I am quoted in today’s Mint on WPI inflation indexed bonds. This is an instrument that is sorely needed but seems to have flopped with no investor interest.
Axis Asset Management, even as it has applied to float an inflation-indexed bond fund, is yet to buy the bond in any of its existing schemes.
“The bond is definitely attractive, but we don’t own it, and we aren’t buying it any time soon,” said R. Sivakumar, head of fixed income and products, Axis Asset Management. He did not rule out the possibility of including this bond in the portfolio, but liquidity is a problem.
It may be a little early in the year, but this has to qualify for one of the weirdest stories of the year: Egg Donor IRS Challenge Offers Future Sperm Tax Certainty (Bloomberg)
The California woman and the government are arguing over whether egg donation is an act of commerce that should be taxed. A U.S. Tax Court judge will determine the outcome in what is seen as a precedent-setting case that could provide certainty for people who donate eggs, sperm and blood plasma.
“This is in no way considered self-employment since I did not sell a product or service,” she wrote in a 2012 court filing. “I feel like I am being penalized for doing something good for another person.”
Also, Perez could pay lower tax rates on the income if it were treated as long-term capital gains. Eggs could be considered property she had possessed since birth, in which case the sale could be seen as a long-term capital gain.
If they’re not considered property until removed from her body, the eggs could be seen as generating short-term gains.
I wonder how The Big Bang Theory cast handled it (pilot episode….).
So Nokia has decided to make an Android phone? After the Microsoft acquisition announcement and just weeks before MSFT takes full control? Was MSFT on board with this? Is this Stephen Elop’s revenge for being denied the Microsoft CEO job? What is going on at Nokia anyway?
(Forgive the potato-cam shot of the phone, it is from Nokia’s press website)
This is the second time Nokia is doing this in recent years. When Elop became Nokia CEO a couple of years ago, he threw out their smartphone platform (Maemo) and went with Windows Phone. Back in 2009, Nokia finally had a “smart” idea, combine their tablet operating system with phone hardware to come up with the N900. This was a fantastic piece of equipment, the first truly multi-tasking phone. No other phone OS does that. You could play a video, browse a website on firefox, go into a thumbnail view and see a little window with your video still playing in the background. Not paused. When Elop (ex-Microsoft) came on board in 2011, Nokia was suffering from a lack of smartphones. Maemo development had stalled since the N900 and Android was fast climbing. This was the best window for a catch-up. Windows & Blackberry were imploding and Android was not the 75% marketshare monster it is today. and what did Elop do? He ditched Maemo in favour of Windows phone saying that the existing operating platform was a “burning platform.”
Well if you are going to jump off a burning platform you better have someplace to jump to. Windows Phone was not a viable platform. Maemo was, if they had gone ahead with it. It had developers. It had the Qt framework which made porting apps from other platforms easier. Maemo incidentally lives on. After a brief spell as Meego (Nokia and Intel partnership), it is now renamed Tizen (Intel and Samsung mostly). While Nokia abandoned this (promising) platform, Samsung now looks ready to shift in a big way to Tizen with the launch of TVs and the new Gear smartwatches based on this platform. It is only a matter of time before they have smart phones too on Tizen.
Now Elop is doing it again. Going to Android. But not the whole way. Only the base AOSP – the open source bits, with the Googley bits replaced with Nokia/Microsoft equivalents: Here Maps, Outlook, Bing, etc. No Play store, but Nokia will create its own store. The whole thing is like what Amazon has done with the Kindle Fire range of tablets. The new range is supposed to be cheap and entry levels with users migrating to higher end Lumias running Windows as they upgrade.
But what happens when a user upgrades and finds that his/her apps don’t exist on the new upgraded phone? Nokia may be able to convince developers to bring their apps to Nokia’s store (apparently requires some changes, thus more work), but creating another version for Windows? Good luck with that.
Still Nokia makes great hardware. The swansong of Maemo was the N9 a fantastic piece of equipment which foresaw a lot of things Nokia has since done with Lumias. Perhaps a Nokia Android phone may just be the right blend of good hardware and operating platform. If only they had gone for a top end phone then. An entry level “cheap” phone is just not going to cut it.
I had the opportunity to watch a couple of recent movies more than once. In different formats. Since I watched the different formats within a short interval of each other, it was a good opportunity to compare these formats.
1. IMAX vs. “normal”
I saw The Hunger Games: Catching Fire in normal (is it fair to say 70mm these days when all cinemas are digital?) and IMAX formats. The movie was not in 3D, so this was just a comparison of the image size and resolution. There is a visible difference. I watched the IMAX first, so watching the normal show, the lower resolution image was immediately obvious. I did not expect that. I wonder if the image was actually out of focus. To be fair I don’t think so. The larger format is actually better. And in this movie at least the grand imagery works really well in the larger format.
2. IMAX 3D vs.HFR 3D
Peter Jackson has been pioneering the use of HFR or high frame rate in The Hobbit series of films. Unlike the normal film speed of 24 frames per second, HFR uses 48 frames per second. This improves the fluidity of motion. After all motion picture uses persistence of vision to create the illusion of motion. Fast action creates a “tearing” effect at 24 fps. We are so used to this that higher frequency images like NTSC’s 30 fps$ (60 interlaced frames per second) itself is visually discernible to many. Because of the use of 30/60 fps in (American) television, people associate the lower frame rate with movies and the higher frame rate with TV. Indeed the term “soap opera effect” is used to describe how un-film-like higher frame rate appears. PAL broadcasts like they use in Britain and India use 25 fps, which is closer to film speed, by the way.
So I wondered if I would get a TV-like experience in HFR. The first movie when shown in HFR had a lot of people disliking it. I found it very nice in fact. In calibrating my new TV set earlier this year, I tried playing around with various frame rate options and found I did not dislike the higher frame rate option. So this is a personal opinion. In fact with the fast pace of action in the film, the higher frame rate made for a much more smoother movie watching experience. No more “motion blur” or tearing effects. Now if only a theater near here had HFR+IMAX, that would have been wonderful.
$ The true rate is closer to 29.976 frames per second. These crazy Americans. PAL is a sensible 25 frames per second.
It was the best of times, it was the worst of times. 2013 was surely an “annus horribilis” for the bond market. Starting the year with the benchmark bond a little over 8% and reaching a low of just over 7%, we touched nearly 9.5% in August and ended not much lower. A roller coaster ride if there was.
So here is my year in review in Haiku form*.
Seven three quarters
Cash reserve reduced
A Happy New Year!
Four point eight fisc
Open market operations
The shortest month.
Repo rate cut
No auction, no OMO
Cobrapost at year end.
RBI buys dollars
100 tons of gold imported
Spring time indeed.
Rate cut, bonds on fire,
Doused by taper talk,
An Indian summer.
The trade wind blows
The rupee goes down
No monsoon joy.
The money markets punished,
The ides of July.
As LED TVs taxed,
August augured ill.
A new governor
With magic wand raises rates,
The rains withdraw.
Onions bring tears
Seven three-quarters once more
On all hallows eve.
Forex flows forgotten
Plunged in pain and punishment
Winter’s withering wind
Rate hike paused, hurrah!
But taper to come, beware!
Stiff drink this Christmas.
* A Haiku typically has two images – often contrasting, and a seasonal element. I have tried to preserve this format as much as possible. If you are a Haiku purist, my apologies. I know that a Haiku in english follows a 5-7-5 syllable format, but in some cases I have taken liberties.
The US Federal Reserve will decide if they will start reducing the pace of open market bond purchases under the quantitative easing programme (taper). This is the last meet under the chairmanship of Ben Bernanke. So they may well leave the exit to the new FOMC (the open market committee of the Fed) under Janet Yellen. The interesting thing is that the market has been expecting QE tapering for some time now, but the Fed has deferred it for fears about the weak labour market. Unemployment rate in the US has fallen sharply – and more so than the Fed expected. However much of the gain in the unemployment rate has come through the fall in the Labour Force Participation Rate rather than the pace of new job creation.
[As an aside if you don't look for a job you are not counted as unemployed even if you are out of work. Thus if you are discouraged after seeking work for months and failing, you will just drop out of the reckoning of the labour force itself. The unemployment rate is the ratio of the number of unemployed to the number of those in the labour force.]
Today, Barry Ritholtz writes in Bloomberg on this idea – which has been promoted for several months by David Rosenberg. Rosie’s view is that with the fall in the employment rate, there is likely to be a spike in wage inflation and therefore general inflation in the US. Read this article in the Business Insider also.
The Fed believes that if the employment situation improves, the LFPR will increase as more people return to looking for jobs. Thus the lower unemployment rate may just be masking the weak underlying situation. However there is additional research to support an alternate thesis. Michael Shedlock (Mish) has been at it in depth here. Mish takes off on a Fed research paper in his analysis.
Mish’s work shows that much of the fall in the LFPR has been in the 55+ age group as older workers retire. This is structural in an ageing labour force. These people won’t rejoin the workforce if labour market conditions improve. It seriously calls into question the Fed’s decision mid-year not to reduce the pace of QE.
It is very possible that we see a big spike in inflation in the US in the next few quarters. The Fed may well be struggling to contain inflation through rate increases soon. But increasing interest rates when there has been so much primary money supplied to the system is itself fraught with risk. Back in 2011, John Hussman pointed out that there is a stable relationship between the short term interest rate and the amount of base money per unit of GDP (see also Hussman’s update later in 2011 here). Since the latest QE programme started after Hussman’s chart was made, I re-created it using the St. Louis Fed’s FRED database:
The vertical axis here is the Base Money/GDP ratio while the horizontal axis is the 3-month treasury bill rate. Back in 2011 Hussman pointed out that the BASE/GDP ratio had hit 16 cents, much larger than the peak seen in Japan of 12, which is the country most famous for central bank balance sheet expansion. Now the ratio has gone over 18 (to be exact 18.7). If the Fed were to being normalizing interest rates, it faces a huge “sterilization exercise” by which it must eliminate most of this excess base money through open market sales.
Otherwise just consider even raising rates to 1%. When the 3-month T Bill yielded 1%, the Base Money / GDP ratio was close to 6 cents. That is one-third of the current number. If the base money remains what it is today, nominal GDP must triple. In short order there is no way for the US to triple real GDP, so prices have to treble. This is a near hyper-inflation scenario. There appears to be no easy way out.
1. The fall in the US unemployment rate appears to be driven by a fall in the labour force participation rate
2. There is evidence that this is because of the baby boomer generation retiring, and thus likely to be structural
3. This means that as growth continues, there is likely to be increased competition for the rest of the labour force leading to rising wages
4. Rising wage inflation will lead to generalized inflation
5. The Fed will be behind the curve and will have to increase interest rates sooner than it had anticipated
6. At higher interest rates the amount of base money will lead to a sharp rise in inflation unless the Fed begins large scale open market sale of securities
7. This will be messy
Is there a way out?
One option the Fed is looking at is to absorb cash through reverse repos. In a reverse repo, the Fed sells securities for short term to the market and absorbs money leading to a fall in base money. This month they started experimenting reverse repos, so this is going through the Fed as a possible exit strategy. Alternately they could incentivize banks to hold excess reserves by paying a higher rate of interest on reserves. I am not sure if this is enough.
Whether through large scale OMO sales or reverse repos we are probably on the cusp of uncharted monetary waters again.
PS For any American who stumbles onto this post, please forgive the English spellings for programme and labour!
The Verge says the second installment is too much of a good thing. They are quite right. The Hobbit really cannot sustain a trilogy of three-hour long movies. This paragraph says a lot:
No matter how much Jackson and his collaborators stretch and pull the narrative there’s no avoiding the fact that Tolkien didn’t conceive The Hobbit as a grand, sprawling epic. Perhaps then it’s no surprise that one of the most memorable characters in the film is one the author himself never even dreamed of: the elf Tauriel. Played by Evangeline Lilly (Lost), she’s a complete invention on the part of the filmmakers, but it’s her emotional struggles with the ethics of the elven king Thranduil — as well as her taboo romantic interest — that stand out as the film’s most compelling emotional elements. Tauriel fills a gaping, heart-shaped void at the center of The Desolation of Smaug, serving as an almost tacit admission from the filmmakers that the source material doesn’t have the heft to sustain three lengthy movies on its own.
We are in the golden age of epics and grand mythologies in film making. The second Hobbit film is an excellent follow up to the first installment. There are a few deviations from the book, though in my opinion the changes only made the story more interesting. And those with an encyclopaedic knowledge of the book will have something new to look forward to.
Spoiler alert. Don’t read on if you care about spoilers.
The second installment of the Hunger Games series is a fitting follow-up to the first movie. Even though the director changed, the movies are stylistically similar. This is quite unlike the big difference between the second and third Harry Potter movies. For a second movie in a row in this series, the film is remarkably in line with the book. Even the spoken lines (if my memory serves me well) seem taken out of the book.
The Hunger Games are held every year to keep the population of the various districts under check by forcing them to send a male and female tribute to the Games where only one can survive.
There are possible spoilers below. Take care.