Wii Hacking or Why the Video Game Industry is Important

The WSJ has an article about the Wii-mote, the remote control for Nintendo's Wii video game console. Apparently hackers are reprogramming the remote for other functions:

A deejay in the Netherlands uses his to mix techno music at dance parties. A medical student in Italy has reprogrammed his to help analyze the results of CT scans. And a Los Angeles software engineer has found a way to get his to help vacuum the floor. The high-tech device in each case: the remote control from a $250 videogame console.

With a Wii console, the Wii-mote is used to act out the video games. For instance, with a tennis game, you swing the remote to swing the racket on the video screen. The Wii-mote has an accelerometer that detects the speed and direction of motion. This is translated into action on the screen. I could make a comment sure to show my age about how lazy teenagers are today (Um, why don't they just go play tennis?), but I think the more important point is that because of a video game controller, innovation is happening. And not just innovative new ways dj:

Some companies see possible business applications with the Wii-mote. Rick Bullotta, vice-president of SAP Research, an arm of the German software giant SAP AG, is looking at ways to integrate the Wii-mote into their clients' manufacturing operations. He envisions factory and warehouse employees walking through facilities pointing and waving Wii-motes to monitor and control machines. "It's the first time we've used a videogame controller for R&D," he says.

Innovation begets innovation. It will be interesting to see how Nintendo reacts to this. It seems that so far, they've only issued some boilerplate statement saying the Wii-mote was created solely for use with the Wii console. Well, yeah, but somebody forgot to tell the hackers. Will Nintendo be so sanguine when someone reprograms the Wii-mote for a higher, more profitable use? I hope so. I don't know if there would be any patent issues at stake, but if there are, Nintindo should waive any rights to them. The new innovative uses of the Wii-mote is already benefiting Nintendo (you can buy the remote seperately from the console) and any new uses will likely benefit them more.

I'm sure many people don't think of the video game industry as anything important, but if part of a video game system can help analyze a CT scan, maybe you should reconsider that position.

Bubble World

Jeremy Grantham is a legendary value investor with a gold plated client list. According to this article in The Street.com, he believes the world is in a bubble:

Everything is in bubble territory, he says.

Everything. "From Indian antiquities to modern Chinese art," he wrote in a letter to clients this week following a six-week world tour, "from land in Panama to Mayfair; from forestry, infrastructure and the junkiest bonds to mundane blue chips; it's bubble time!"

"Everyone, everywhere is reinforcing one another," he wrote. "Wherever you travel you will hear it confirmed that 'they don't make any more land,' and that 'with these growth rates and low interest rates, equity markets must keep rising,' and 'private equity will continue to drive the markets.' "

I don't know anything about Indian antiquities or modern Chinese art, but in many ways, I agree with Mr. Grantham. The world is awash in liquidity and many risk assets are trading at unreasonable valuations. I don't think that applies to US stocks, but emerging market bonds and emerging market stocks certainly fall in that category. I just don't think the bubble is ready to burst just yet.

Abolish the Federal Reserve

As long time readers know, I have no love for the Federal Reserve. When you give a bank the monopoly on printing money, well, that's what they will do. That the Federal Reserve's official policy is to maintain an inflation rate says a lot about the purpose of the bank. Our government issues debt and the Federal Reserve creates excess currency to inflate away the value of the debt. A little like the fox guarding the hen house if you ask me.

I believe that the only way we will ever have really good economic policy in the US is to abolish the Fed or move to a gold standard (which really amounts to the same thing). Most people don't believe this is possible, probably because there has always been a Federal Reserve during their lifetime. But there is one country that has no central bank and it's operating just fine thanks:

In this modern, post-–Bretton Woods world of "monetary order" and coordinated central-bank inflation, many who are otherwise sympathetic to the arguments against central banks believe that the elimination of central banking is an unattainable, utopian dream.

For a real-world example of how a system of market-chosen monetary policy would work in the absence of a central bank, one need not look to the past; the example exists in present-day Central America, in the Republic of Panama, a country that has lived without a central bank since its independence, with a very successful and stable macroeconomic environment.

Just think: a world where Ben Bernanke is just an economics professor. What a wonderful thought....

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6% inflation

If you click on the title of this post you will be taken to John Williams' website, Shadow Government Statistics. Check out the chart that graces the top of the page. The chart shows what reported CPI would be if it were still calculated as it was prior to the Clinton administration. If you're having trouble reading it or you don't want to really see it, I'll tell you the number is 6.2%. That's right 6.2% annual CPI inflation. Anyone have a guess as to how the market would react if everyone knew that number was the truth rather than the 2.8% figure recently reported by the government?

Technology to the Rescue

Consider energy. We are awash in energy (10,000 times more than required to meet all our needs falls on Earth) but we are not very good at capturing it. That will change with the full nanotechnology-based assembly of macro objects at the nano scale, controlled by massively parallel information processes, which will be feasible within twenty years. Even though our energy needs are projected to triple within that time, we'll capture that .0003 of the sunlight needed to meet our energy needs with no use of fossil fuels, using extremely inexpensive, highly efficient, lightweight, nano-engineered solar panels, and we'll store the energy in highly distributed (and therefore safe) nanotechnology-based fuel cells. Solar power is now providing 1 part in 1,000 of our needs, but that percentage is doubling every two years, which means multiplying by 1,000 in twenty years.

The peak oilers and other Malthusians will be wrong again. This is a quote from Ray Kurzweil who was the first to see the promise of the internet way back in the early 80s. He's been right so many times about future events, one wonders if he truly does have a crystal ball. I believe that technological advances will make the whole issue of peak oil and global warming a moot point withing the next 25 years. Check out Kurzweil's web site; it'll help you keep up to date with the advances that are happening at an increasing rate. http://www.kurzweilai.net/

Short Interest

Short interest on the NYSE hit another record last month. From a contrarian viewpoint, this is bullish. Sentiment is a major factor in our decision making process and short interest indicates widespread skepticism about the market.

Chutzpah

This story comes courtesy of Opinion Journal, the WSJ daily blog by James Taranto. Mark Mellman, writing in The Hill, opines that the Democrats have wrested control of the tax isssue from Republicans. As most of you know, I am a libertarian so I don't have much use for either of the major parties, but the one thing I've always sided with Republicans on is lower taxes. Here's what Mellman has to say:

While the taxman keeps coming, we now care a little bit less.

Everyone dreads April 15, but for decades, Republicans turned distaste for taxes into votes against Democrats. We were decried as the party of higher taxes, while Republicans championed Richard Nixon’s immortal slogan, “It is time to get big government off your back and out of your pocket.”

Races at all levels, at least sometimes, hinged on taxes, usually to the detriment of the Democrat. Almost every cycle, millions of dollars in ads attacked Democrats for supporting some tax or other. In 1946, Republicans developed an 18-point lead as the party better able to deal with taxes; Democrats lost 54 House seats, in part as a result. Though the question was asked only intermittently, Democrats maintained an edge as the party better able to deal with taxes through most of the rest of the ’50s and again in 1978, then through the early ’90s. However, in 1994, when the GOP opened a 10-point lead on taxes, disaster struck with Democrats again losing 54 house seats, partly as a result.

In the last couple of election cycles, though, the air has slowly, though not completely, seeped out of the tax balloon, as evolving public opinion has reduced the power of this standard GOP attack.

Gee, I wonder public opinion has shifted?

While no one wants to pay more taxes, the perceived burden has diminished. Earlier this month, 53 percent of respondents told Gallup the amount they paid in federal income tax was too high. Though still a majority, it represents a significant decline from the two-thirds who thought their taxes were too high in the late ’90s. In 1993, 67 percent of Americans told Harris they “had reached the breaking point on the amount of taxes they paid.” A decade later that figure dropped by 15 points. CBS found 49 percent saying they paid more than their fair share in 1997, but just 37 percent taking that position this month.

Why has the perceived burden of taxes diminished? Maybe it has something to do with the fact that the actual burden has diminished? What happened in that decade? Oh yeah, we had a tax cut that was opposed by almost every Democrat. Maybe that has something to do with Americans being less concerned about taxes?

Democrats will likely look at this and decide it's okay to raise taxes. They should look at it and worry that if they raise taxes, they'll start losing elections again.

ETFs Stray

The WSJ has an article this morning about ETFs which have diverged from the performance of the benchmarks they were designed to match. The funds cited most frequently are the funds that are designed to match the price of oil. A number of these funds have diverged widely from the actual price of oil. The technical reasons why this is happening is not important to us since we don't use these ETFs, but the problem could affect investors who are making narrow bets using ETFs. We use mostly broadbased ETFs which have not experienced these problems. Frankly, I think the ETF market is getting a little out of hand. The number of funds has exploded as sponsors try to slice and dice the market into ever smaller segments. The problem is that there is not suffcient trading volume to maintain the narrow spread between market price and NAV. Stick to the broad based ETFs and you shouldn't have any problems.

Lots of oil

Iraq could hold almost twice as much oil in its reserves as had been thought, according to the most comprehensive independent study of its resources since the US-led invasion in 2003.

The potential presence of a further 100bn barrels in the western desert highlights the opportunity for Iraq to be one of the world’s biggest oil suppliers, and its attractions for international oil companies – if the conflict in the country can be resolved.

This would not seem to be a good development for the price of oil. Of course, as this article from FT.com points out, the "conflict" in the country will have to be resolved before most of this oil sees the light of day.

So far the only new contracts for developments by foreign companies are the five signed by the Kurdistan regional government in the relatively peaceful north of Iraq.

The new supply seems significant:

The study from IHS, a consultancy, also estimates that Iraq’s production could be increased from its current rate of less than 2m barrels a day to 4m b/d within five years, if international investment begins to flow.

Adding 2m b/d to world supply would certainly have an effect. Considering as well that the only way this comes to market is if the violence in Iraq is greatly reduced, the potential drop in price could be significant. Maybe, just maybe, is it possible that Iran might want to prevent such a drop in price? And if that is true, what could they possibly do to make sure it doesn't happen? Hmmm, let me think. I know! They could try to stir up a civil war in Iraq!

Or maybe its just about bragging rights down at the Arab League?

If confirmed, it would raise Iraq from the world’s third largest source of oil reserves with 116bn barrels to second place, behind Saudi Arabia and overtaking Iran.

The Iranians will not help us stabilize Iraq. It's not in their best interests to stabilize Iraq. Their economy is already in a shambles; they can't afford a big drop in the price of oil. The mullahs very survival depends, at least in part, on maintaining a high price for oil.

Inconvenient Science

I haven't seen An Inconvenient Truth, Al Gore's global warming propaganda film. I don't usually get my science news and facts from politicians. The science of global warming, contrary to what Mr. Gore says, is not settled. There are many scientists who don't subscribe to the simplistic global warming model espoused by Gore and other alarmists. The fact is that there is still a lot we don't know about weather on this planet. And new things are being learned every day by scientists who are actually bothering to do research. For example, there is a new study from Lawrence Livermore National Lab about trees and their effect on climate. The conclusions are not what we have been taught by the environmental movement:

This chattering-class environmental picture is not necessarily wrong, but it does include many assumptions. One of them, that planting trees will make the world cooler than it would otherwise be, is the subject of a newly published study by Govindasamy Bala, of the Lawrence Livermore National Laboratory, in California, and his colleagues. Dr Bala has found, rather counter-intuitively, that removing all of the world's trees might actually cool the planet down. Conversely, adding trees everywhere might warm it up.

Now the scientists behind this study are not recommending that we cut down all the trees. Their point was merely that the environment and what affects it is a very complicated subject with few pat answers:

The reason for this is that trees affect the world's temperature by means other than the carbon they sequester. For instance forests, being generally green and bristly things, remain quite a dark shade even after a blizzard. They are certainly darker than grasslands smothered in snow, and thus they can absorb more of the sun's heat than vegetation which might otherwise cover the same stretch of land. That warms things up.

Transpiration—the process by which plants suck up groundwater and evaporate it into the atmosphere—is another and opposite matter. Woodlands are usually better than other ecosystems at getting water vapour into the air. In warm places this tends to make things cloudier, and those clouds, in turn, reflect the sun's heat back into space. That cools things down.

There is still a lot to learn about the climate on this planet. Until we have a better grasp on things, it makes no sense to allow politicians like Al Gore to decide how to address a problem that may not even exist.

Rational Healthcare Debate

There is a very good post over at the Economist blog, Free Exchange, about healthcare:

WHAT is it about healthcare that utterly short-circuits rudimentary economic knowlege? It is not that there are no good arguments for socialised medicine, mind you. But why is it that so many arguments in favour of nationalisation, even from certified economists, seem to rely on the notion that fundamental laws of economics have somehow been repealed in the case of health care?

I run into this all the time when trying to debate the healthcare issue. People are so fed up with the current system that they have decided that the only answer is to let the government handle things via a single payer system and they won't listen to any other alternative. There are free market economic answers to making our healthcare system function better. The problem with the debate at this point is that the general public believes we have a free market system and its failing. Nothing could be farther from the truth. The employer provided insurance system we have is itself a result of corporations attempting to avoid a government mandate (wage controls after WWII).

Just about 50% of healthcare in this country is currently paid for by the government. If the system is getting worse and this percentage is rising, it is illogical to believe that raising the percentage to 100% will make things better. It seems logical to me that the reverse would be true. Furthermore, I've dealt with government healthcare in the Navy and believe me, that is not a path we should take as a country.

Tax the Tall

I know most people who read this blog are not economic geeks like me, but I had to post something about Greg Mankiw's new econ paper at Harvard. Here's the abstract:

Should the income tax system include a tax credit for short taxpayers and a tax surcharge for tall ones? This paper shows that the standard utilitarian framework for tax policy analysis answers this question in the affirmative. This result has two possible interpretations. One interpretation is that individual attributes correlated with wages, such as height, should be considered more widely for determining tax liabilities. Alternatively , if policies such as a tax on height are rejected, then the standard utilitarian framework must in some way fail to capture our intuitive notions of distributive justice.

What's the conclusion? Well, I haven't finished reading it yet so I'll have to let you know, but so far this is the funniest serious economic paper I've ever read.

Tax Day Call for a Flat Tax

Deroy Murdoch chooses today, for obvious reasons, to call for a flat tax to replace our current system.

As kitchen tables nearly buckle beneath receipts, pay stubs, and calculators, Americans must be grateful that tax returns are due only annually. Today’s deadline reacquaints us with our humungous tax-filing burden. It also suggests a voluntary flat tax as the exit from this morass.

The flat tax has been adopted by a multitude of Eastern European countries with great effects. Even Russia has adopted the flat tax. When Russia has a simpler tax system than the US, I say it's time for reform. Me? I filed for an automatic extension yesterday.

More Pig and Gumbo Fest Pictures

More Pig and Gumbo Fest Pictures

More Pig and Gumbo Fest Pictures

More Pig and Gumbo Fest Pictures

Pig and Gumbo Fest Pictures

Pig and Gumbo Fest

This past Saturday, AIM had its first annual Pig and Gumbo Fest. We had 82 pounds of suckling pig, two huge pots of Gumbo, homemade bread pudding, home brewed AIM Ale and lots of nice people.

We believe that the key to our success as a company is to serve our clients. We don't work for a brokerage firm or mutual fund company; we work for our clients just as we did on Saturday. We didn't cater this affair; Orlando and I started pig preparations on Friday with a trip to Palacio de los Jugos, an institution in Miami, to purchase fresh sour oranges for the marinade. Salt, fresh garlic and oregano were added and the pig was marinated overnight. We arrived at the park at 7:30 Saturday morning to get the 82 pound monster in the Caja China.

Ralph, a Tulane grad who learned some useful skills while in New Orleans, prepared the roux for the gumbo Friday night and completed two batches of gumbo on site. He also made a batch of his famous bread pudding.

Julian and Ashton were in charge of logistics and thought of everything. Good job to everyone involved.

A special thanks to my wife, Fay, who braved the aisles of WalMart to buy most of the supplies.

I'll be posting pictures all day so check back often. All of you who couldn't attend missed a great time. See you next year.