Recent RBA Decision to Hold

The Reserve Bank of Australia has recently decided to hold interest rates at 3.75% in Australia. That was a surprise to the market and to me. I might be a bit biased here but Sydney's median house price is currently at around $600,000. The RBA really needs to implement some methods to pop this including methods other then interest rates. If the governments needs lashing, so they should get it. It's been circulated in the media recently that this year the median price in Sydney could increase from $600,000 to $700,000. There is possibility that that will happen and if it does it will be quite crazy. The RBA probably put interest rates on hold this week due to the uncertain global economy (Greece, Spain, Portugal) and sharemarkets coming back a bit from their highs. Nevertheless, I think we have much bigger problems in Australia with this housing situation. I actually sold some of my shares before the recent meltdown. I'm feeling pretty happy about that.

Get Ready to Buy Some US Dollars

The Australian Dollar Currency is again approaching parity with the US Dollar. I would buy some US Dollars when it reaches 92.5 cents (which has already happened). I would also continue buying in intervals as it reaches towards parity. If it reaches parity, that is the point where I would put a big amount in - leaving some room just in case it reaches 1.05 or 1.10

With the interest rate differential increasing between Australia and the US and the US Federal Reserve unlikely to raise interest rates until middle of next year - there is a chance that parity can be reached. The return to global risk appetite and carry trade between US and Australia will also put upward pressure on the Australian currency. Ever since the Australian Dollar floated, in the last 20 to 30 years it has average around 72 cents against the US Dollar. That number will likely be higher in the future - in particular because of the commodity super-cycle and China. Nevertheless, it does not mean it will not drop below that at some point and given the volatility of the Australian currency I would say buying the US Dollar at the moment is a good bet.

My Thoughts on Windows 7

On Windows 7's launch, October 22nd - I went out and bought a business laptop with Windows 7 Professional pre-installed on it. I have never owned a laptop before so I thought this would be a good time. I really wanted a touchscreen one but at that time, to buy one with a touchscreen would have cost $1000 more and I decided it was not worth it yet. Once it was delivered to me, and I launched the operating system - it took me a couple of minutes to realise that this operating system is so cool! I had some problems with the driver for my cable Internet modem - which cannot be Microsoft's fault, because the modem provided by my Internet service provider is their 'latest' but its actually already been discontinued by the manufacturer. The Vista driver doesn't work on Windows 7 and they still haven't released the Windows 7 driver yet. Nevertheless, the operating system's robustness and features makes up for it completely.

I was impressed by many things, including the improved desktop navigation features such as Jump Lists. Furthermore, I was impressed by the new Windows Search as well as the ways you can arrange windows. But most of all, the thing that stuck in my memory the most was the speed of the operating system. I know that Windows 7 has a pretty similar look to Windows Vista - but the speed and the fact that it runs smoothly makes the interface look even more beautiful. PS. I love the new themes as well.

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US GDP back to positive

Last week, it was announced US GDP recorded growth of 3.5% over the last quarter on an annualised basis. It seems the great recession is over. Nevertheless, whether the pace of growth will be sustaining depends on what the growth will be like without the recent inventory restocking after inventory was massively cut before the last quarter during the recession. The US consumer will also be very important for the future of the US economy - despite talks of less consumption and more exports as a future for the US.

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Apple Dominance

Recently, Apple's share price reached a record high of over $200 that made it one of the top 5 companies in the S&P500 in terms of market capitalisation. It was not long ago that all the Apple buzz was about its iPod range of music players that made it a market darling. Nowadays, all the talk is about its mobile device iPhone. The iPhone is getting more and more popular due to its great design and its numerous amount of Apps that you can download - including games and location specific applications. Apple's CEO Steve Jobs has been an enormous influence on Apple ever since he came back to the company about a decade ago and turned around its fortunes. Nevertheless, I doubt the Mac, despite its success, will ever challenge the PC's market position.

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Computer Games

Video game hardware and software sales have recently shown an increase the previous month on the same month last year. In the previous six months before that, there were double digit declines. I remember not long ago, before those double digit declines - many analysts said that the video games industry is one of the bright spots in the economy and almost "recession proof". The reason why was they believed people tend to stay home to play games that can give you over 100 hours of entertainment then do other things such as go out and eat at restaurants which could turn out to be more expensive. The last 6 to 7 months have shown that very few parts of the economy is unaffected by the greatest financial crisis since the great depression.

Note: Windows 7 is released! If you are interested, stay tuned for my thoughts on the new operating system in a future blog post.

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Interest Rates on the Rise

The Reserve Bank of Australia raised its cash interest rate by a quarter of a percentage point from 3% to 3.25% last week. Australia is the first developed country to raise its interest rate since the onset of the global financial crisis. I believe this move by the RBA is an excellent move. In particular, mention have to be given to RBA governor Glenn Stevens for being so bold. One of the most important elements of the Australian economy is its housing market. If prices of the housing market continue to rise from already such unaffordable levels - it will shut out part of the population from ever owning their own home. I believe the RBA is correct in its recent rates decision and should continue to increase interest rates to avoid asset bubbles - to at least a neutral stance on the interest rate.

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Steve Ballmer's commentary on IT Industry

This week Microsoft CEO Steve Ballmer wrote a commentary that was published on the Forbes website about information technology. It is still in the top 10 articles in the "IT Industry" section of my news website - it is called "Innovation and Recovery". In the article, he talked about the bright future of the IT industry and its importance. Moreover, he noted a lot of the future innovations in this world will happen in the IT industry as well as much of the jobs growth will happen in the IT industry. I absolutely agree with him. Although the article's context is set in America, I hope Australia will follow America's example. In the article, Steve Ballmer commented on that information technology will have a large impact on future productivity growth. It goes without saying that productivity growth is really important to the economy and its recovery. Many have already heard that layoffs during the current financial crisis is adding to productivity. But this productivity increase is temporary. What Steve Ballmer's talking about is a structural boost to productivity through better information technology that will boost the economy's long term future.

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Microsoft Security Essentials

I have replaced AVG with the new Microsoft Security Essentials on my home computer! I believe Microsoft's knowledge of their own operating system will give them an advantage in protecting users. The automatic updates work beautifully and I have done both a quick scan and a full scan and it works great. Although it does not seem to have explicit notifications to users of protecting them from dangerous files that can be downloaded through emails like AVG does - it has a facility called "real-time protection" that monitors your computer all the time and alerts you like when a virus is trying to install itself. So I guess that covers email attachments as well. Furthermore, there are no performance hits with this always on protection. I will suggest anyone who does not have an already paid version of security software to replace their current free version with Microsoft Security Essentials.

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Mobile Devices and Services

Almost everyone's got a mobile phone these days. Furthermore, more and more people have a smart-phone. The world's biggest mobile devices maker - Nokia, is now diversifying away from just making mobile phones to also providing a platform for others to create applications for those Nokia phones. Nokia calls this strategy of software upon the platform "services". Nokia will definitely be focusing more and more on their services strategy in the future. Moreover, Apple has already carved out a nice market share in this space with their wildly popular iPhone and App Store. Microsoft Windows Mobile, Google's Android platform and RIM's Blackberry are also entering into this mobile space, trying to capture as many users as possible. Expect to see much more applications for mobile phones developed in the future and a lot more innovation in this area.

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Cyclical Bull Market

Many commentators has said recently that we are in a cyclical bull market. Both the stockmarkets in Australia and US have risen more then 45% since its March lows. I'm beginning to think we are in the midst of a cyclical bull market as well. Although I did buy some stocks during the depths of the financial crisis, and they are doing very nicely - I wish I had bought more. Warren Buffett's comment last year about if you do not buy shares soon you might miss the bottom is exactly what happened to me.

In fact, before September, I was hoping that since September and October have traditionally been bad months for the stockmarket as well as the fact that the stockmarket has risen so much since its March lows that during these two months we might see a 10 to 15% correction. After half of September, it doesn't look like its happening. I'm definitely not buying stocks whilst the stockmarket is continuing to go up like this. Some commentators have said that we are in a cyclical bull market within the midst of a secular bear market. If we are within the midst of a secular bear market - while the buy and hold strategy is appropriate for some stocks, it won't be for others. Also remember that in Australia you will not get the 50% capital gains discount if you sell the share within one year.

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Should Newspapers charge online readers?

There has been a lot of discussion recently about whether online newspapers should begin charging online readers. The fact of the matter is - if one of the currently free online news websites begins to charge readers, the readers will simply go to a competitor that offers basically the same content for free. News publishers should focus instead on making money through innovative ways of targeted advertising rather then charging online readers. Furthermore, it takes effort to read online news and most people do it at work. Charging them will simply push them away. Will charging online readers push them back to print? Some will go to print, most won't.

Another important issue is if newspapers start charging online - will this be good for the world? In particular, people read business and IT news to further educate themselves in areas such as software engineering, investing, economic knowledge and learning enough knowledge to spark new business ideas. If everyone starts charging, the readers will stop reading online and this will not be good for the world. It will actually be disastrous. News publishers should be able to charge for premium content. Nevertheless, in light of what I have already said previously in this post - when it comes to business and IT news, the important question is: what is premium content? For all other categories of news, it doesn't matter that much.

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Personal Computers

Almost everyone has a Personal Computer (PC) nowadays. It was Bill Gates vision when he started Microsoft that there will be a PC in everyone's home and those PCs need software to run them. His vision has definitely come true, making him currently the richest person in the world. Recently though, due to the effects of the global financial crisis - PC sales have been dropping. Nevertheless, due to some bullish comments from companies like Intel (maker of Central Processing Units (CPUs) that power PCs) - it seems the drop in the PC market has bottomed. I believe the PC is really essential to the home and not really discretionary. It should pick up once the economy begins to recover. For corporations, they are delaying the purchase of new PCs until things start to improve and Windows 7 is released. That shouldn't be long.

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Ben Bernanke's Re-appointment

This week President Barack Obama re-appointed Federal Reserve chairman Ben Bernanke as head of the Federal Reserve for another term. I believe this is a great decision by President Barack Obama. Ben Bernanke has been an excellent chairman of the Federal Reserve. Without him, the current economic crisis would be definitely in a more precarious state. Although he did not predict or foresee the financial crisis - he acted swiftly once signs emerged and helped to stabilise the US as well as the global economy that benefits Australia's economy as well.

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Chance of Double Dip

The global economy is on the mend. Nevertheless, Nouriel Roubini recently commented that there is a possibility of a double dip or 'W' shaped economy and we might fall back into another recession by the end of 2010 or early 2011. The reason is he explains that there is a lot of stimulus floating around and if the world government's timing of pullback of all this stimulus is done incorrectly can cause another global recession. If it is done too early, the private sector may not pick up the baton from the government and it could choke off the recovery. If it is done too late, it could fuel inflation and cause another recession. A 'W' shaped economy is a real risk and all governments needs to stay vigilant.

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The 4 Pillars Policy

In Australia, we have a policy called the '4 Pillars Policy' that prevents the major 4 banks of Australia from merging. The major banks in Australia are Australia and New Zealand Banking Group (ANZ), National Australia Bank (NAB), Commonwealth Bank and Westpac. Not too long ago, the great former Reserve Bank of Australia governor Ian Macfarlane commented that this policy was one of the main reasons why Australia did not suffer the financial crisis to the same extent as it happened in the US and Europe. In fact, I believe the 4 major banks in Australia is the right number of major banks for an economy of our size. Not allowing them to merge also promotes competition. We also have very good bank regulators in Australia that includes APRA and ASIC. I totally agree with Ian Macfarlane's comment about the 4 Pillars Policy within the context of the current global financial crisis.

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Glenn Stevens Speech on Housing Bubble

During the past 2 weeks, Reserve Bank of Australia's governor Glenn Stevens made a speech about a potential housing bubble in Australia. In the speech, he mentioned that the current lax credit conditions should lead to more home building rather then just higher house prices. If it was just higher house prices happening, the result would be simply disappointing and making it unaffordable for everyone. Furthermore, it may lead to asset deflation later on. I cannot agree with him more.

With Sydney's average house price currently at around $500,000 and 7 to 8 times ordinary income - it is no surprise that affordability is still poor despite the low interest rates in Australia. By comparison, the US average house price is currently at around $180,000. There are a few reasons why house prices in Australia is so stubbornly high. They include a housing shortage across Australia, high immigration adding to the population and of course the low interest rates (the extended first home owners grant is also giving it a boost). I believe that unaffordable housing is a central issue in Australia's economy. With house prices so high, the great Australian Dream of owning your own home has been hindered by it.

If immigration is causing high house prices, the federal government should look to limit the amount of immigration because it is causing higher house prices for everyone else. If the housing shortage is a problem, the federal and state governments should release more land and give more incentives to home builders to build homes. If the Reserve Bank of Australia sees signs of a bubble forming, they should not hesitate to increase the interest rate to stop the bubble.

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Microsoft-Yahoo Search Partnership

A major announcement this week was the search partnership of Microsoft and Yahoo!. Basically, Microsoft will handle the search technologies whilst Yahoo! will handle the advertisement sales. They will share the revenue. I believe it is a good move by both companies but taking on Google will not be easy. The deal certainly looks better for Microsoft then Yahoo!. Yahoo! really should have accepted the $47.5 billion hostile takeover bid by Microsoft earlier. Nevertheless, I believe the current CEO of Yahoo! is doing a great job and the partnership is evidence of that. This leaves one interesting question - is Yahoo! no longer focusing on search technologies anymore?

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Free Web Office

Microsoft has announced recently that it will release a free web version of its productivity software - Office. This counters Google's recent announcement of a free operating system to compete with Microsoft. Google has got itself a web productivity application called Apps, mostly available for free for its basic version. I'm very impressed that Microsoft has taken this step. For one thing it is free, therefore making it available to everyone. Secondly, it is delivered via the web that of course is the future. Microsoft has done a great job with the software version of its Office productivity software - it will no doubt do a great job with the web version as well. It is the leader in productivity software and will probably continue to be in the future. It is not hard to imagine someone running Microsoft's free web Office on top of Google's Chrome OS.

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Google Chrome OS

Google has announced recently that it will develop a new operating system to compete with the likes of Microsoft and Apple. The operating system will be aimed at the netbooks market. As I have mentioned in a previous blog post when there was only a rumour of Google operating system, more competition in the operating system market will give consumers choice and definitely very good. Google also plans to distribute the operating system free of charge. This I believe is an important and bold step. It will allow people in poorer nations who cannot afford a full-featured PC as well as a Windows operating system to be able to own their own PC and access to the Internet (as long as their country has broadband or even dial-up) - giving them opportunities and a better life. The media has been calling this new operating system an anti-OS. Google is developing it because they see the future is the web and most applications will be hosted on the web. I agree with this view. Although desktop software will not disappear, web applications will overtake it in importance and usage. No doubt Microsoft already knows this will happen. In particular they have put so much emphasis on the web including their new Bing search engine.

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eHealth

There has certainly been a lot of discussion recently about electronic health or eHealth. The purpose of eHealth is to bring health organisations into the 21st century. General Practitioners (GPs), pathologists and hospitals will have access to the latest technology that will aid their work and prevent mistakes. One of the most central parts of the latest development in eHealth is eRecords or electronic medical records. The purpose is to make all medical records of patients electronic and universal (doesn't matter if they dealt with the GP, pathologists, radiology or hospital) and implemented in such as way it can be shared amongst all the medical organisations. By doing this, it will prevent mistakes such as the hospital doesn't know that the patient has a particular allergy that has been diagnosed at a GP.

I believe there is a major stumbling block for eRecords. The stumbling block is privacy. A lot of patients actually do not want to transfer and share their private medical records with all medical organisations. They are familiar with their GP and don't want to transfer all the details to another GP for example. I'm sure a lot patients have no problems with eRecords but patient consent is a major issue. The implementation will also get really complicated if the patient just wants part of their record shared rather then all of it.

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Ben Bernanke

Ben Bernanke, the head of the Federal Reserve in US, has done a great job handling the current global economic crisis. Without doubt this is partly because he studied the 1930s depression era very closely before he became the chairman of the Federal Reserve. The nightmarish scenario of Lehman Brothers collapse in September last year would have become worse if we didn't have such a competent Federal Reserve chairman handling the crisis. Ben Bernanke is definitely a great successor to the legendary Alan Greenspan. Ben Bernanke's involvement in the takeover of Merrill Lynch by Bank of America has been in the headlines recently. Nevertheless, I believe his persuasion, rather then force, was crucial in the deal being done and saved another enormous collapse that would've shaken the financial world even more.

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Internet Explorer 8

I have downloaded Internet Explorer 8 and have been using it for a few weeks. It is definitely an improvement on Internet Explorer 7. For one thing, it crashes a lot less often (but it still crashes sometimes though). Moreover, when it does crash - usually the application doesn't shutdown and the crashed tab simply reloads itself inside the application. Furthermore, Internet Explorer 8 is fast, much faster then Internet Explorer 7. I was also eager to upgrade to 8 because it is probably better from a security standpoint since most people use Internet Explorer - it is a target for hackers. I'm pretty happy with Internet Explorer 8 but still use Mozilla Firefox at home. I haven't used Chrome much but I do want to try it in the future.

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Security Software

Another big announcement from Microsoft recently is that they will soon release a free version of anti-virus software. This is a major announcement because Microsoft will now compete with the likes of McAfee, Symantec and AVG. The major advantage for Microsoft's anti-virus software is that it is free. I think most people will prefer a reliable, free anti-virus software than having to pay something like $40 a year for a similar product. Furthermore, Microsoft has an advantage over other free anti-virus software providers such as AVG because viruses are usually targeted to vulnerabilities in the operating system and who better to protect consumers from those viruses then the developer of the Windows operating system which resides on more then 90% of personal computers. I won't convert over from AVG to Microsoft when Microsoft releases the beta version of its anti-virus software. Nevertheless, once the final released version comes out I will probably switch over. Security software is a multi-billion dollar industry and extremely important to consumers and businesses. I'm glad Microsoft is working on this area.

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Bing!

Microsoft has announced recently its new search engine - Bing. The name definitely sounds a lot better then MSN Search. I have given it a go and there are some things that Bing does better then Google. These things include that video thumbnails will play when your mouse hovers over it, more description about the website on a sidebar, better understanding of some searches and being able to answer direct questions (eg. it will directly tell you who was the winner for the World Series if you ask it. Nevertheless, it doesn't seem to work for NBA for some reason). I'm very excited by Bing and have begun using it in conjunction with Google.

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Trade Deficit and the US Dollar

Some well known investors and commentators have said that the ballooning US Trade Deficit will eventually lead to a lower US dollar. How does this work? The trade deficit is basically imports minus exports during a period - usually quarterly or annually (vice-versa for trade surplus). Moreover, the current account deficit is the cumulation of all past trade deficits and surpluses (you might end up with a positive number that is a current account surplus). You can also think of the current account deficit as the difference between a nation's investments and savings.

The trade deficit (and current account deficit) is financed by foreiners lending money to the US. Nevertheless, the US cannot continue to borrow forever. Eventually, the foreigners will either demand a higher interest rate because US has too much borrowings (and that could be disastrous for the economy and recently we have seen concerns from the world about the US government's credit rating) or worse still, stop lending US dollar denominated money to the US. Furthermore, they also might stop selling goods or services to the US if the price is determined by referencing the US dollar. Foreigners might also stop buying US assets because the US companies are also too indebted. As a result of these actions, demand for the US dollar will drop and the US dollar will fall. If foreigners refuse to finance the US trade deficit or current account deficit, the US trade deficit and current account deficit will have to be unwound. If the US dollar falls, that will be good for US exports because the price is more internationally competitive (but bad for US imports because everything gets more expensive - this is what happens during unwinding). Note: a similar thing can be said about the US budget deficit as against the US trade deficit. The US budget deficit will reach a staggering 80% of US GDP in a few years because of the current massive stimulus spending to avert the financial crisis.

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Commercial Property

A lot of REITs (Real Estate Investment Trusts) have done really poorly in the past year. In fact, they have under-performed the market as a whole. Commercial Property usually lags the economy by about 6 months. That is, if the economy sinks into recession, you won't see commercial property prices sink until 6 months later. As a result of that, I believe the short term future for commercial property is very grim. Nevertheless, with the most famous (and Australian) commercial property player Westfield trading at around $10 (as against its highs of around $22) - commercial property shares are starting to look attractive. I believe though it's not attractive enough (does not have enough margin of safety) to warrant investment at this time.

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Wikis & Wikipedia

The social networking term wiki was made popular by the social encyclopedia Wikipedia. Wikis are now used a lot in both the Internet arena as well as within businesses themselves. Businesses use it as a way to enhance the communication between their employees. Although the fact that anyone can edit a Wikipedia article may put off some people - Wikipedia is one of the most popular websites in the world and I visit it often to get more information about the subjects I'm interested in. Nevertheless, Wikis cannot work in all forms. One example was Wikia Search started by the founder of Wikipedia but closed down just a few months ago. In fact, I really thought it would work - harnessing the power of the crowd to provide better search results. But Jimmy Wales have put the breaks on it just for the moment.

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Oil

One need to just look at the history of oil price in the last 3 years to know that it is very volatile. When the oil price was around $70 to $80 dollars 3 years ago, Steve Forbes of Forbes.com said publicly that the high oil price was driven by speculation and should drop back to around $30. At that time, the World Bank predicted that the oil price should be around $40 to $50 in the medium term future. With the benefit of hindsight, the oil price peaked at around a hard to predict $150 mid last year. Then due to the Global Financial Crisis, dropped to as low as around $30 - $35. Now its going back up again due to some signs of green shoots of economic recovery. I would say that the oil price wouldn't go much further higher from here (around $60) because there is quite a lot of supply at the moment. Nevertheless, given how volatile the oil price can be, it's very hard to predict. Very few people predicted the current global financial crisis such as Nouriel Roubini predicted. Steve Forbes turned 0ut to be right about the oil price, but I'm not sure whether he knew it would happen in the midst of the greatest global recession since the 1930s.

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Swine Flu - What will be its Economic Impact?

If you have listened to any kind of news lately (or contacted society) you would've heard about the swine flu (or more technically the H1N1 flu virus that it is now called). The world health organisation raised it to Level 5 (there are 6 levels) - which means Pandemic is imminent. If they raise it to level 6 that means Pandemic is underway. What will be the economic impact of the swine flu? It will certainly be bad for the airline and tourism industries - just like the SARS was. The health industry will reap benefits out of it because they are the ones that need to come up with the solutions to protect us. If the pandemic really happens in the midst of the Global Financial Crisis, we will certainly get close to a depression scenario. About a century ago the Spanish flu killed 50 million people worldwide. That's one more reason to be cautious of the swine flu. It certainly is a bit scary. If there is a full blown pandemic I'm pretty sure people won't care about the global economy that much - the human cost is much more important.

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Internet Video

Internet Video websites have been thriving recently. We all wish we had the same idea as the YouTube founders had in 2005. Most of you will know that Google bought YouTube for around $1.65 billion in 2006 - a mere one and a half years after its launch. YouTube now dominates Internet video with a lot of semi-professional short videos. In second place currently is Hulu. Recently, the business model of Hulu has been validated by an investment by Disney that certainly has helped the founders of Hulu - News Corp and NBC.

The next step for Internet video is for it to be able to be delivered to the TV. I dream of the day when I can simply turn on my TV and download any YouTube short videos I want to watch on to the big screen. Yahoo and others are already looking into this area with new innovations such as widgets. As Microsoft's Ray Ozzie said, the future is about 3 screens - the computer, the mobile phone and the TV.

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Virtual Machines

I'm sure most people have heard of virtual machines. If they haven't, they've probably heard of VMWare. Virtual Machines allows companies to run multiple operating systems on the same high-end server machine to make resource usage more efficient. There are also a myriad of other uses for virtual machines including that it makes it easier for software testing. The leading provider of virtual machine software is VMWare that is now majority owned by EMC. I have a lot of admiration for the founders of VMWare because certainly developing this complicated software is not easy. Probably in VMWare's rear-view mirror is Microsoft's Hyper-V virtual machine software (at least it is mentioned in the media a lot). There are also quite a few other providers of virtual machine software. With cloud computing becoming more important in the future, VMWare has already started to target this market with the new versions of their software. Other's will follow.

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Mark to Market Accounting

Recently, US government regulators have loosened their stance on Mark to Market Accounting. Mark to Market Accounting requires companies to value their assets at the market price. The trouble is if there is no market for those assets, how do you value them? As a result of Mark to Market, companies had to write down their assets by billions of dollars, causing them to post massive quarterly losses. It's fair to say that the marked down values exaggerates the losses and can be misleading to the market. There is also the other side of the equation - that is in good times, Mark to Market can also exaggerate to the upside.

I agree with what the US regulators have done recently. It will give the market more transparency. Nevertheless, a mistake would be made if they allowed companies to not use Mark to Market Accounting to value their assets in bad times, whilst allowing them to inflate the values of their assets once the recovery happens. They need to be consistent with their policies. It is important to remember that the goal of accounting is to give a true picture of a company's financial health.

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Health Care in a Recession - CSL

Health care stocks generally tend to do better relative to other stocks in a recession. This is because people still get sick in a recession and services that treat those illnesses are always in demand no matter what the environment. One perfect example of a health care stock in Australia is CSL - the blood plasma products group. Nevertheless, would I recommend investors to buy CSL stocks? With CSL's current stock price of around $32, it has a PE ratio of around 21 points. It is simply too expensive! In fact, the PE ratios of Dow components Pfizer, Merck and Johnson & Johnson (all health care stocks) are around half or less then half of CSL's PE ratio. Again, I wouldn't buy CSL stocks unless the CSL stock drops to around $10.

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http://www.itentrepreneur.com.au/

Consumer Staples in a Recession - Woolworths

The stock category of consumer staples generally does better relative to other categories in a recession. The reason is that consumer staples means companies that sell goods or services that everyone needs. One example is a supermarket. We all need to buy food to eat and groceries, even in a recession! One perfect example of a consumer staples company in Australia is Woolworths, the supermarket chain. Nevertheless, should you buy Woolworths as a stock at the moment? Its current stock price is around $25 and it has a PE ratio of 17.5 points. Its just too expensive! I wouldn't buy it unless the stock price is around $10. Even Wal-Mart, arguably the most successful consumer staples company in the world has a lower PE ratio than Woolworths. Furthermore, when the economy begins to recover, it will be the stocks that have been beaten down the most (such as consumer discretionary) who will fair the best.

If you want to learn more about the sharemarket and the IT industry, go to my news website:

http://www.itentrepreneur.com.au/

Social Networking and the Enterprise

There are many positive elements of adopting some social networking in the business environment. By creating something such as a wiki that allows any employees of a team within a company to contribute their knowledge can spread that knowledge to the rest of the team as well as the rest of the company. Furthermore, by using a medium such as Twitter to market your company's products can give you feedback on those products and also help you develop a strong following. Some managers are probably right to worry about what would happen if one of the employees publicly tweet negative comments about the company. Nevertheless, business should strike a good balance between how much social networking is used to promote the business internally and externally, as well as how much control you impose on the employees to avoid negative publicity.

Note: a few weeks ago I posted a blog entry - "Printing Money, Inflation and US Currency". I did that to try to explain the inter-dependencies between these concepts. Moreover, one relationship is that when the US government prints money, it increases the supply of US dollars and hence the currency will drop. I hope this makes it easier to understand.

If you want to learn more about the IT industry, go to my news website:

http://www.itentrepreneur.com.au/

Cash Is King

The last couple weeks has seen the stock market bounce back quite substantially in both Australia and United States. Is this the start of a bull market? I believe it is just another bear market rally. The best asset to still be involved in at the moment is cash. Nevertheless, if you are eager to invest - pick selective stocks that are market leaders, have a good balance sheet (not a lot of debt) and has a history of meeting your required rate of return. For people in Australia with superannuation funds - let me note that it is now too late to switch your investment strategy to cash because if you do that you will just crystallise your loses. Nevertheless, for people who have a substantial amount of their assets in cash already and who does not want to see their stock investments fall another 25% after buying it - be careful of what stocks you pick. Buy the best ones. Now is not the time to rush into the markets. Be patient and look to invest selectively cheap blue-chip stocks in the next 6 to 12 months.

If you want to learn more about the current economic environment and the IT industry, go to my news website:

http://www.itentrepreneur.com.au/

Gold

First of all, I would like to apologise for my news website being inaccessible for a short period of time on Sunday Australian time - my website host was doing some maintenance. Nevertheless, let's get on to this week's topic: Gold. The first thing I want to note in respect to investing in Gold is that it is very speculative. Although it is seen as a hedge against inflation, the price of gold can be very hard to predict. It should not compose of more than 10% of anyone's portfolio. Nevertheless, if you are considering investing in Gold there are a number of options. You can buy the physical gold itself. If you do that though, you will need to find some way to keep it safe at a physical location and that can add to costs. The better option is probably to buy a gold ETF (Exchange Traded Fund). Gold ETFs tracks the gold price and has an extremely high correlation to the gold price (because it invests in the bullion itself). You do not need to worry about keeping physical gold safe but you get the same benefits. Gold ETFs are traded on the stock market and can be bought and sold easily just like shares. There is only one Gold ETF in Australia and many in the US. Another option for gold is to buy gold stocks such as NewCrest or NewMont that are companies that mine the gold. Be careful of this option because it not only depends on the gold price but also the company's management and balance sheet etc. If you just want an exposure to gold, this might not be the best way. Finally, you can buy a managed fund that invests in gold as well as gold stocks - but be careful of high fees.

So is it time to invest in gold via one of the above mentioned 4 methods? I have heard many commentators say that now is a good time because of potential inflation problems in the US in the future. Furthermore, adjusted for inflation, the current gold price of around $900 is much lower then its peak of over $2000 (remember, this number is adjusted for inflation). My personal opinion is that it is quite possible that gold will reach $1500. But at its current price of $900 it's not worth it because I deem it as quite expensive.

If you want to learn more about the current economic environment and the IT industry, go to my news website:

http://www.itentrepreneur.com.au/

Mozilla vs IE

Most of you already know that Microsoft's Internet Explorer has the majority of the market for web browsers followed by Mozilla's Firefox. Nevertheless, how do they compare? Actually, my favorite browser is the Firefox because I have found the latest released version of Internet Explorer still crashes sometimes. I have almost never experienced that with Firefox. Nevertheless, I am interested in seeing the improvements coming with Internet Explorer 8. Of course, there are more choices these days. You can also get Google's Chrome or Apple's Safari. I have never tested these two browsers that have smaller market share. Nevertheless, if they can innovate and come up with breakthrough feature(s) I will probably give it a try. When Google first released the Chrome in beta mode, I have to say I was not surprised because I always have thought that given their dominance on the Internet that they will come up with a browser eventually.

If you want to learn more about the IT industry, go to my news website:

http://www.itentrepreneur.com.au/

Printing Money, Inflation and US Currency

If you have been following the press lately, no doubt you would have come across some commentators saying that all the US government spending and money printing will eventually lead to inflation and as a result cause the US currency to drop in the future. Nevertheless, how does this really work?

If the government increases spending significantly, it will lead to higher demand that will push up prices. Moreover, if the government prints additional money to meet that spending - that will also lead to higher inflation. This is because the economy has a certain amount of output. If the output stays the same and the amount of money increases, that will lead to higher average prices per output. Furthermore, with more physical moneys, people will be more likely to spend more per unit of output. This is simply a monetary effect.

How does inflation cause the currency to drop though? Because you have high inflation, your goods cost more for people to buy. This causes you to be less competitive in the international market. Another way of saying that is your exports cost more then other countries and that makes you less competitive. To make the country more competitive and improve exports to help the economy grow, you have to devalue the currency to make it cheaper for other countries to import. Note: although my explanation of the linkages between these 3 phenomena in this post may not be comprehensive, I hope they give you some idea of how they come about and what effects they have. Whether the US currency will really drop in the future (its quite strong at the moment because of the US being seen as a safe haven), only time will tell.

If you want to learn more about the current economic environment and the IT industry, go to my news website:

http://www.itentrepreneur.com.au/

Unemployment

One of the most telling signs of an economic crisis or recession is rising unemployment. In the US, unemployment will probably rise to 9% by the end of 2009, possibly reaching 10% in 2010. Australia's unemployment is still relatively low at around 4.5% currently compared to other developed countries. Nevertheless, it is surely to rise - possibly to 9% at its peak. Rising unemployment is bad for lots of things, including demand for housing and cars - as well as discretionary spending. I believe the dogged reliance on the definition of 2 consecutive quarters of negative growth as defining a recession is a bit old fashioned. America did the right thing when they defined a recession based on a number of variables including unemployment when their economic body stated that the recession in America started in December of 2007 (even though at the time of the announcement the 2 consecutive quarters of negative growth requirement haven't been met).

So which sectors of the economy will still see jobs growth in the middle of a recession? I think we can safely say that health care and education will do the best in this environment. Despite this economic crisis, I believe an undergraduate degree in Information Technology will be an important investment for any undergraduate's future that will pay off.

If you want to learn more about the current economic environment and the IT industry, go to my news website:

http://www.itentrepreneur.com.au/

2 Biggest Tech Stories of 2008

2008 was certainly a difficult time for everyone. It saw the beginning of the financial crisis. It also saw the beginning of sapping business confidence as well as lots of mass layoffs. Nevertheless, what about the tech sector? What was the biggest stories of 2008 in the technology industry?

No doubt the tech sector has been affected by the crisis. Nevertheless, we still saw some tremendous growth in some tech companies - in particular - Twitter. This micro-blogging service keeps everyone up to date on the people they follow. It is also a excellent medium for breaking news as we saw with the Hudson river plane landing was first reported on Twitter. Twitter has already secured a lot of funding to sustain them for years and boasts 6 million users.

Another big story was the rise of netbooks. Netbooks are like laptops except they are smaller, not as powerful but most importantly - cheaper. In this economic crisis, anything with a lower price that lets you do most of what you want anyway (such as surf the Internet) will do very well - as we have seen with netbooks.

If you want to learn more about the IT industry, go to my news website:

http://www.itentrepreneur.com.au/

Deflation

With the current global economic crisis, there is more and more talk of deflation such as what happened to Japan in the 1990s. Although deflation may seem like a great idea because it gives consumers lower prices - it is actually an indication of recession. Let me explain. If the consumers, retailers and producers expect deflation or lower prices, they will not buy the goods or services or input costs until they have waited long enough such that the prices have dropped substantially. If everyone is waiting and not buying, the sellers of the goods and services will drop down the prices to attract customers. But if they do that, they will have less revenues to cover their costs (in particular fixed costs). To reduce their costs, they will begin laying off people. This happens through out the whole supply chain until you get the effect of deflation feeding on itself and the end result is a lot of damage done to the economy due to the laying off of people.

So will we see deflation in Australia or America? I believe a Japanese 1990s scenario is unlikely. We may not necessarily get a bout of actual deflation. Nevertheless, as the economic crisis lingers on and quite possibly get worse, it's looking more and more likely everyday.

If you want to learn more about the current economic environment and the IT industry, go to my news website:

http://www.itentrepreneur.com.au/

Market Forecasts

If you have been reading all my blog entries, you would've seen that in the past I have given some market forecasts. For example, I predicted correctly that September and October of 2008 will be horrible months for both the Australian and American stockmarkets and that we would likely see a wash-up of shares during those months. I also gave a year-end target of 5500 for the ASX200 for 2008 in the same blog entry. That of course, with the benefit of hindsight, was incorrect. You would've also seen that in one of my blog entries, I noted the increasing possibility of the ASX200 falling below 2700 at some point - and that may still happen. Despite all these market forecasts, let me now describe how they can be used. If you do believe that the ASX200 will bottom somewhere in the future at around 2700, you need to first make an appraisal of an individual stock that you are interested in - eg. Commonwealth Bank. By making your own appraisal (or valuing the stock), you can then observe that the current market price is over or undervalued. If it is undervalued, how far undervalued will it have to be before you make a decision to buy? If you believe this stock will be dragged down or pushed up by the market in general - you can buy the undervalued stock at your 2700 market bottom forecast.

What you should never do is to base your buy or sell decision solely on market forecasts without regard to the price of the individual stock. If you base it solely on forecasts, you are more like a speculator rather then an investor. The short answer is: nobody knows what the market will do! Let me tell you that all the most famous and major analysts in Australia - when they were asked at the beginning of 2008 where the market will be by the end of 2008 - they were really far off the mark. And these guys do it for a living! So if you want to buy Commonwealth Bank or General Electric - make sure you value it by yourself first. Only buy when its undervalued and sell when its overvalued (by a certain percentage).

Note: I have started Twittering! If you want to follow my Tweets, go to:

http://twitter.com/itentrepreneur/

It will tell you what news I find interesting and also whenever I update my blog.

If you want to learn more about the sharemarket and the IT industry, go to my news website:

http://www.itentrepreneur.com.au/

Tech Layoffs

This past few weeks have seen announcements of technology layoffs from companies such as Google, Microsoft and Intel. Google is laying off about 100 of its recruiters and the Microsoft announcement of 5,000 job cuts in its global business is significant because it is its first mass layoff since the company's founding. Certainly this Microsoft and Google news is surprising (even though it has been rumoured in the press for a few weeks already before the announcements) because it shows that even the biggest, most successful and most stable companies are finding this economic environment very tough.

Certainly what's happening at the moment brings back memories of the tech bust of 2000/2001. Nevertheless, I believe it is not time to get panicky for IT entrepreneurs or people, graduates or undergraduates who want to work in the IT industry. All industries are suffering, not just the IT industry. Furthermore, the growth of the technology industry (just like the past industrial revolution) happens in cycles (troughs and bursts) - especially at the beginning of its growth. IT is still a very attractive industry to work in - especially when you consider that a lot of the innovations that will happen in the next few decades will happen in the IT sector.

If you want to learn more about the IT industry, go to my news website:

http://www.itentrepreneur.com.au/

Sydney's Housing Market

The average Sydney house still costs around 7 to 8 times average earnings. With the recession about to come on and unemployment rising - that's not a good omen for the housing market in Sydney, especially given how expensive it is. Nevertheless, the Rudd government has increased the first home owners grant to $14,000 for existing homes and $21,000 for new homes and the NSW government has topped that up with another $3,000. Despite that, the extra grants will no longer be available after 30th of June 2009. Moreover, the Reserve Bank is cutting interest rates rapidly. With the higher grant and interest rates rapidly reducing, the housing market might actually stay bouyant in the short-term future. In fact, house prices might actually rise. But if that happens, wait for one almighty crash of 20% or more starting in late 2009 or 2010. House prices in Sydney are simply too unaffordable. The housing market will not escape the recession - price drops may only be delayed. Nevertheless, a more probable scenario for house prices in Sydney for 2009 is a 10 to 15% decline due to the onset of recession. The higher-end will suffer the most.

If you want to learn more about the current economic environment and the IT industry, go to my news website:

http://www.itentrepreneur.com.au/

What Happened To The Australian Currency?

At last year's peak, the Australian currency almost reached parity with the US dollar at 98.5 US cents. Then within a few months it dropped to as low as 60 US cents. What happened? There are a few reasons. The most probable cause for its massive drop is the lower commodity prices. The Australian currency is a commodity currency. We have a huge resource industry that relies on high commodity prices to drive revenue. The higher the commodity prices, the higher the terms of trade and higher terms of trade have a positive impact on the Australian currency. Foreign buyers of our commodities need to buy the commodities using the Australian currency. Subsequently, when the commodity market crumbled since the middle of 2008, our currency suffered.

The second reason is the interest rate differencial between the Australian currency and other currencies such as the US. The Australian official interest rate reached a high of 7.25% earlier in 2008. A higher interest rate means investors can get a better return for their investments. So before the middle of 2008, you would've heard something called the 'carry trade'. The 'carry trade' is where investors borrow money from low yielding currencies such as Japan's (because they pay less interest on it) and invest it into high yielding currencies such as Australia's. When the Australian Reserve Bank started to massively reduce the official interest rate due to the economic crisis - that also reduced our interest rate differencial to other currencies and therefore our attractiveness of assets for investment by local and foreign investors.

Lastly, during periods of global economic crisis - investors will not invest in Australian assets (and therefore will not buy Australian dollars) because we are seen as more risky than other countries. So that's why during this financial crisis, investors exited from the Australian currency and bought the yen or the US dollar to buy their treasuries because these investments are seen as the least riskiest. At one stage, the Australian dollar was such a basket case that it was only beaten by currencies such as Iceland's. One of the things that is very important to realise is that when looking at currencies, there are two sides to it - the local currency and then there's also the foreign currency. You can't just look at one side alone. I believe the Australian currency will probably not drop to below 50 US cents because whenever it gets close to dropping below 60 US cents - the Australian Reserve Bank begins to intentionally buy the currency to prop it up.

If you want to learn more about the current economic environment and the IT industry, go to my news website:

http://www.itentrepreneur.com.au/

Windows 7

With the coming release of Windows 7 in late 2009 or 2010 - I can't wait for it! I have to admit I skipped Windows Vista. Although I believe Windows Vista is better then Windows XP - I'm not sure whether Microsoft should've spent $6 billion dollars on it. Those UAC (User Account Control) pop-up messages were really annoying. Microsoft probably could've done better by improving the security without degrading the user experience and could also have done better on compatibility. Nevertheless, I am waiting for Windows 7. I will probably buy a new PC when Windows 7 is released. I can't wait for the new features - including hopefully touch-screen capability (I will definitely get a monitor that can do that!) and also smoother user experience and better performance.

Note: There have been some rumors in the press lately that Google is thinking of introducing their own operating system. Although I believe it will be really tough to compete with Microsoft - operating system is undoubtly one of Microsoft's core competencies - I hope they do it because it will be really great to finally see more competition in this area. I hope I can get a chance to one day use a Google operating system probably through work.

If you want to learn more about the IT industry, go to my news website:

http://www.itentrepreneur.com.au/

Ads In Games

The idea of putting real advertisements in electronic games was validated when Microsoft bought Massive Incorporated around 2 years ago. The founder of Massive was in fact actually an Australian. I remember watching a television business show in Australia right after the take over. He (the founder) reminisced that back in 2002, he was playing a computer game and whilst he was playing it he saw advertisements - but they were not real. So he thought wouldn't it be great if the advertisements were actually real! I wish I had a light bulb moment like that! Although I believe ads in games will be a good revenue maker for game publishers (and game advertising media companies) and will be really important in the future, I have read in the press that at the moment it is mainly valid for sports games. Because advertisements are so ingrained in even real sports, having it in sports games is just a natural extension. Having advertisements in other types of games hasn't caught on yet because some people believe its actually a bit distracting for the game player. Nevertheless, I believe with the current shift to online (rather then offline) games, especially multi-player online worlds, advertisements in these games will really take off in the future.

If you want to learn more about the IT industry, go to my news website:

http://www.itentrepreneur.com.au/

Cloud Computing

Is everything going to move to the Cloud? It certainly seems like it. Even Microsoft is moving to the Cloud with its 'Software Plus Services' business model. They have begun rolling out online versions of their traditional software such as Microsoft Office. Furthermore, they have recently announced Azure, their Cloud 'operating system'. It goes without saying that Google has been in this track for even longer (eg. their Google Apps web application).

The consumer revolution of the Internet will move on to become just as popular with businesses. Already now there are online accounting applications, online Customer Relationship Management (CRM) applications and online Enterprise Resource Planning (ERP) applications, etc. Companies like SalesForce have been leading the charge. There is one potential major challenge with Cloud business applications - security. How do you keep the business's information secure in a Cloud environment? I'm sure there will be advances in this area in the future.

If you want to learn more about the IT industry, go to my news website:

http://www.itentrepreneur.com.au/

Causes of the Current Crisis

What's happening now in the global economy is quite unprecedented. It is a once or twice in a century financial crisis that no one has predicted or seen before. So what caused all this? I believe there are 3 main factors:

1. Lack of financial regulation: the deregulation of the financial system, although vital to the free market world, went over the top. No one had any clue how much exposure the world had to CDOs (Collaterised Debt Obligations), CDSs (Credit Default Swaps) or other financial derivatives or toxic debt.
2. Interest rates were too low for too long: encouraging people to take excessive risks without thinking of the consequences.
   
3. Greed: at the corporate and also the individual level. People simply borrowed too much money and not saved enough.

The current unwinding of debt and also probable desire for more simple investments in the future are a result of these 3 factors.

If you want to learn more about the current economic environment and the IT industry, go to my news website:

http://www.itentrepreneur.com.au/

Microsoft's BizSpark

Microsoft has recently announced a program called "BizSpark" for technology start-ups. I have given it a try and it is an excellent opportunity for anyone who likes using Microsoft technologies to develop software (or just like Microsoft products full stop!), especially if they have got a good broadband plan. There is also a separate internal Microsoft website called "BizSparkDB" (on Microsoft Startup Zone) that allows you to give your start-up more visibility. There is one restriction - you have to be a technology start-up.

Note: you need an application like WinRAR to extract from ISO files.

If you want to learn more about the IT industry, go to my news website:

http://www.itentrepreneur.com.au/