Saturday, August 14, 2010


14 August 2010

Recently I've been meditating as to who is the most important of all jazz musicians.

A few weeks ago, I would have identified Mingus for all-around genius. Wednesday Night Prayer Meeting is a layered performance that can be continuously revisited, and still not exhausted.

However, recently I've been listening to John Coltrane's "Attaining" on Sun Ship.

Wow! It's a hard call. Mingus was consistently brilliant in his work, but Coltrane was versatile. Perhaps it is a limit of the structure of our human minds that causes us to ask such questions, which are perhaps pointless.

All I can say is, for a Friday night, Attaining by John Coltrane can take you places that few other pieces of music can possibly do.

Mingus. Coltrane. Genius.

There are more, many more of them. Our world is a better place for the creators!

Thank you.

Tuesday, August 10, 2010

Let's Get the Patents Flowing!

10 August 2010

Bill Fleckenstein posted this thoughtful reflection on the need to foster innovation and creativity on August 9. I am reproducing his words here with his permission:

"I certainly have spent plenty of time over the last decade pointing out the problems and potential problems that the country faces, with none more severe than the protracted nature of the unemployment problem. As the financial crisis was unfolding in late 2008 and early 2009, I actually thought for a while that the incoming administration might try to do something intelligent regarding incentivizing jobs. That was 100% incorrect. The only incentives they have created are ones not to hire more employees, which has only made a bad situation worse. (See the op-ed in today's Wall Street Journal, "Why I'm Not Hiring," to see how the math stacks up against employers.)

"Thus, it is with great pleasure that I can point to something positive. In Friday's New York Times I read about an absolutely brilliant idea described in an article headlined, "Inventing Our Way Out of Joblessness." In it Paul Michel and Henry Nothhaft discussed the potential for breaking the logjam at the patent office and what that might mean. Not being an inventor, I certainly had no idea that the patent office was in quite such a state of disarray. Though I'm not knowledgeable on the subject, one of the authors to me has enough credibility that I think we can take him at his word, that being Paul Michel, who is former chief judge of the United States Court of Appeals for the Federal Circuit, which handles patent appeals.

"Their case is that, apparently, in the venture capital community 75% of startups require some sort of patent to get financing, according to a study they cite. Therefore, it's easy to see the connection between patents and new businesses. The sad, though not surprising, problem is that the patent office can't get enough funding to do its job. According to the authors, since 1992, Congress "has diverted more than $750 million in patent fees to other purposes," which has created a backlog of -- get this -- 1.2 million applications awaiting examination, over half of which haven't even been looked at yet.

"Michel and Nothhaft propose spending $1 billion -- which, when it comes to government these days, is chump change -- to get the patent office streamlined and staffed up so that it can process applications at a reasonable rate. The authors estimate that out of the backlog of 1.2 million applications, based on historical patterns, about 60% of those would result in issued patents, and perhaps as many as 137,000 would go to small businesses, with of course a more efficient patent office processing more patents in ensuing years.

"The net of all that, they feel, would be something on the scale of between 700,000 and 2 million jobs created, depending on what sort of estimates and variables one wants to use. Taking the midrange of their guess, or 1.5 million, that would mean that each job cost the government about $660, which obviously would be a mere pittance relative to the hundreds of billions dollars wasted on government programs that are useless.

"In addition, they suggested that, "Congress should also offer small businesses a tax credit of up to $19,000 for every patent they receive, enabling them to recoup up to half the average $38,000 in patent office and lawyers fees spent to obtain a patent." I would imagine there could be other incentives given on the tax front to help this process along, and I don't see any reason why a patent issued couldn't be fully reimbursed, assuming it ultimately met some sort of sales requirement.

"With so many massive problems staring us in the face, it is damn near criminal incompetence that a problem like this is allowed to fester. I can't see why anyone would be against this, as no one's ox needs to be gored."

Sunday, August 08, 2010

Understanding Inflation and "Deflation"

8 August 2010

If you at all follow Austrian economics and the role of money supply in inflation and deflation, you will know that we are not now, nor have we ever recently been, "at risk of deflation."

However, if this topic continues to confuse you, just read what Peter Boockvaar has to say. Then you will understand:

"With Treasury bond yields at or near historically low levels on one hand but with commodity prices near 8 month highs, and with the personal feeling that outside of a home, a computer and a flat screen tv, the cost of living seems to only go higher on the other hand, here is another perspective on the inflation/deflation debate. Since June 1981 when (Paul) Volker started to lower interest rates from 20% as high inflation rates started to fall, the absolute level of CPI rose 142% to the high in July '08 (90.5 to 217). Deflation is defined as a decrease in the general price level of goods and services but to quantify the current fall in prices, the CPI has fallen just 1% from its all time high. This tiny price move, notwithstanding we are still near an all time high in the daily cost of living, has led to talk that the Fed needs to do more to avoid deflation at all costs and thus create inflation via more QE (that is, "quantitative easing," or purchasing US treasury bonds with money printed out of thin air by the Federal Reserve, a practice which expands the "money supply" without adding to the wealth of the nation). An example, oil goes from $50 to $85 in one year and the next year falls 1% to $84.15 and we're told there is deflation and deflation is bad.

"The view is that with excess capacity and a lack of demand combining for softer prices, we must have even lower interest rates to spur more borrowing and thus more economic activity to increase demand and thus reduce the large output gap. Think about this, policy makers think we should raise the cost of goods and services in order to cure a lack of demand. The law of supply and demand says lower demand must be met by lower prices in order to get to the proper equilibrium. What the Fed really wants to do is create inflation in order not to deal with an over-leveraged economy in the most responsible way, either paying debt off or writing it down. They want us to pay off the debts with inflation. Inflation is a hidden tax on every single one of us and thus the corollary of deflation is a tax cut. Inflation is good for those who are highly indebted as those debts get paid back with inflated money while deflation or flat prices are good for those who save and have little debt and vice versa.

"In the state of deleveraging the US is in where the low cost of money doesn't matter much to an individual or a business in making spending and investment decisions, artificially low rates mostly spur just refinancing and higher commodity prices. While maybe or maybe not higher commodity prices make their way into government consumer price statistics, the commodity inflation is still there and has to be eaten by someone. Food for thought.

"CPI price level since June 1981."

Peter Boockvaar is the Equity Strategist at Miller Tabak + Co., LLC., in addition to his role as a salestrader on the equity desk. He is often seen on Bloomberg TV, CNBC, and Fox Business and is frequently quoted on Reuters, Dow Jones Newswires, Wall Street Journal, and The Associated Press. He joined Miller Tabak + Co., LLC in 1994 after working in the corporate bond research department at Donaldson, Lufkin and Jenrette. He is on the Board of Directors of Ameritrans Capital Corporation, a publicly traded Business Development Company. He is also president of OCLI, LLC and OCLI2, LLC, farmland real estate investment funds. Mr. Boockvar graduated Magna Cum Laude with a B.B.A. in Finance from George Washington University.

NOTE: If you want to "invest in inflation," you can, thanks to Nassim Nicholas Taleb and his colleagues. Universa Investments L.P. is forming a hedge fund positioned to profit through expected hyperinflation. Well, I don't think that's coming tomorrow. But it's a far greater risk than deflation, that's for sure!