Stunted By Reality Just another know-it-all talking about life, business, technology, sports and music.

7Dec/10Off

Economics 101 – Your currency must work for us!

A few rules apply in the world of currency exchange rates. And if the current furore over China's currency (the Renminbi) is anything to go by, no rule is more important than the one outlined below.

When the western world wants to buy loads of cheap commodities (and goods) from your country to satisfy demand fuelled by (toxic) credit; then your currency is probably over-valued.

If the western world no longer wants your country's cheap goods competing against their expensively produced alternatives; then your currency is probably under-valued!

It's a very simple concept which China and the Yuan have found themselves on both ends of in the space of a few years. Well as much as any wannabe super-power, intent on pushing it's weight around can be in the wrong end of something!

Filed under: Business, Politics 2 Comments
5May/10Off

Labour’s dismal housing record highlights their failures

The British Labour party has been in power for 13 years now during which they've done some good things, a lot of bad things and some terrible things. In my mind housing is where they really screwed up because it ensured that the Labour's economic, social and immigration records are arguably poorer than they would have been. In this context when I say housing I'm talking about housing their citizens and giving those who need a lift the ability to house themselves. That last bit relates to the housing market.

For those who don't know I'm not a Labour supporter but I'll try to be as objective as possible. In fact I started this blog because I more anti-media than anything else. I feel that balanced reporting is important and at Stunted By Reality I try to discuss my interests in a balanced way. But, that's for another post.

The housing issue has been going through my mind for some weeks now and the news today that house prices have risen 10.5% in the last year is what finally prompted me to write this. Personally I feel that the housing market is linked to many things and has effects outside of its sector one of which is the economy as a whole. As far as I can see the credit crunch really came about because of the rate at which people where borrowing money to buy houses. In the US it seems that an artificial boom was created on the back of money being made available to people who were riskier than normal. Sub-prime borrowers. In short there was too much money chasing too few customers. In the UK it was because of the fact that UK house prices had risen way too much over the time that Labour had been in power to the extent that a lot of people borrowing money had a higher risk profile than before.

Historical UK House prices vs earnings graph

For example in 1997 when Labour came to power the average person would need to borrow about 2.5 times their salary to be able to buy the average UK house. By 2008 when the housing bubble burst average UK income was £38,302 with the average house costing £197,000. That is 5.1 times the average person's salary; a huge increase by any measure. Effectively, even the average buyer was bordering on being a sub-prime borrower! This, as I recall is when people started taking out 40 year mortgages. 40 years to pay back the mortgage on your house! Imagine that. People buying in the early 2000s used to be able to take out 25 year mortgages. Within 5 years just to afford a mortgage you had to stretch it to 40 years, or else you couldn't afford it. That's sub-prime for you folks.

A lot of people (egged on by the government of course) blame the banks for the credit crunch, but I'm not one of them. I blame the people who bought houses they couldn't afford. Moreover I blame the government who didn't create the market conditions so that people could afford to buy a house. Of course the banks were implicit in that they then packaged these loans into bunches of hundreds of thousands and sold them onto each other knowing that there were now increased risks that people would default. However there came a time when no bank knew which other bank had the dirtiest mortgage customers; and because banks lend to each other more than they do to us, they became concerned amongst themselves. That concern resulted in banks NOT lending to each other and there was an impasse during which Northern Rock amongst others couldn't borrow money. They of course had to get it from somewhere so they asked the government. Correct me if I'm wrong but in laymen's terms that's what happened except of course they used complicated financial instruments to do all this.

From a UK perspective the main reason I blame the government in this is because they could have done a lot more before the housing bubble burst to avoid the sub-prime mess. They could have done things differently after the bubble burst too, but they didn't. Here's what they could have done;

1. Increase the threshold of stamp duty.

Stamp duty is a tax payable on all house purchases in the UK provided that they go above a certain value. That value is set by the government and it works on "slab" basis, so percentages apply to the whole of the purchase price in a defined band. For example, a house priced at £250,000 would attract a tax of £2,500, but one of £250,001 would be liable to tax of £7,500. The result is that duty has a hugely distorting effect on the market, because a house is very difficult to sell at prices just above each threshold, for example, £255,000. The UK government could have used this to control house prices more than they used it to line their pockets. In 2002 when house prices went up 25% in one year, it should have been abundantly clear to Labour that it was now necessary to do something about stamp duty. The threshold remained at £60,000 yet house prices were now well over a £110,000. Meaning that even first-time buyers would have to fork out stamp-duty in addition to a deposit. Setting the threshold higher (at just below the average price) would have actually resulted in some house prices being brought down to take advantage of the new level.

2. Build more houses

The market and by extension the government really just didn't build enough houses. At the time we knew that a lot was being done, but it just wasn't enough. I applaud John Prescott's efforts in Hull, Stoke and other places, but a lot more needed to be done. Beautiful though Britain may be there are huge areas of dereliction not just in Stoke and Hull. London, Manchester, Birmingham all have acres and roads of dereliction that would have been good for redevelopment. An increased supply of houses would have resulted in a decrease in prices. The old supply and demand thing. Ironically this is one of the reasons that US house prices fell thereby triggering the credit crunch. But I'm being selfish here and only discussing the UK market. If the American market screwed some buyers after supply increased, too bad. A house is an investment. Buyers MUST be told that prices can go up as well as down and the best thing to do is to be in it for the long run and make sure you can afford your repayments.


3. Sell council houses

This is a practise that for some reason Labour did not embrace even though you'd have thought it was mostly their constituents. Margaret Thatcher was a big proponent of this in the '80s and I have to say I'm with her. I just don't see the point in not encouraging people in social housing to buy the home they leave in. I know that house ownership is not the be all and end all of life. So long as you have an affordable place you can call home that you can raise a family from I should think that should be good for most people. Germany has lower ownership rates than most countries and they are doing ok.

However, council houses though they are no longer built still make up a big part of the UK housing stock. Releasing some of that to the occupants and using the proceeds to build more would help increase the supply of houses for sale. This ties in with point 2 above. Councils have huge economies of scale and would be able to build and sell properties just as cheaply as house builders whilst still doing some good. They would be able to make money off properties. Crucially getting the social balance right so that yobs do not eventually take over new estates would be of utmost importance.

Overall these are all things that I think Labour failed to get right, which in my opinion led directly to the credit crunch affecting the UK the way it did. It's also ironic that one of the major issues of the upcoming election is immigration and as I heard one commentator say yesterday "Immigration is a proxy for Labour's failings in the economy, crime and housing. People love a scape-goat." You've got to admit that there's none better than the immigrant who takes someone's job, robs their kid and lives in a council home that they could have occupied. That this is not the case especially when it comes to the economy and housing is neither here nor there. The UK government would rather it was 'the immigrant wot did it' than the good man Mr Brown.

After the crisis began I felt that the government should have let the banks fail and only made sure that customers got their money back. I also believe that sub-prime borrowers should not have been rescued from their bad mortgage deals because if repossessions went up, houses prices would go down.

As it is we haven't had a proper correction in house prices and we're still sitting on a bubble. I believe the bubble didn't really burst. Some air was let out and now (horror of all horrors) we're starting to pump the bubble up again. No-one apart from the banks got burnt so borrowers are still looking to borrow more than they can afford. And now we hear that the politicians are planning to force the banks to lend. Well correct me if I'm wrong, but is that not what the banks were doing before the politicians let it all get out of control?

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4Mar/10Off

Patently mad. The absurdity of patents continues

The idea of patents is a good one. In theory. You invent something and apply to get it registered so that what you have made is exclusive to you for a period of time. During that period you can recoup the costs of coming up with your invention whilst copy-cats are barred from profiting at your expense. To qualify a patent has to be new, inventive or useful.

I say in theory because, it turns out you can apply for patents on ideas and also on software (which pretty much is a logical application and something of an art too). This is where things get muddy, because patents apply to everything in the modern world. From the medicine that the poor countries badly need to the cell-phones on which billions of people depend.

A couple of things in the last week have served to highlight the massive change needed to bring the system up to date if the technology world is to be prevented from going into a race to the bottom.

It started with Facebook being awarded a patent on the ‘newsfeed’, that page you see on logging into Facebook which tells you who poked who, and other ‘newsy’ stuff in your friends circles.

Then Apple sued HTC who make tons of phones for just about everyone in the industry apart from Apple and Nokia. Why, because HTC is said to be infringing on Apple’s patents including one for “Unlocking A Device By Performing Gestures On An Unlock Image.” Awarded on February 2 in 2010! You couldn’t make it up if you tried. In simple terms that means any phone company using that system where you unlock your phone by swiping it has to pay Apple for the right to use it. Absolutely ridiculous, especially when you consider that I have had a phone that does exactly that since before the iPhone was around. Step forward Neonode.

                          Is that an icon based menu? Quick let's patent it!

 

I bet Neonode didn’t apply for the patent because they thought it was too obvious to be granted! Anyway the whole thing has a lot of geeks shaking their heads whilst lawyers can’t stop salivating at the prospect of more long and drawn out litigation.

Ultimate blame however, has to lie not with those who are granted the patents, but with those who look at these applications and say “Yes, that is novel, it’s new, it’s inventive and it’s useful.”

For an illustration of the ridiculousness BusinessWeek featured this invention in their ‘Most ridiculous patents’  article.

Bear right dad! Double saddle coming on!

Dad Saddle

Patent awarded: 2002
Patent says: “A number of devices have been devised for carrying infants and young children. Such devices often are not appropriate or useful for carrying larger children. Nor are known conventional arrangements adapted to support a standing child.”
Business Week say: If your child is too big for a stroller, it’s probably time he or she learned to walk.

31Jan/10Off

The gap between rich and poor doesn’t matter

The gap between rich and poor

There has been a lot made recently about the gap between rich and poor getting bigger. In the UK, the opposition Conservatives blame Labour who have been in power since May 1997. Labour of course blames the Tories saying this is one of the legacies they inherited. Specifically they blame Margaret Thatcher, that bastion of evil, the wicked witch of the west. Their words not mine. OK I'm paraphrasing here but those may as well be the words they use seeing as Mrs Thatcher is blamed for pretty much everything that has gone wrong in the UK since 1980. Considering that she hasn't been in power since 1990, you'd have to say her powers of destruction would be up there with the Dick Dastardly, Lex Luthor and all other super-villains rolled into one.

Funnily enough plenty of research will support both arguments, but my thinking is that the premise doesn't matter at all! Why should society care about the gap between the rich and poor when in fact we should only concern ourselves with the poor?

I believe that it's the level of poverty in our society that really should be the focus of government and by extension the society itself. If opportunities are made available to the poor (I don't mean benefits and welfare!) and our leaders are able to mobilise society to reach for those opportunities by being aspirational, then I think we will be in a better place.

I know that others also rail against aspiration and say it's overrated. That's correct if by aspiration you mean getting the cars, bling, flat-screen TVs and Armani jeans. No my friends. Wanting to get those things is NOT aspiration. That's just being materialist. Aspiration is when a person wants to make a lasting difference to their WAY of life, which results in material benefits being a by-product of the hard work that's been put in and the success it brings. As one commenter put it in the article linked to above

If the top of society becomes too rich, (which I don't think there is such a thing) then that's not a bad thing. What matters is how poor the rest are and whether or not the rich do not take advantage of them. Should you care that Richard Branson has x billion in the bank when you and your wife have a combined income of 40,000 per yr, your kids go to a decent school and providing they work hard they can make it through university? That would be just stupid right? It's bordering on envy, and that's pretty much where this whole debate on the gap between rich and poor seems to lead to.

Coincidentally university education, which is one of the traditional means for aspiring working class kids to uplift themselves, has been made way more expensive by the self-appointed working class party. Labour. It's ridiculous to blame the Tories for the society gap which supposedly increased more during the 80's because Thatcher brought this country up to date economy-wise. By spoon feeding the poor Labour has stagnated the living conditions of the bottom 10% which I believe is the true crime. I won't go into that debate too much right now, but I believe Labour (and the Tories when they get in) should just concentrate on providing opportunities to the poor and making the conditions that will enable us to help ourselves.

If the rich get richer during that time, I couldn't care less. And that is why I don't begrudge the bankers, footballers and other high earners. Just so long as you all can be a banker, doctor, footballer or MP, had you wanted and been able to.

28Jan/10Off

Who needs marketing when you have fans in the media?

If you’ve just come back from Mars, then you may not know that Apple launched a new gadget yesterday. Please have a good look at my browser screenshot of VentureBeat (one of my favourite tech blogs) by clicking the image on the right. It’s ridiculous and illustrates the hype that is constantly bestowed upon Apple products by the media.

It’s one thing people having an interest, but its quiet another when the media feeds our interest in Apple with such an overload of coverage. VentureBeat is by no means the most Apple-eyed blog out there (that’s why I read it). Thus it makes you wonder what the Apple-centric blogs are going through right now.

Tis’ the Cult of Mac indeed.

15Jan/10Off

Jay-Z sues to protect his second-hand name. Ridiculous

Around the mid ’90s when Jay-Z decided to start a label to put his records out on, he came up with a really stupid name. Roc-A-Fella. Geddit? Rock a dude with his music? Rock a fellow?

Roc-A-Fella y'all!

That was the clever part but the name was a double entendre, the second part being from the Rockefellers. One of New York’s most entrepreneurial and wealthiest families. Something of a dynasty. I get that part too. I mean these are all things he and his business partners aspired to. What better way to pay them homage?

Except, I believe it was dumb simply because the family still exists. Maybe not with the great patriarch of old but an actual family and corporation that still operates and uses the name Rockefeller.

I guess Jay and Co would have said something like “Well it’s spelt different! We’ve spelt it hood so there’s no conflict there. They’re corporate and we’re hood. That’s what we’re about.”

Anyway Jay, Dame and Biggs brushed all this aside; did their thing; put out great music and actually made a name for Roc-A-Fella in very admirable ways. Some of them corporate, but that’s by-the-by. I can imagine them saying something like “We’re hustling, so anyway we can get it, we get it!”

Fast forward to 2010 and Jay-Z now thinks that no one should do business with any name sounding like Rock A Fella. Case in point a restaurant called Rockafella, located in Newcastle, England. The guy who owns it was recently sued for using that name. Not by David Rockefeller Sr, but Roc-A-Fella as in records. It’s one thing appropriating someone else’s name, but suing others who use a similar name as if it was your own? Ridiculous.

 

Rockafella restaurant. Part of the Roc-A-Fella Records Group

I know there are issues in all the music genres to do with naming, and that’s understandable. There are only so many names to go round. Freeway and Rick Ross had to take names from the same person due to the shortage. In Reggae Dancehall, which of course has a symbiotic relationship with Hip-Hop, we’re starting to hear names like Busy Signal and Voicemail. Make no mistake people, the name shortage is real. The Killers named themselves after a fake band depicted in the music video of another band. You couldn’t make it up!

The shortage is leading some to speculate that Roc-A-Fella are launching a trading market for band names. Sort of like buying and selling domain names. The premise is that if it’s good and catchy, its worth more. So you register someone else’s name as your own and 20 years down the line or more likely when your band flops, you can just trade it in. Brilliant.

However all this still doesn’t excuse Jay-Z suing that poor restaurant. Does he not realise the name is spelt different? It’s Rockafella with a K. Plus there are no Dashes. Geddit?

13Jan/10Off

Starting a business without an idea. Dumb.

So I’m reading Venturebeat, which is one of my favorite blogs, and they have a Q & A with a guy called Adam D’Angelo. D’Angelo used to be the Chief Technology Officer of Facebook, their first in fact. He left some time ago and has now started a new venture called Quora. A  cross between Wikipedia and  Yahoo Answers. It’s a question-and-answer site with very refined incentives to get people to share specialist knowledge.

Reading the interview what stood out for me is his answer to the question “Is this what you knew you wanted to do when you left Facebook?”

D’Angelo says “I knew I wanted to start a company and I spent a lot of time thinking about it. And after several ideas, I thought that this one was the one with the most potential.”

What struck me from that statement is that it sounds like D’Angelo wanted to start a business…., didn’t have a specific thing in mind…., came up with several ideas…. and settled on this one. I don’t know, but this really doesn’t sound like the way great concepts are born.

I mean, say you’re in that looking-for-an-idea zone, and it’s been a few weeks and nothing has really come up. What do you do? Do you go back to something you thought about some time ago and add a twist to it? Do you scratch your head harder so that as that bit of dandruff falls it may just dislodge a couple of brain cells that were in the way of a great idea? Then Eureka!

"I'm taking this to the Dragon's Den. Reggae Reggae sauce has nothing on this!"

Call me old fasioned, but I believe great businesses offer services that solve a particular problem. I believe good companies are built from one of the following, though this is not an exhaustive list;

  • an idea that came about because someone encountered a problem.
  • a copy of a great idea that came about because someone had a problem. AKA a copy cat business. Even the most visionary people have at some point thought about doing something that been done a million times before. That tech company called Apple comes to mind.
  • an opportunity to exploit a market’s lack of knowledge. For example, buying cheap electronics in one city and selling them in another.
  • an opportunity to go into an under-served market. Your typical bricks and mortar businesses do this most of the time.

In any case, I don’t think most of the above come about because someone some sat down and wondered what to do! It’s like the lotto winner who sits down to think how they are going to multiply their earnings by going into business. I can’t think any significant money will be made that way, if any.

Still good luck to Quora. It seems that, without a solid problem to tackle, they need it.

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28Aug/09Off

How many Postmen want their kids to be Postmen?

Sorting office - Jobs worth striking for!

I absolutely hope the answer to the title question is none or at least not many. However the way the Communication Workers’ Union (CWU) is carrying on you’d think that working in a sorting office is a job worth aspiring to. Don’t get me wrong (yeah this is the bit where I say some unpalatable things) because being a postman or working in a sorting office is not a bad thing in itself.

People’s situations vary and of course there are many reasons why someone would be working there, but one thing I can say is that I look down upon anyone who works there and doesn’t aspire for more. Either for themself or their family. Themself because if you’re not working there to better yourself then I really hope you’re doing it to elevate your family.  Note that I used the word elevate, by which I mean those workers shouldn’t just be looking to feed their families. There’s more to life than food. Really there is.

Anyway, the gist of the strike if you don’t know or are working in a sorting office (in which case you don’t know) is that the Royal Mail wants to modernise. In 2007 they rolled out a four phase plan to help achieve that modernisation, which the CWU agreed to. I’m not sure why they couldn’t have five phases as it’s common knowledge that all good plans either run for five years or have five phases!

Fast forward to 2009 and they have surprisingly implemented three of those phases save for the last one which calls for rolling out a ‘walk sequencing machine, a device which organises letters into the order the postmen and women will deliver them the next morning.’ A pretty neat idea which to my untrained ear says ‘lower costs, efficiency, speed’ and all the good things that any decent business and it’s customers should hope for. Of course it probably means many jobs in the sorting office will be lost, but hey who wants to haggle over menial jobs being lost? Oh……. the CWU?

The situation would be really funny to me if people’s skilled jobs didn’t rely on the Royal Mail. Losing professional jobs is one thing. But sorters *%?!! This really takes the biscuit. The CWU wants to save menial jobs even though surely the modernisation will result in skilled jobs being created. Granted there’ll be fewer than the lost ones, but hey who really wants their kids to grow up to be Post Men?

A truly hazardous profession.

26Aug/09Off

BP’s oil a shot in the arm for our addicted economies

So BP found has made a ‘giant’ new oil discovery in it’s Gulf of Mexico fields. Good timing for those oil and fuel prices that were starting to go up again, huh?

Well, I for one am not holding my breath for a stabilisation at the current prices of fuel. However, I really hoped that things were going to continue down the same road with reserves of oil and gas dwindling, and our consumption of said fuels holding steady. Humanity has made great strides in making greener flights, cars and consumer electronics. Whilst we’re not nearly enough there, innovation and technological progress in that area is the best way forward in lowering our dependence on oil.

Necessity is the mother of invention and I believe the continued progress we’ve been making could be stunted if yet more oil is found in ‘giant’ quantities. I’m not naive enough to think we could ever be 100% free from our oil habit, but Iike any alcoholic, I’d rather we knew we could do without it.

In all, I’d like to see oil prices come down as a result of low demand and not higher supply.

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21Aug/09Off

iLike didn’t believe the hype

Nic Brisbourne the London based venture capitalist yesterday blogged about the lessons of iLike's low valuation. The gist of the article was that iLike, a business based around a Facebook app that allows users to share and interact around music, had been sold for the relatively low figure of $20 million. Nic says;

It seems to me there are two big takeaways here.

1. It is important to build value as well as traffic

Ultimately the true measure of value is net cash flow and it seems that despite being profitable there simply wasn't much scale to iLike's business in revenue terms.  I would speculate that is partly because not all their 50m users were very active (it is telling they always quote total registered users not active users) and partly because the inventory they do have doesn't monetise that well.  Widgets on social networks suffer from the double whammy of limited real estate in an environment where ads perform poorly.

It is worth noting here, as David Pakman of partner at VC firm Venrock points out, that traffic is often a good lead indicator of value, just not always .

2. Dependence is a weakness

The other big problem for iLike seems to have been that 70-80% of its traffic came from Facebook, making them vulnerable to changes in FB's terms of service or if FB decided to launch their own music service.  So iLike was dependent for its future on the good will of Facebook, and If there is even a small chance that iLike could have its ioxygen (sic) cut off nobody is going to risk paying too much for the company.  This problem is all the more acute when the company you are dependent on hasn't sorted out its own business model and is somewhat unpredictable

These are very valid points for any web-based business to take on board. Nevertheless I'm just not sure they apply in the case of iLike and I commented to that end. (Updated: Nic has commented below with more insight and futher clarifying the background information. Be sure to read that.)

I'm guessing, but I think iLike's founders and investors probably knew the value of the company they were building. That they cashed out a slightly profitable company at $20 million, with other bidders on hand seems to suggest that they got what they were looking for and where not unhappy with the price. It would have been easy for them to move along thinking they'd grow and/or get more down the line.

This however, is a lesson to the tech media, analysts and all those who build copy cat businesses. Hype does not equate to a high valuation. It seems iLike (quite rightly) didn't believe the hype.