of the Euro differ markedly from the classical economists and Professor Viner is in their attitude to price indexes and statistics. Alexandre Lamfalussy, one of the “fathers of the Euro”, stated: “Nothing is more important for monetary policy than good statistics.”

The classical economists rejected the notion of indexes being used as a proxy for the real world. Jacob Viner also lamented the difficulty in providing conclusive evidence of the benefits of free trade using statistical analysis. So Viner also had deep reservations about its value (back in 1937). Obviously this was a long time before super-computers and the arrival of this highly, digitally-integrated world we now live in. Perhaps today we can put aside these reservations and rely on prices and statistics to give us an accurate insight into the state of an economy.

Now let’s take a closer look at the Eurostat "Harmonized Index of Consumer Prices" (HICP). The HICP only uses final consumption prices in the index. In their words, “household final monetary consumption expenditure" The focus of this index is not “intermediate goods”. Goods that are in the process of being combined with other goods to produce final consumption goods for households. Cars are in the HICP but components in the process of becoming a car aren’t the focus of the HICP.

The HICP also excludes owner-occupied housing (OOH).  That is extremely unusual in a consumer price index (CPI). Housing costs are estimated in different ways around the world but an estimate is usually included in a CPI. I think it isn’t included in the HICP because the treatment of OOH in other CPIs can’t be used in a system designed around Hume’s mechanism. As Viner points out: "It is not purchases, or transactions, in general which are significant for the mechanism of adjustment, but only purchases of certain kinds." (You can search the PDF I linked in Part 1 if you want to check the accuracy of any quotes.)

Jacob Viner actually uses houses as a specific example of the kind of things that need to be excluded when you are trying to identify the operation of the mechanism: “If, for instance, a particular house has changed ownership as between dealers through purchase and sale three times in one year, and not at all in the next year, neither the transactions in one year nor their absence in the next year have any direct significance for the international mechanism." (Simply replace “international mechanism” with “Eurozone mechanism”.)

In order to zero in on the adjustment mechanism we need know three things. Firstly we need to know the size of the portion of the overall money supply that is being used to facilitate final consumption expenditure. Secondly we need to know the velocity of the money used for this purpose and lastly we need to know the prices of household consumption goods. (It’s also worth noting that HICP isn’t based on a “typical household” approach. It aims to capture the actual consumption expenditure of all Eurozone households.)

I don’t think it is a mere coincidence that Jacob Viner’s preferred measure of velocity is the “final purchases velocity of money”. He describes this as “the ratio of final purchases per unit of time to the amount of specie in the country”. We can replace specie with Euro here. We would expect velocity to be stable most of the time. In most households the consumption patterns are fairly consistent for long stretches of time.

As mentioned above only part of the money pool is involved in these final consumption expenditures. There is no need to get bogged down in discussions about how much consumption is funded with credit. We’ll divide the money supply into two pools and then I’ll justify that assertion about the credit component. The pools are a consumption goods money pool and a non-consumption goods money pool.

If we had access to the range of data that the ECB has access to, we could obtain a reasonable estimate of the size of the consumption goods money pool through trial and error. One indicator of the size of this pool would be the total value of all of the simultaneous consumption expenditure transactions taking place across the Eurozone at a point in time. We could then test our estimate against observations of consumers actual behaviour and through the huge data feed the ECB has access to. Then over time we could refine the estimate. Now let’s assume these ‘tools’ work and examine how they might have been used in a situation that actually occurred.

 

When the SHTF in Ireland a few years back the ECB was pouring billions of Euro into the Irish banking system. Try to put yourself into the mindset of a central banker with “good statistics”. The Irish are pulling Euro out of their banks like there’s no tomorrow. However, final purchase velocity is stable and so are the prices of consumption goods. TARGET2 is wired into the FX market as well so you know that most Irish people aren’t exchanging Euro for another currency.

The statistics are telling you that this money is going into “mattresses”. The confidence crisis is people-banks not people-Euro so you can supply a huge amount of Euro without worrying about prices getting out of control. The prices+>money>flow mechanism will automatically correct the imbalances after people calm down. A central banker would have been monumentally stupid to restrict the supply of Euro under these circumstances.

The beauty of a system like TARGET2 is that it allows the prices+>money>flow mechanism to function smoothly. This mechanism is usually an auto-correcting monetary policy tool that only requires intervention infrequently. It does not resolve problems in fiscal policy, taxation policy and other areas of government policy. If you expect it to do that your expectations are unrealistic.

I think that by using this two-tiered approach and disaggregating credit* (described here and here) it could help to explain a “two-speed” economy. One where the prices of consumption goods aren’t indicating high inflation but the prices of some asset classes are looking bubbly. A banking union in the Eurozone is a natural progression toward giving the ECB “good statistics” on the non-consumption money pool and what people are doing with it.

PS - Here’s a link to an interesting discussion about “disaggregated credit” and gold with ‘Victor The Cleaner’. A big hat tip to DP and VtC for the feedback in the comments here that helped to crystallize this post. But don’t blame them if you think it’s rubbish. If it is, it’s down to me alone.

The ECB Targets 1752 (Part 1)

(New Gold Supra-Theory Salon des Refusés - Post 1)

The year 1752, that is. In 1752 David Hume published his paper “On the balance of trade” presenting his theory about international trade known as the ‘price>specie>flow mechanism’. I have a theory to share with you about the ECB Eurosystem.

My theory is that Hume’s mechanism and the insights of the classical economists guided the Euro founding fathers’ in the design of two of the ECB’s most important currency management systems.
 

The two systems I’m referring to are the index called HICP and TARGET2. The ECB uses HICP to assess its performance in maintaining an average annual inflation rate of two (2) per cent. TARGET2 is the system that facilitates the flow of money around the Eurozone. Hume’s mechanism is usually discussed in terms of international trade but it is equally applicable to regional trade. This post is about trade and other flows within the Eurozone.

Confining the discussion to one currency zone while we explore this mechanism enables us to ignore some of the complications that need to be addressed in looking at international trade between currency zones. So when I rework part two of the series on gold and international trade settlement I’ll concentrate on trade settlement between currency zones and let this post try to explain the mechanism itself.

The main source I am drawing on for this post is a very dense, scholarly book published in 1937 called “Studies in the Theory of International Trade”. The writer was a Professor of Economics at the University of Chicago named Jacob Viner (Here’s a link to his bio.) In this book he discusses the work of the classical economists on international free trade theory as well as the many debates they were involved in.

Here is some background information for readers who are unfamiliar with this mechanism. I style this mechanism as prices+>money>flow. The expression ‘prices+’ is meant to convey that there are more factors involved than prices alone. Jacob Viner discusses factors such as real costs, relative demand, velocity, comparative advantage and so on. I replaced ‘specie’ with ‘money’ because this mechanism works with other types of money – not just gold “specie” coins.

For this mechanism to deliver its benefits you simply need to have the right conditions which are: (a) The countries trading with each other must share a common currency; and (b) Minimal friction in the flow of goods and money. In other words free trade and no capital controls or trade barriers to interfere with the flows. The common currency could be like the Euro – a currency union - but there are other ways to achieve the right conditions. If two trading partners both accept gold specie as money (as they did in Hume’s proof) then they are in one currency zone.

Now I need to emphasise a couple of important factoids about this mechanism. It comes from thinkers who viewed trade as a human welfare issue. To them trade was intrinsically a goods-for-goods and exports-for-imports exercise not a goods-for-money exercise. (Wherever I use the word ‘goods’ please read that as ‘goods and services’.) So we’ll leave the exploration of the goods-for-money perspective for the trade settlement series as well.

Hume’s mechanism didn’t increase overall trade between countries and regions. It enabled the mix of the most-demanded-goods available in each country to change. A flow of money was followed by a flow of exports from Country A into its trading partner Country B. This temporarily increased the money supply in Country B but the increased diversity of goods available to the citizens of Country B would endure.

In David Ricardo’s words (as quoted by Viner) this resulted in an increase in the “mass of commodities” and an increase in the “sum of enjoyments.” Ricardo also noted that people could increase their monetary savings instead if they didn’t want to avail themselves of, say, cheaper goods by increasing their consumption. Over time the prices+>money>flow mechanism rebalances the volume of money in each country until the next trade disruption.

A closely related theory of the classical economists about free trade was that it would tend to equalize the prices of the goods that were traded. Arbitrage and competition would reduce price differentials to weed out profit premiums and prices would more closely reflect actual cost differences for transport, relative demand and so on.

In the second, final part of this post (with Professor Viner’s help) we’ll try to connect the dots between TARGET2, HICP and the prices+>money>flow mechanism.

Solar Power in Australia

Since discovering Eric Sprott's social media agency I've been unimpressed by any (or all) precious metals 'news'; I have recently been turning some of my research efforts to the energy sector. I have a few observations that I wanted to share with anyone who will listen (apologies to anyone awaiting the next GLD article installment - it's coming soon ... in the meantime please do check out Costata's new gold series). This is not a research article specifically, it's more of a personal checkpoint, and if I can attract at least a few oil lobby shills denigrating the solar industry then I have achieved my secondary goal.

Sunday pre-game, 9/22/2013

So, the Fed was forced to show its hand last week and it wasn't pretty. Of course, gold and silver always fall precipitously whenever a Fed shill farts out some noisome propaganda about imminent tapering, so it stood to reason that gold and silver would be up BIG this week. Except both gold and silver were down this week. 

That's why it's probably best just to use the charts. For example, I've mentioned many times here that on days when gold is flat but miners are getting killed, I always short gold. To my recollection, this trade has yet to fail.

And it didn't on Thursday/Friday:

Gold and International Trade Settlement (Part 2)

(A New Gold Supra-Theory – Post 2.)

Please Note: As a result of feedback on this post it became clear to me that I had to separate the explanation of Hume's mechanism from the discussion of international trade settlement. So I have created a post in two parts called "The ECB Targets 1752" that looks at the mechanism in the Eurozone.

I'm going to rework this post and discuss trade between currency zones here in order to keep to a 3 part limit. The original text will be archived and accessible. Warren James is helping me to put this together. My apologies if my learning curve is annoying anyone.

I'm determined that the build-out of this theory isn't going to become multi-layered. I don't want people to have to drill down through 5 layers of old posts to understand each component. Likewise if I commit to a maximum of 3 parts (as I have with this topic) I don't want it to become 4, 5 or 6 in the future. If updates are required then the existing parts may become longer posts but they will be reposted as "updates" to replace the original. The original text will continue to be accessible.

Cheers!

The challenge for the New Gold Supra-Theory is to predict how a new gold-based international monetary and financial system (IMFS) will operate. In part one I mentioned the ‘price-specie-flow mechanism’ originated by David Hume (1711-1776). An insight into international free trade that was further developed by classical economists such as David Ricardo. This mechanism may have influenced the design of the ECB Eurosystem’s Target 2 system.

The source I am drawing on for this post is a very dense, scholarly book published in 1937 called “Studies in the Theory of International Trade”. The writer was a Professor of Economics at the University of Chicago named Jacob Viner (Here’s a link to his bio.) It discusses the work of the classical economists on international free trade theory in great detail as well as the many debates they were involved in.

If anyone expects gold to correct international trade imbalances on its own via some mechanism like this the news isn’t good unless gold becomes a circulating currency again. However, if (as I do) you expect gold to tightly discipline currency issuers and to discover currency prices through international arbitrage then it’s no big deal. Currency exchange rates will get the job done that a flow of specie would have accomplished in the distant past. The description of this mechanism is usually presented (inadequately) like this short Wikipedia entry.

As I said in Part 1 this mechanism doesn’t require a gold standard to operate. It can and did operate under a mixed currency system. Classical economists were also able to observe the effect on this mechanism during periods when gold exchange was suspended by the Bank of England. Jacob Viner discusses a number of other factors, aside from prices, that influenced the operation of this mechanism including real costs, relative demand, velocities (that’s plural) and so on. I’m only referring to prices here for the sake of brevity. Here’s my summary of the features and limitations of this mechanism:

1. It requires the trading partners to be in the same currency "zone" i.e. using the same money (e.g. gold, silver, Pounds etc) So the Eurozone is readymade to benefit from this mechanism if the Euro is managed well. We should be able to see its influence at work in the numbers emerging from the Eurozone over time as it tends to equalize the prices of internationally traded goods to reflect one price plus transport and distribution costs and relative demand.

2. This mechanism worked both internationally and between regions within countries through deflation and inflation of the currency supply. This in turn influences prices and other factors that encouraged a constant flow of money. As prices etc adjust the flow responds until the amount of money in each country or region returns to its starting position. I imagine tidal forces when I try to picture this mechanism in operation.

3. This mechanism increased the diversity and volume of goods available in each region/country. There is an extract from Viner quoting Ricardo on this topic below.

4. It apparently exercised no influence over the amount of bank-created money. This was a regulatory and policy issue that was the subject of a long running controversy between the “currency school” and the “banking school”. Viner also reviews these debates in great detail.

5. The classical economists and Jacob Viner dismiss the possibility of any index being able to simulate the effect of this mechanism. This mechanism works but it’s impossible to prove it with statistics. In an interventionist world like ours today if something can’t be indexed or measured in some way it doesn’t matter or doesn’t exist for policy makers. That’s a huge impediment for the supporters of free trade even though the logic appears to be impeccable.

P. 342 Jacob Viner (my emphasis):

Free trade, therefore, always makes more commodities available, and, unless it results in an impairment of the distribution of real income substantial enough to offset the increase in quantity of goods available, free trade always operates, therefore, to increase the national real income. That the available gain is ordinarily substantial there is abundant reason to believe, but the extent of the gain cannot in practice be measured in any concrete way.

(From Page 339-40 of “Studies in the Theory of International Trade”)

... Ricardo went on to say that “it will very powerfully contribute to increase the mass of commodities, and therefore, the sum of enjoyments.” What was intended by Ricardo as the main proposition was, at least for our present purposes, of no importance. The incidental comment, on the other hand, was of great importance. It suggests two income tests of the existence, and perhaps also two income measures of the extent, of gain from trade, namely, an increase in the “mass of commodities” and an increase in the “sum of enjoyments.”

Ricardo did not expand these suggestions, but in his Notes on Malthus he repeated them: if two regions engage in trade with each other “the advantage ... to both places is not [that] they have any increase of value, but with the same amount of value they are both able to consume and enjoy an increased quantity of commodities,” adding, however, that “if they should have no inclination to indulge themselves in the purchase of an additional quantity, they will have an increased means of making savings from their expenditure.”

I would like to leave you with a question to ponder. If all currencies are fully convertible (freely exchangeable [1] with each other) and there is no intervention inhibiting the flow (such as capital controls) then all of the world's currencies would be like one single fungible money supply. Of course there is constant intervention in many currencies. So if you wanted to promote international free trade it would be helpful if you could create an international reserve currency that no one could mess with, would it not? 

 

In the third and final part of this series I’ll present an issue that I think has brought those of us who anticipate a new gold-based IMFS to an impasse -  a stalemate. I think it needs to be addressed so we can move on.

[1] Another hat tip to DP. I added 'with each other' in order to try to make it clearer that this is purely an exchange of currencies and not a reference to a gold exchange standard.

Gold and International Trade Settlement (Part 1)

(A New Gold Supra-Theory – Post 1.)

 

I realize that this topic sounds utterly boring. But if you think that gold has a role to play in a new international monetary and financial system (IMFS) this topic should be of the utmost importance to you. There is more than one theory about international trade. If one particular theory is correct then gold better not give up its day job just yet because it’s not going to get the trade settlement gig in a new IMFS.

A concept called “balance of trade” or “national balance of trade” is central to this discussion. This term appears to have been coined around 1615 and it started a food fight among economic thinkers that's still in full swing. There are several competing theories about the drivers of trade and the appropriate objectives of international trade.

 

Any attempt to examine this topic is complicated by the intervention of monarchs or governments and their bureaucracies down through the years. However, I think we can distil a few key themes from the debates about this subject over the centuries. The classical economists believed that free trade served human welfare and that imbalances are naturally self-correcting. The way this was done was through the prices+-specie-flow mechanism and refraining from intervention in free trade.[1]

 

(The word “specie” implies gold and/or silver to many people. This view is erroneous. Specie should be read simply as ‘money’ or ‘capital’. With money as a subset of capital provided the money is accepted in exchange for capital goods. [2])

 

Another perspective (labelled “mercantilism”) holds that the national balance of trade should be viewed as the sum total of all of the merchants cash tills in the country. The false implication this conveys is that the mercantilists sole aim was to obtain a cash surplus (or profit like a merchant) from trade. The actual aim of many of the mercantilists was to obtain a surplus of imports over exports. A money surplus represented a future goods surplus. Some of the mercantilists proposed controlling both exports and imports in order to ensure that there were enough goods available within the borders of their nation to enrich the lives of everyone who lived there.

 

On at least one issue the classical economists and the mercantilists were on the same page – viewing international trade as an indirect exchange of goods-for-goods mediated by money. Goods that contributed to human welfare and wealth (in its broadest sense). Money (bullion for “the bullionists”) stored the surplus purchasing power. The real issue between these two camps was balanced trade versus creating a deliberate imbalance in your own favour which the classical economists viewed as self-defeating.

 

In recent times the view has been propounded that a country running a trade deficit is unproductive and countries running surpluses are productive. Surplus producers are lauded and the citizens of countries with trade deficits are derided as net-consumers. The implications are that deficit = lazy and surplus = industrious. But kindly note: Countries who run trade surpluses must export capital and countries with deficits must import capital – "balance sheets must balance" as the Minskyite economist Michael Pettis is fond of saying.

For a long time I viewed this solely as a win-lose deal. Trade deficit countries are “forced to sell off the farm” to the surplus countries. But eventually I realized that there are a few problems with this lazy vs industrious and winner vs loser perspective which I’ll briefly summarize for you. The biggest problem is the existence of a theory that the capital flows occur first and lead to the trade deficits. If you subscribe to this theory you could use it to support the claim that the deficit countries like the USA are in a sense the "victims" of the surplus countries excessive saving and lack of domestic consumption.

 

Secondly citizens of a country running a trade deficit can be highly productive and industrious but obtain prices for their products which are too low to generate sufficient revenue to pay for their imports. (I suppose the rejoinder might be that these people in deficit-land were stupid in their decisions about what to produce and it serves them right. Personally I think the return of serve on that stroke might be a sizzler.)

 

Thirdly a country could have a surplus of capital absorbing investment opportunities for which there is insufficient capital available locally. If this was the case then it could make sense to adopt policies that encourage a surplus of capital imports rather than trying to "save" up enough money to finance them domestically. Figuratively speaking that “deficit” country could run an “export” surplus of in-bound foreign direct investments (FDI).

 

Now we come to an important issue that needs to be addressed by those of us who believe that a gold-based IMFS is in the pipeline. In the capital flow trade model I just outlined there is no need for so much as a single gram of gold to flow in order to settle the trade “imbalance” implied by running a current account deficit (CAD). There is NO imbalance for a flow of gold to balance.

[1] I changed the text from "prices+costs" to this - ‘prices+-specie-flow mechanism’ - to reflect the fact it’s influenced by more factors than prices and costs alone and to give this mechanism my version of its formal title which is the "price-specie-flow mechanism".

[2] Hat tip to 'DP'. The way I expressed it originally implied that money and capital are two different things.

First Post

Warren James and the faculty at STFU are kindly allowing me to be a guest poster here. On principle I wouldn’t join any club with such low standards that it would accept Uncle costata as a member so it’s fortunate that STFU isn’t a club. It’s a freewheeling forum with a penchant for debunking things that are crying out for a good debunking. Screwtape Files also has a kind of ‘petting zoo’ feel about it because of all the cute pictures of prosimians. I think that's really nifty too if rabies isn’t high on your list of things to obsess over. So apart from being a good forum it’s also an ideal venue in which to incubate a pet project I have been thinking about for quite a while.

I want to kick start a beginners guide to the topics I have been exploring and discussing over the past few years. These topics include money, banking and economics. So this beginners guide will be attempting to cover a lot of ground eventually. I’m not aiming high initially. Lego Land will do for now. Some basic building blocks and rules. But I’m hoping that STFU can help me to incubate this project and one day it might become a kind of Kahn Academy meets SimCity.

I’m going to tackle a few controversies as well starting with one about the GLD ETF. When I explore a controversy I’m going to collate the opposing arguments and present it as a debate between two teams. Please take into account that I will be giving you my interpretation of the arguments and positions of each of the teams. If you want to be certain that you have a complete and accurate understanding of the views of any individual who is identified with either side of one of these controversies then please go directly to the source.

I will be striving for brevity in my posts in order to increase the accessibility of some of these topics. So this first post is about as long as any future posts will be. If this is too long for you then I’m going to fail to meet your definition of brevity. I’m also going to try to put the topics that I want to cover into a more conventional frame of reference than readers are used to seeing from me in the past and to make a habit of defining my terms.

In another break with blogosphere tradition I’m reserving the right to change my posts after they’re posted. If anyone can point out any glaring omissions or errors in one of my posts I will amend it and acknowledge the source in a footnote. But you will have to make a convincing argument in order to persuade me to do this. Periodically I’m going to revisit some earlier posts and update them. In the update I’ll incorporate feedback from comments and any new information on the topic I have unearthed in the meantime.

Another elusive goal I’m pursuing is to try to simplify the explanation of the reasons why a return to a gold-based international monetary and financial system (IMFS) has such a high probability that it approaches inevitability. I wanted to come up with a label for my writings on this subject that would help to distinguish them from the work of the well known “freegold” blogger FOFOA and the work of the earlier writers he set up his blog in tribute to. (I will be discussing many of the same topics FOFOA writes about but in order to understand his writings and his thinking you must read his work.)

I came up with the label New Gold for these writings and Warren tacked the words “Supra-Theory” onto it. It sounds a bit grandiose to me but I’m going to adopt Warren’s term anyway. I hope it will help to make it clear that my writings on this topic have nothing whatsoever to do with the mining company of the same name.

So I’ll label these probability-approaching-inevitability writings as A New Gold Supra-Theory and make that the aspiration of the discussion. Coming up with a big picture theory about what this new system will look like and addressing questions like this along the way: What elements of the present IMFS can survive the transition into a new gold-based system? What changes would be required to allow gold to return to the system? What elements of a new system are already in place?

You are all cordially invited to join me in this discussion at STFU if you feel you have something to contribute. If you have nothing to contribute but still want to speak anyway I reiterate my invitation to STFU (with a somewhat different emphasis).

Sunday pre-game, 9/8/2013

 I sold my remaining longs (and even bought some GLL, short ETF) when gold couldn't even get to $1400 despite depressing unemployment numbers.

I say there's still a chance it will break $1400 next week, but the important number for me is $1425, especially a weekly close there. So many different charts point to that as the level that needs to be broken before anyone should get excited about gold's intermediate term prospects.

Weekly chart with 38% Fib fan and MAs that form a nice bull-bear buffer zone

I've posted a bunch of them, with a few captions. I hope they're clear, since I do not have time right now to add further commentary. 

A Mac in every car

One of the most overlooked features of the Mac ecosystem is Airplay.

It allows me to use my iPhone or Mac to wirelessly mirror my display,
Photos, music, etc, to my TV (via AppleTV) or to another Mac.
Very handy for presentations etc. but it's proprietary and requires all Apple hardware to be effective and of course Apple made the hardware requirements unnecessarily high when it comes to Macs. Yeah, yeah, Windows etc will do the same but on the Mac it's really easy and flawless. 

But here is where things get interesting; Apple signed deals with the big Automakers who matter both foreign and domestic (with the exception of Ford). In essence you will have an LCD display that will be built into your new automobile that will respond to touch and react to your voice and all powered by your iPhone. Nope, your Samsung phone won't connect to this as easily as your iPhone if at all.
Your iPhone will be able to connect using the following options:

But wait a minute I hate those LCD displays for changing radio stations, changing volume etc. Well Apple is upgrading Siri to cater for those in car voice instructions. They are upgrading their maps as well. Apple have also recently patented an LCD with a tactile feel so you will be able to feel your way to the volume button. So in essence Apple are doing what they have done since Job's came back. Wait for the tech to catch up with the ideas and then lock in the ideas to Apples tech and only Apples tech. 

So if you want to listen to your music collection, access GPS or just keep the kids entertained well you better have an iPhone. You will probably be able to do some sort of hacky or messy thing to get your Android hooked up but lets face it not many will bother but many will complain. 

There were 13 Million new cars sold in the USA last year. Apple currently hold 39% of the USA cell phone market or 53 million subscribers. I expect that will start to climb steadily every year.

Of course the automakers being automakers will put that LCD panel in the worst possible place. Probably just under the cup holder but most assuredly in the console just below your eye level so you have to take your eyes off the road. Alternatively you can hurl insult after insult at Siri while she calmly explains "Well ... I'm still here for you". 

Three Wednesday charts, 9/4/13

Just a quick update to my previous post. I suspected the blue trend line on the long term weekly chart would be resistance, and gold did indeed stagger there, unable to close above it. So I remain bearish. 

Also, our little friend, the 144-day MA, who as support helped us make easy money for over almost two years, is now looking like resistance...

CIA sues Apple

Patents fascinate me. I even attempted to write one once and gave up because

they are an art form. It's not enough to simply say my widget does this, it does
this thing so much better than the other things out there and here are the plans. A good patent will cover every possibility or eventual function of the widget in question. It will say just enough and be a little ambiguous and contain phrases like "I can imagine it could also be used for" which will leave enough wiggle to cover future tech advances to be covered. When you consider that to patent a 4 legged chair would take about 14 pages of verbal description plus drawings and searches for prior art you can see why Patent Lawyers get paid so well.

Consider the paper clip has had multiple iterations and patents simply because the Lawyers who drew up the first two patents simply were not smart enough. This left the original inventor of the paper clip high and dry.    

When I saw Apple was sued again and this time over "Facetime" and they lost my curiosity was piqued. Facetime is basically Apples version of video conferencing (or Skype to you PC guys).
It's been around for awhile and as long as the other user has an Apple product you can call them over WiFi.
So I started digging and it turns out that some company I had never heard of, VirnetX, holds a few patents and the gist of them state that the shortest distance between two points is a straight line but in digital bits and bytes. Well apparently someone at the patent office thought this was just @#$"D brilliant and awarded them a patent or three. So what this means is everyone now has to pay these jackasses or they have to make an extra hop between the connections.
I took a cursory glance through their latest patent and see little to no details as to how they would implement this tech. I see a lot of techno babble wrapped up in lawyer babble but no real meat.
It's kind of like saying I want to patent my toilet that doesn't use water. Well how does it work? If you can't describe it so that a competent person in the relevant field can duplicate it then you don't have an invention you have a $%^$$ idea. The shortest distance between two points notion has been around for a while. Sure you can say in the digital world it requires a VPN to make it happen but this is not new tech. Sure they mention some rubbish about encrypting the calls (this is the the I can imagine part). They even mention some more rubbish about generating extra bits and bytes to confuse the casual eves dropper.


But whilst I was looking through patent # 7,490,151
I saw this;

"GOVERNMENT CONTRACT RIGHTS

This invention was made with Government support under Contract No. 360000-1999-000000-QC-000-000 awarded by the Central Intelligence Agency. The Government has certain rights in the invention."