Filed under: Books

In their classic book Why Smart People Make Big Money Mistakes, Thomas Gilovich and Gary Belsky looked at the psychology of financial decisions.

In his new book Your Money & You Brain, Jason Zweig goes a step further, looking at both behavioral economics and the neurological side of it. The result is a fascinating look at the tricks that our minds play on us, and how they keep us from investing as well as we could.

As Zweig writes, a mile long time-line of human history would not show the first financial markets until about four inches from the end. Evolution has given us brains that are very well-equipped for fleeing from gazelles but, alas, prone to a lot of stupid mistakes when it comes to investing. And this applies to “sophisticated professionals” as well as rank amateurs.

Extensively researched — Mr. Zweig took part in numerous experiments — this book will give you new and profound insight into how you think about money. Every serious investor should read this book, although few will because it offers no get-rich-quick scheme or concrete tips on how to beat the market.

But it’s very readable and funny in parts, and definitely one of the more entertaining investment books to come out in recent memory.

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Filed under: Consumer experience, Marketing and advertising, Electronic Arts (ERTS)

While the runaway success of the Nintendo Wii showed that gamers are willing to try a very different kind of gaming system and that non-gamers were willing to try gaming in a more user-friendly format, Electronic Arts (NASDAQ: ERTS) is hoping that they’ll be equally receptive to a new way to receive and pay for their games.

The next installment in the game maker’s Battlefield series will be available for download online — for free. According to the New York Times, “Rather than being sold at retail, the game is meant to generate revenue through advertising and small in-game transactions that allow players to spend a few dollars on new outfits, weapons and other virtual gear.”

Battlefield Heroes will be released this summer. It marks a huge departure from the traditional method of delivery for video games. Of course, the question one everyone’s mind is, “Will it work?” Electronic Arts is betting that while most people will play the game for free, a cadre of hardcore gamers will spend money each month on new products. Meanwhile, the expanded audience will boost ad revenue.

This is the first time the company will try this delivery in the western world, and the choice of Battlefield, one of the company’s core franchises, indicates that it is serious.

Electronic Arts as a company has so far failed to capitalize on the industry’s recent strengths, but this innovative step could change that.

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Filed under: Deals, Rumors, Competitive strategy

According to Billboard.com, privately-held music company EMI Group and chairman Guy Hands have made a bid for independent music company Chrysalis (LSE: CHS). The report is based on similar reports by the London Times and Reuters, and indicate that EMI is not the only company interested in the label, with publishing companies Warner Chappell and Sony/ATV making bids, in addition to some private equity firms and other music publishers.

The Billboard report seems aimed at pointing out the publishing rights that would be gained from the purchase, since Chrysalis’ music publishing owns the rights to artists like David Bowie, Gnarls Barkley, Athlete, and recently entered a worldwide agreement with Johnny Marr, guitarist with cult 1980s act The Smiths, but perhaps better known to American audiences for working with Modest Mouse on the band’s chart-topping 2007 album. Chris Wright, Chrysalis’ founder and chairman has previously sold aspects of the Chrysalis name to EMI, with the Chrysalis Records label being sold in 1991. Chrysalis’ main objectives since then have been publishing rights, recording, management, and distribution. A radio business was also part of the company until last summer, when it was sold for $340 million, so the company could “focus on its music companies.”

Even though EMI is not alone in its bid for Chrysalis, the move hardly seems appropriate in light of the difficulties and new business models the company has been espousing recently. If EMI is successful in its bid for Chrysalis, it would really be another venture Guy Hands and private equity owner Terra Firma are making in the music industry, so the real question would be what kind of change does this mean for independent labels, or the methods utilized by independents. Unfortunately, the group would be absorbed by EMI or any other bidders, so the ramifications would become part of the larger company and not reflect the status of the independent. In any case, whether the rumor is accurate or not, Chrysalis’ status and EMI’s problems are going to be in the open.

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Filed under: International markets, Bad news, China, Commodities, Oil

Oil fell $2.01 to $88.56 per barrel Monday in electronic trading on the New York Mercantile Exchange - - pushed lower by a major sell-off in stock markets in Europe and Asia, amid increased concern that a weak U.S. economy will prompt a global economic slowdown.

Oil is down more than 11% since briefly trading above $100 at $100.09 on January 3, 2008. Oil hit an all-time high, in inflation-adjusted terms, of $102.80 per barrel in April 1980.

Oil fell after global equities markets sold-off amid both increased concerns that the world’s other major economic regions will be hurt by the U.S. economic slowdown and talk of additional write-downs/asset losses stemming from the U.S. subprime mortgage sector.

The Finanical Times reported that shares in China plunged 5.1%, Hong Kong shares sank 4.5%. In Europe, London’s FTSE dropped 5.5% to 5,578.20, the German Dax plunged 7.2 to 6,790.19, and France’s CAC-40 sank 6.8% to 4,744.45.

Continue reading Oil falls to $88 on Asia/Europe sell-off, global slowdown concerns

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Filed under: International markets, Earnings reports, Forecasts, Products and services, Management, Consumer experience, Competitive strategy, eBay (EBAY), Amazon.com (AMZN), Marketing and advertising

E-commerce giant eBay (NASDAQ: EBAY) will be reporting its fourth-quarter numbers this Wednesday, and analysts are looking for a strong quarter from the company, but then again, the fourth quarter has typically always been strong for the company. What analysts will most likely be more interested in, even more so than fourth-quarter numbers, will be the company’s 2008 outlook.

For the fourth quarter, the company is expected to show earnings of 41 cents per share. For its fourth quarter 2006, the company only showed 31 cents per share, so if it were to report 41 cents for its most recent fourth quarter, we will be seeing earnings growth of slightly over 32 percent year over year, but will that be enough to bring buyers into EBAY shares?

2008 should prove to be a very pivotal year from eBay, which is struggling to get its auction business back on the right track. One thing that we could see this week is eBay announcing that it will be lowering its “insertion” fees. These are fees that the company charges its users to list items, and would lift the commission that users receive for selling their goods.

Continue reading eBay (EBAY) fourth-quarter earnings preview

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Filed under: Bad news, Economic data

Perhaps no nation expends more effort toward measuring its economy than the United States.

GDP, consumer prices, industrial production, housing starts, corporate earnings, retail sales, job creation…the financial world receives a continuing stream of information that helps Wall Street set the price for various asset classes, the chief among these being stocks and bonds.

Moreover, most of the key statistics are widely-known, long-standing indicators of economic activity. Others, however, are lesser-known — but often equally telling — barometers of the nation’s health. One of those involves unemployed workers.

The 13% threshold

The U.S. Labor Department announced that in December 2007, 7.66 million adults were unemployed, a 13.2% increase from December 2006, when 6.70 million adults were out of work.

The significance? In nine previous economic cycles since 1950 with a 13% rise, the annual rise in unemployed adults has signaled a recession every time, The New York Times reported.

Continue reading With jobless increase, economists hope correlation is not causation

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Filed under: General Motors (GM), Employees

If employees of General Motors (NYSE: GM) are sitting back waiting for buyout packages to arrive in the mail, they better keep that champagne on ice. UAW officials warned last week that there won’t be a quick announcement on employee buyout packages or early retirement offers coming any time soon.

UAW Vice President Carl Rapson said, “We’ve not come to any kind of agreement, and it sure as heck isn’t going to happen in a week.” This was in response to GM’s Troy Clarke saying that information on a round of employee buyouts would be happening “within a week.” Yes, when GM and the UAW get together to mince words, a turbo-powered margarita blender couldn’t produce better fodder than these two organizations.

When and if new GM employee buyout offers come, they will cover employees in the assembly, powertrain and engineering facilities where GM has UAW-covered workers. Rapson did indicate that “meaningful discussions” are continuing between the automaker and the union, but it’s “just not accurate” to believe an agreement will be reached so soon. As of this morning, there is no agreement in place. GM workers waiting on a nice, fat check: you’ll have to wait a little longer.

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Filed under: International markets, Other issues, Commodities, Agriculture

Sometimes you need to look outside the box in constructing a portfolio, and sometimes you have to look at the box. That box may play an important role in the diversification of your portfolio.

The New York Times has an article today about the prevalence of timber threat in the U.S. The article quotes, “The total value of the American log-export market has more than doubled since 2000, industry experts said, and it continues to grow.”

This growth, in turn, is encouraging a new breed of tree hugger — thieves who chop down timber illegally. It’s not as severe as tree cribbing in countries like Indonesia and Brazil facing huge deforestation.

Historically, large investment funds like the Harvard Endowment have made large investments into timber (legally). In 2004, Harvard purchased a 468,000-acre New Zealand forest — then estimated to be worth $540 million.

Continue reading Cut your volatility with timber

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Filed under: Rumors, Google (GOOG), Next big thing, Smartphones, Technology

In what could be a spot-on analysis of Google (NASDAQ: GOOG)’s real intention with the upcoming FCC radio auctions, Jeff Lindsay with Sanford Bernstein says Google isn’t in the auction to win anything. In general, you bid to either win what you’re bidding on or you’re hedging your bets as you shill bid in an attempt to pump the bid price for the competition. With that said, what could Google be up to if it’s ready to bid on the FCC’s wireless airwaves, but has no intention on really using any radio spectrum in the future?

Lindsay indicates that Google’s recent moves in the wireless industry have already made the market realize open policies for customers and devices are the wave of the wireless future. In effect, its goal is already achieved to a point where it really does not need its own radio spectrum to directly compete as a wireless service provider.

Would Google really get knee-deep in an area that’s outside of its core business, and end up letting that become a distraction? Google CEO Eric Schmidt has repeatedly said that the mobile frontier harbors much more promise than even the PC web browser frontier it currently helps dominate. Was Google’s real intention with applying to bid for the FCC auctions coming up shortly just a scare tactic to cement its open handset alliance position? Possibly — but now it’s playing in a new sandbox with established bullies. The auctions should be very interesting.

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Filed under: International markets, Other issues, Bad news, Economic data, Agriculture

The decade’s dramatic rise in crude oil prices to roughly $90 per barrel levels has had a lesser-known, but equally consequential impact on life in the developing world — a rise in price of cooking oils from palm, soybean and many other types of vegetable oils, The New York Times reported.

The United Nations Food and Agriculture Organization said that exports of 60 internationally-traded foodstuffs increased 37% in 2007, following a 14% rise in 2006. Further, price increases in cooking oils hit the developing world particularly hard, as the bulk of poor families in these countries grow their own food, but buy the oil to cook it with.

In the case of palm oil, The Times reported that rising consumption in China and other emerging markets, along with use of the oil in developed markets as a substitute for chemically-altered trans fats, are two major factors behind its price rise.

Biofuel nexus

However, for other oils the rise in crude oil is playing a considerable role, according to London-based economist Mark Chandler. Chandler, whose economic specialization includes developing world economies, said crude oil’s rise has led to a dramatic rise in the use of cooking oils as biofuels.

Continue reading Costly crude oil means costly cooking oil for much of developing world

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