Dean (Zhuiyang) Chen

There has been much discussion about buyout of Bear Stearns by J.P. Morgan. CNBC has a video that pretty well sums up many people's perception that the Fed showed preferential treatment towards Wall Street over the individual citizens amid the economic crisis. The media has a knack for revving up emotions for the sake of their ratings and I find its focus on the Bear Stearns deal especially unnerving. The media wants you to believe that the Fed negotiated the BSC deal in order to cover Wall Street's ass, by using 30 billion dollars in your tax money to "bailout" BSC. When I see these reports I often find many small but significant details left out. First and foremost, BSC was initially sold to J.P. Morgan at $2 per share, at the urging of the Fed. J.P. Morgan officially announced today to raise the bid to $10 in order to make the transaction smoother by gaining some shareholder support. Even then the 6 month stock price chart gives you a pretty good idea of how cheap BSC is being sold at; the stock price hovered near the hundred. Bear Stearns, its executives and employees are losing a majority of their wealth by going through with this deal. About 30% of the BSC is owned by Bear Stearns employees and I'd bet that no employee is happy about their investments and savings taking the huge dive evident in the charts.

The discount at which BSC is purchased at is mind-boggling, the initial $2 per share offering summed up to just about 1/5th of the value of its headquarters on Madison Ave., sure, the $10 a share is no doubt more reasonable, but it still barely covers the values of its real estate let alone the billions of financial instruments that it holds and controls.

A piece of information that I've rarely seen mentioned is that the 30 billion dollars is being used not to pay the banks but the mortgages that it holds. And like any type of investments it can lose or GAIN in value, especially when the mortgage crisis is over. J.P. Morgan is also taking the hit on the first one billion dollars of losses if the mortgages do decrease in value, another piece of information that gets left out. The reason that Bear Stearns fell was not because its investments weren't worth anything, rather that it didn't have the funds and liquidity in its investments to continue doing business due to the lack of confidence in the bank, a problem that the Fed, which has the power to inject virtually unlimited credit, doesn't have.

The media also missed the big picture of this purchase or they would have realized that the Fed acted in the best interest of the average Joe. Hopefully it has now become clear that Wall Street will not benefit from this deal. This move by the Fed is to preserve the billions of dollars in mortgages and trillions of dollars in credit swaps that will go bad with if Bear Stearns did fall which was almost a certainty. During a time when the economy had been battered left and right, the fall of BSC along with the multitude financial instruments it holds could have very well been the K.O. for the economy. The stock market would have collapsed, sending the investments, pension funds and savings of Americans spiraling down. It would also not just cause decreases in jobs but further deteriorate the housing and credit crisis The hit that the stock market would have taken alone could have been very well beyond the measly 30 billion dollars to prevent this disaster.

AMD's[AMD] latest flagship Phenom processor is an utter disappointment and marks the beginning of the end to the once successful company that dominated the enthusiast CPU market. AMD shares are at a 4 year low of $9.67 after another quarter with losses in the hundreds of millions[400 to be specific], with debts nearing 9 BILLION dollars. It's fall was just as surprising and quick as its rise. After hitting a high $40 in Q1 of 2006, it lost half of its value in just a year, only to decrease by 50% again this year now sitting below $10.

There are many personal feelings associated with AMD since it was one of my first and most successful investments in the stock market; I purchased the stock in 2004 and sold it the next year for a nice profit. AMD's processors were also the CPU of my choice and the choice countless other computer enthusiasts since 2003. I purchased almost a dozen AMD processors, using one[FX-62] to construct my own computer and the many others when I assembled computers for friends, family and business. It's processors at the time provided superior performance to Intel processors while having a lower price; a no-brainer.

In 2003, AMD's Opteron and Athlon 64 succeeded where Intel failed, by starting the revolution for 64-bit computing. The Athlon 64 brought 64-bit processor to the masses with non premium over Intel's comparative Pentium lineup while providing near perfect 32-bit backwards compatibility, the primary reason Intel's Itanium line up[first shipped in 2001] failed. This innovation by AMD would be the slingshot that would take down the Goliath.
[Note: 64-bit Processor Timeline from Wikipedia]

AMD's stock price would double consecutively for the next two years. It would also destroyed Intel's monopoly of the computer processor market during this time period when major OEM's such as Dell[Q1 2005] and HP[Q1 2004] prominently offered desktops as well as servers powered by AMD's Athlon 64 and Opteron processor respectively. The CPU market was starting to stabilize as a duopoly with processor pricing hitting all time lows while performance increases hitting all time highs.

So what went wrong? AMD got complacent and stopped innovating. This is evident in the release of it's unpolished and disappointing Phenom quad-core processor a year behind Intel's first quad-core processor, the QX6700. Intel also beat AMD in the desktop dual-core race by being the first to release it's Pentium D Extreme in Q1 of 2005.

But the stake in the coffin for AMD was Intel's Core architecture released in Q1 2006, the new architecture vastly improved the efficiency and performance of the CPU through various design optimizations, and Intel further improved on Core when it released it's Core 2 architecture in Q2 2006, that brought a 40% increase in performance while reducing power consumption by 40% compared to it's old Pentium architecture; blowing away AMD's processor offerings on the market.

AMD's Phenom processor was suppose to do for AMD what Intel's Core processors did for Intel, utilizing the multiple innovations including native quad-core to improve performance. As previously mentioned, the Phenom debut is a debacle to put it lightly. The clock speed was a few hundred mhz lower than what promised due to a bug in the chip that was not discovered until late in the production maxing out at only 2.3ghz.

The top of the line Phenom 9600 is easily bested by Intel's low end quad-core Q6600. Unless AMD can pull a miracle in Q1 with it's higher clocked Phenoms which barely measure up to Intel's slowest quad-core offering, it will effectively loose any hold in the desktop CPU market. Already deep in debt due to high costs and low margins, one wonders how much longer AMD will be able to stay in the market, since Intel's recent move from 65nm to 45nm manufacturing process allows it to decrease costs while further increasing performance.

I would hate to see Intel regain the monopoly that it once had; the rate of innovation will decrease and relative prices will increase. There is already signs of this since there has been rumors that Intel is holding back the release of it's higher performing 45nm Penryn to avoid lowering the prices on its current processor lineup since there is no pressure from AMD to do so.

AMD's final hope may be in its acquisition of ATI in Q2 of 2006. If AMD is able to integrate the GPU in to it's CPU, then it may bring significant power savings and possible performance improvements. AMD may also get helping hand from the courts if there is any validity in AMD's antitrust complaint. Either way, AMD is going to need some miracle to return it's former glory and it is going to have to be soon or never.

[Note: I currently have significant holdings in Intel(INTC)]

I recently completed a compilation of various economics data of the US economy from government sources such as the Bureau of Economic Analysis [BEA.gov] and the labor department [DOL.gov] for an ISSP class at my school. The data ranges from GDP [Gross Domestic Product] to corporate profits to the Gini index, from 1929 to 2006. I color coded the values according to their magnitudes relative to that of other values under the same category, it makes certain trends such as the gradual increase of the gini index very obvious.

The web table is located at http://ocirs.com/economic-data-table.php or just click on "US Econ Data" under "Resources" on the left panel. I've also included download links on that page for PDF, Excel 2003, Excel 2007 and CVS versions of the table. I'll probably also type up a key to all the variables and setup some mouse over pop ups that describe the variables next week.

I've also updated all the links on this site with permalinks which reveal much more useful information such as the page title and date in the URL instead of some useless page ID. I was really surprised by the fact that I wasn't able to find resources for setting up permalinks for custom coded blog backends like the one on this site. I'll probably post a tutorial for it this weekend or next weekend; it's less complicated than one would expect.

http://biz.yahoo.com/ap/071109/economy.html

Saw this today on Yahoo finance, exactly inline with what I mentioned two days ago. Not very suprising that the deficit with China is getting better anytime soon since the yuan is fixed to the dollar by the Chinese government(yes governments are capable of manipulating exchange rates if they have enough reserves!) which is why the US government is so desperately trying to persuade China to increase its exchange rate for the yuan.

Increasing the exchange rate for the yuan has potentially positives and negatives. The primary negative for China is that it will make Chinese goods more expensive to the world and China has become heavily dependent on exports. The US argues that it's not fair that China gets to sell its goods at much cheaper prices, but the benefits of a more valuable yuan also have mixed affects on the US economy. It will decrease the trade deficit but will also have a negative impact on corporate profits.

Think about how many items you purchased daily from China(pretty much every item in Walmart) and then consider what would happen if all the prices of those items doubled... yeah, not only will you buy less, giant retailers like Walmart are going to take a huge hit not just from the decrease in demand but also the fact that they can expect their profit margins to plummet.

I'm not too sure why the weak dollar is even a concern right now as the feds should still be able to influence the value of the dollar even with the deficit as large as it is. With our governments persistent interest in protecting large corporations, I can't imagine why they would push to raise the value the yuan. Perhaps the US is genuinely afraid of loosing their sole super power world status to China, that they are willing to sacrafice some of their precious corporations?

Source: Federal Reserve Bank of Minneapolis

Headline on yahoo finance today:

http://biz.yahoo.com/ap/071107/wall_street.html

This has been no doubt one of the most discussed topics regarding our economy and is usually looked upon as a negative. Keep in mind that the feds do have the power to influence exchange rates, if they chose to put positive pressure on the exchange rate all they would have to do is decrease supply of the dollar on the world market. I believe the feds may be purposely lowering the value of the dollar. Here's why:

• Weaker dollar = More exports and less imports since US goods will be cheaper to foreign nations and foreign good is more expensive to the US. Which alieviate our trade deficit problem with China, which was exactly the case shown by the AP news report released just a few months ago. http://biz.yahoo.com/ap/071011/economy.html
• There will be pressure on the interest rates to fall, from the increased money supply of the change in imports and exports but more importantly the fact that it gives the impression that the US market is doing badly giving the feds an excuse to lower the interest rate which is always great for the economy in the short run.