Read it and comment away.

[ Via CNN ]

By David Goldman, staff writerSeptember 1, 2010: 3:41 AM ET

NEW YORK (CNNMoney.com) — A hot new smartphone can be Incredible, Vibrant, Epic or just “eh,” but no matter how it stacks up, it’s a safe bet that it will start selling at $199.

On the four major wireless networks — Verizon Wireless (VZ, Fortune 500), AT&T, Sprint (S, Fortune 500) and T-Mobile — there are 13 smartphones priced at $199 with a two-year contract. There are no phone models with a higher starting price (add-ons like more memory can increase the price tag), and there are more smartphones selling at $199 than at any other single price point.

But spending $199 doesn’t guarantee you a top-of-the-line phone. On AT&T’s (T, Fortune 500) network, $199 will buy an iPhone 4, the best-selling smartphone of all time. But you’ll need to fork over the same amount for a BlackBerry Bold 9700, a nine-month-old phone that lacks a touch screen.

It will also cost you $199 to get an HTC Tilt 2, which runs Windows Mobile 6.5 — an operating system so out of date that Microsoft (MSFT, Fortune 500) is set to completely abandon it in the next few months.

So what’s so special about $199?

“The obvious answer is that $199 is a magic price point for smartphone volume,” said George Appling, partner at consulting firm Booz & Co. “The not-so-obvious reason is that carriers are not charging customers what they pay.”

In other words, wireless carriers pay significantly more for smartphones than you do. In exchange for your signature on an expensive two-year contract, they’ll offer you the smartphone for less than it costs them but as much as they think you’ll pay for it — and right now, that’s $199 across the board. Buy an unsubsidized iPhone 4 straight from Apple (AAPL, Fortune 500) and you’ll pay $599 for the 16 GB phone that AT&T sells for $199 with a two-year contract.

Smartphones generally cost carriers around $500 per unit. Volume deals and other negotiations with manufacturers can shave down that price tag, but the hotter the phone, the more a carrier will pay to buy it.

But that’s just the start of their calculations of what a phone “costs.”

0:00 /2:18The Motorola Droid 2 is unleashed

Phones that tend to eat up more bandwidth — hello iPhone! — add to the carrier’s overhead. Put together the upfront cost of the phone and the back-end cost to service it, and you’re left with the phone’s profit margin. For a model with really tight margins, the carrier might find itself essentially forced to charge more upfront than it otherwise would — it can’t discount the purchase price and still scrape out a profit. That sometimes leads to inferior phones, like the BlackBerry Bold, carrying the same price tag as more advanced rivals, like BlackBerry’s Torch.

It wasn’t always that way. Before the age of tricked-out smartphones with expensive touch screens and processors, cell phones were much cheaper to manufacture. That gave wireless companies more leeway to compete on cost, and prior to the iPhone’s mid-2007 release, phones had a wide variety of price tags.

But as phones got more expensive, a tiering of prices developed. Even the iPhone couldn’t hold the high ground: Initially priced at $599 — yes, even with a two-year contract — the phone plunged to $399 just two months after its debut. By 2008, it had settled into the $199 groove.

If you don’t need the latest and greatest, you can certainly score a gadget for less. Older, less exciting smartphones like the LG Ally, Palm Pre and Motorola (MOT, Fortune 500) Devour go for $149, or even $99.

But you won’t find many phones priced outside those $50 tier increments.

“There’s no $189 price point any more because operators don’t want to suggest that one phone is a little better or a little worse than another at the same tier,” said Charles Golvin, analyst at Forrester Research. “Carriers are looking for simplicity, even if that doesn’t reflect their margins.”

So will any carrier try to shake up the market and sell a cutting-edge phone for less? Don’t hold your breath.

“No price war is going to happen,” Appling said. “If Verizon got the iPhone tomorrow, it would probably sell for $199. They’re already in a $300 hole when they add a customer, so they’ll be extraordinarily hesitant to make that worse.”

That’s not to say the wireless carriers are getting a bad deal. They’re happy to take the initial hit in exchange for a data plan that costs subscribers an extra $30 or so a month on their bill. And smartphone users tend to stick with their networks longer than low-end phone users, according to Soumen Ganguly, principal at Altman Vilandrie & Co. That makes them dream customers: They pay more and churn less.

The $199 price point has another perk for carriers. We’re in the midst of a smartphone innovation boom, with companies pumping out new top-of-the-line phones every few months with better screens, memory and features. When those new phones are offered at the same price point older models once were, they seem like a steal in comparison. That draws new customers into the market — and inspires those with aging phones to trade up and lock themselves into a fresh contract.

“There will always be a next big phone coming out in two months that will justify the $199 price,” Ganguly said. “Manufacturers are innovating faster than the willingness of carriers to compete on price.”

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This comes to you via WSJ:

Wall Street bonuses may come early this year.

With the specter of higher taxes looming in 2011 and banks still reeling from last year’s U.K. bonus tax, executives at some financial-services companies are considering whether to pay year-end bonuses, traditionally doled out starting in January, sooner.

Managing directors at Credit Suisse Group in London learned last Wednesday that they would receive a late-summer reward that will restore at least some of the money they sacrificed last year when the bank cut payouts in response to the one-time U.K. bonus tax.

The bank will pay a midyear bonus on Sept. 1 …

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There is nothing better than comedy, a well delivered comedy to drive a strong point across. It applies to one of my pet topics: Focus on the fraud perpetrated by the for-profit colleges in US. In last night’s episode of Colbert Report, Stephen reinforces my arguments against the outfits who soak students with excessive debt for worthless pieces of paper as ‘degree.’ Stephen makes a connection that I could not make earlier – a connection between Goldman Sachs and the for-profit education

If you are in the market for a degree from College Inc., this is a must watch video.

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What is a rubber-band economy? Imagine the rubber material to be hard cash (currency in circulation) – notes, coins etc outside the central banks and the vaults of depositary institutions.

Stretching it would mean that you have expanded credit. More stretch means more credit. More and more stretch – to the point that it breaks, that is the financial crisis in 2008!  A run on the banks is nothing but the rush to cash, like rubber-band retreating to its material state. Then they grabbed the broken ends quickly, tied them with a knot. Will it work?

This is a good analogy. If you care to know what is happening in the US economy in relatively simpler language – listen to this conversation between me and Sumanth.

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If you are into internet in any which way, you have a vested interest in the future shape of internet. In fact, the very fact that you are reading this article means that internet is in your life. Then, you cannot ignore the discussion and the policy on Net Neutrality.

What is this net neutrality? Well, leave it to our resident geek Bhanu Prakash. This 12 min conversation is well worth your time.

Broadcast date on TORi: Aug 20, 2010

Audio language: Telugu

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I don’t need to write much – just watch this ABC news undercover video and see confirmation of whatever I have been saying for a couple of years. These guys at Universities of Fraud are worse than vultures. Look at the bold-faced lies by the senior official at the university. [This comes to you via Huffington Post]

Following the recent revelation that for-profit college recruiters often use deceptive tactics when reaching out to potential students, ABC News decided to go undercover and see if that was still the case at the University of Phoenix.

Short answer: Yes.

A University of Phoenix recruiter guaranteed an undercover producer that, after completing a bachelor’s of science of education program at the school, he would be able to find a job as a teacher in New York or Texas. Additional research by ABC proved otherwise.

University of Phoenix President William Pepicello responded to the sting: “Can we do better? Absolutely.”

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Chickens are coming home to roost at for-profit schools whose shares are publicly traded.  For the last several weeks, the stocks have been week. Last week the stocks have take a turn for the worse. Today Strayer University was down as much as 15% . The impetus for this downfall is a report from the US Department of Education. (Via WSJ)

Earlier this summer, the department proposed a rule intended to measure how well for-profit schools train students for gainful employment in a recognized occupation. Late Friday, the department issued its calculations on loan- repayment rates for more than 8,000 schools in an attempt to preview the rule’s potential impact were it to be implemented. Schools could “pass” based on student loan repayment rates, or by maintaining a debt-to-income ratio below a certain percent.

The schools could face tough new regulations stripping them of access to federal funds if their students are found to have heavy debt burdens and if they don’t land jobs earning enough to handle the debt. The regulation sets a 45% repayment rate as the threshold to qualify for student aid. Some argue the department is punishing schools for having graduates enroll in loan-deferment programs that the government itself supports. [Full story]

From Strayer’s 8-k filing today:

>>> If we are found to be in noncompliance with any of these laws, regulations, standards or policies, we could lose our access to Title IV program funds, which would have a material adverse effect on our business. In the 2009 fall term, approximately 72% of our students participated in one or more Title IV programs. Findings of noncompliance also could result in our being required to pay monetary damages, or being subjected to fines, penalties, injunctions, restrictions on our access to Title IV program funds or other censure that could have a material adverse effect on our business.<<<

It is about time! The sooner this sham exposed, the better.

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Hoenig, who’s dissented from all five Federal Open Market Committee decisions this year to keep the rate at which banks lend to each other for overnight funds between 0 and 0.25 percent, said the economy is in a “modest recovery, with mixed results” and intimated that policy makers shouldn’t be beholden to “volatile monthly data” nor should “market participants…direct policy.”

“Of course the market wants zero rates to continue indefinitely,” Hoenig said in prepared remarks during a speech in Lincoln, Neb. “They are earning a guaranteed return on free money from the Fed by lending it back to the government through securities purchases.”

Meanwhile, the Fed’s zero interest-rate policy “is as likely to be a negative as a positive in that it brings its own unintended consequences and uncertainty.” Getting rid of Wall Street’s guaranteed source of profit — borrowing from the central bank and investing that in Treasuries — “tells the market that it must again accept risks and lend if it wishes to earn a return,” Hoenig said.

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This week’s bone-rattlers may be making you wonder” and says: “way too many people are way too complacent this summer. Here are 10 reasons to watch out.” And without further ado…

1. The market is already expensive. Stocks are about 20 times cyclically-adjusted earnings, according to data compiled by Yale University economics professor Robert Shiller. That’s well above average, which, historically, has been about 16. This ratio has been a powerful predictor of long-term returns. Valuation is by far the most important issue for investors. If you’re getting paid well to take risks, they may make sense. But what if you’re not?
2. The Fed is getting nervous. This week it warned that the economy had weakened, and it unveiled its latest weapon in the war against deflation: using the proceeds from the sale of mortgages to buy Treasury bonds. That should drive down long-term interest rates. Great news for mortgage borrowers. But hardly something one wants to hear when the Dow Jones Industrial Average is already north of 10000.
3. Too many people are too bullish. Active money managers are expecting the market to go higher, according to the latest survey by the National Association of Active Investment Managers. So are financial advisers, reports the weekly survey by Investors Intelligence. And that’s reason to be cautious. The time to buy is when everyone else is gloomy. The reverse may also be true.
4. Deflation is already here. Consumer prices have fallen for three months in a row. And, most ominously, it’s affecting wages too. The Bureau of Labor Statistics reports that, last quarter, workers earned 0.7% less in real terms per hour than they did a year ago. No wonder the Fed is worried. In deflation, wages, company revenues, and the value of your home and your investments may shrink in dollar terms. But your debts stay the same size. That makes deflation a vicious trap, especially if people owe way too much money.
5. People still owe way too much money. Households, corporations, states, local governments and, of course, Uncle Sam. It’s the debt, stupid. According to the Federal Reserve, total U.S. debt—even excluding the financial sector—is basically twice what it was 10 years ago: $35 trillion compared to $18 trillion. Households have barely made a dent in their debt burden; it’s fallen a mere 3% from last year’s all-time peak, leaving it twice the level of a decade ago.
6. The jobs picture is much worse than they’re telling you. Forget the “official” unemployment rate of 9.5%. Alternative measures? Try this: Just 61% of the adult population, age 20 or over, has any kind of job right now. That’s the lowest since the early 1980s—when many women stayed at home through choice, driving the numbers down. Among men today, it’s 66.9%. Back in the ’50s, incidentally, that figure was around 85%, though allowances should be made for the higher number of elderly people alive today. And many of those still working right now can only find part-time work, so just 59% of men age 20 or over currently have a full-time job. This is bullish? (Today’s bonus question: If a laid-off contractor with two kids, a mortgage and a car loan is working three night shifts a week at his local gas station, how many iPads can he buy for Christmas?)
7. Housing remains a disaster. Foreclosures rose again last month. Banks took over another 93,000 homes in July, says foreclosure specialist RealtyTrac. That’s a rise of 9% from June and just shy of May’s record. We’re heading for 1 million foreclosures this year, RealtyTrac says. And naturally the ripple effects hurt all those homeowners not in foreclosure, by driving down prices. See deflation (No. 4) above.
8. Labor Day is approaching. Ouch. It always seems to be in September-October when the wheels come off Wall Street. Think 2008. Think 1987. Think 1929. Statistically, there actually is a “September effect.” The market, on average, has done worse in that month than any other. No one really knows why. Some have even blamed the psychological effect of shortening days. But it becomes self-reinforcing: People fear it, so they sell.
9. We’re looking at gridlock in Washington. Election season has already begun. And the Democrats are expected to lose seats in both houses in November. (Betting at InTrade, a bookmaker in Dublin, Ireland, gives the GOP a 62% chance of taking control of the House.) As our political dialogue seems to have collapsed beyond all possible hope of repair, let’s not hope for any “bipartisan” agreements on anything of substance. Do you think this is a good thing? As Davis Rosenberg at investment firm Gluskin Sheff pointed out this week, gridlock is only a good thing for investors “when nothing needs fixing.” Today, he notes, we need strong leadership. Not gonna happen.
10. All sorts of other indicators are flashing amber. The Institute for Supply Management’s manufacturing index, while still positive, weakened again in July. So did ISM’s new-orders indicator. The trade deficit has widened, and second-quarter GDP growth was much lower than first thought. ECRI’s Weekly Leading Index has been flashing warning lights for weeks. Europe’s industrial production in June turned out considerably worse than expected. Even China’s steamroller economy is slowing down. Tech bellwether Cisco Systems has signaled caution ahead. Individually, each of these might mean little. Collectively, they make me wonder. In this environment, I might be happy to buy shares if they were cheap. But not so much if they’re expensive. See No. 1 above.

Also, watch the following interview with a well respected market strategist, Rosenberg.

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Long before Before Jim Cramer became a TV icon, he used to participate on Silicon Investor bulletin board. Circa 1998-2000 I had a few nasty exchanges with him. I once told him (paraphrasing), “Jim, when history is written about the Go-Go 90s,  you will go down in the books a icon of the cheer leading culture that led millions of investors to losing their life savings. And, you can quote me on that.”

He shot back at me and said, “What’s the matter Mohan? If you feel so down, go kick your dog or something.” That was the last exchange I had with him. He later became an even more hyper nut and caused a lot of damage to a lot of portfolios. Off late, this bozo lost almost all the credibility – especially after Jon Stewart obliterated Jim’s hyperbole on the Daily Show in March of 2009. But for the couple of newbies out there, my warning is: caveat emptor.

Yesterday Jim said, “The Fed said good things. Buy.” If that wasn’t your sell signal, what is? The market is down 262 points – how do you feel, now, punk?

Listen to the disclaimer at the end of the video! UFB. Why CNBC is even keep putting this nutcase on air?

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With current financial turmoil entering its fourth year, it is time to reflect on things that got us here. Today Ben’s bandits at the Fed announced that they will buy US debt (“in small quantities”, yeah – right!) to stimulate the weakening economy. Call this quantitative easing 2 or plain old printing, it only means one thing if you are a saver and/or retiree who did not want to be a part of this ‘spend-it-today-and-mortgage-your-tomorrow’ economy: you are an idiot. In other words, the Federal Reserve Board has once again told the savers: screw you!

What Greenspan’s reign of free money meant to this economy is that for every economic malaise, the solution is lower interest rates. This Ayn Rand’s disciple who believed in unfettered free markets as an economic utopia has himself meddled with financial markets. He has ignored, or even encouraged fraud in the form of bailouts.

Lest we forget that Greenspan was appointed by none other than the Conservative God, President Reagan. Reagan felt that Volker’s tight money policies and his tendency to regulate fraud would hamper economic growth. In Greenspan, Reagan saw a ‘free market’ champion. These are the foundations of an unprecedented cycles of boom-and-bust for over 25 years. Every boom in this period was a bit bigger than the previous one and every bust is much more painful than the previous bust.

One of the most despicable outcomes of Reaganomics is the obliteration of the so called middle class in this country. Stephen Colbert has a perfect illustration of  Regan’s trickle down economics, which the right in this country came to take for Gospel Truth.

The assault on investor trust started with the bailout of S&L by Bush Sr., which is then followed on a larger scale by Clinton-Rubin’s bailout of Mexico in 1994. That followed even bigger bailout of LTCM in 1998. Despite these huge warning shots, Summers and Senator Grahm championed the dismantling of Glass-Steagall act in 1999. That opened the gates for Foxes to guard the hen houses. That is, since 1999 Wall Street got even more creative in fleecing the main street and we all know what happened when they ran out of suckers.

I have been investing in this country for nearly 20 years. In the last 18 months, I have nearly cut-down my participation in the market to near zero. I have never been so skeptical about the financial markets, the Wall Street interests, the Feds, and the US Treasury than I am now. This whole game is a giant fraud. I have a feeling that I am not alone with this mistrust in the system. Zero Hedge weighs in (Main Street’s Boycott Of Capital Markets Succeeding):

For the longest time it was consensus thought that only Wall Street could f**k Main Street. The ride is now turning. After what the FT reports was a 16% decline in fixed income, currencies and commodities trading revenues for Q2, coupled with advisory revenues down 17%, the bank is now “planning to cut up to several hundred employees following a sharp fall in market activity in the second quarter. Sources close to the bank say that the job losses, which could be announced as early as Wednesday, will be spread across BarCap’s sales and trading staff as well as its back office support functions.” Too bad the SEC has not, and will not realize that its only function is to restore the faith of the retail investors in the credibility of the capital markets. Yes, the same retail investor who both on margin and in total has always been the primary driver of stocks. Alas that has not happened and tens of thousands of Wall Streets will soon feel the wrath of Main Street as the boycott of stocks by the broader population comes to fruition, allowing the former “strategists” to experience just how real the difference between the U-3 and U-6 rate is first hand.

I don’t wish anybody ill. But, when the best and brightest minds gravitate to making fast buck with computer trading and exotic derivatives which add absolutely no value to the economy or to the society, it is time to shake the imbalances to the core. It is time to say good bye to an economy where paper products are created and sold ad-infinitum and return to an economy where useful goods are made and sold.

I will feel safe to return to the market when I see tens of thousands more layoffs are announced at Wall Street firms.

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He echoes my sentiment, “European Stress Test is a total waste.” Zero Hedge has a better take on his latest appearance on CNBS Europe :

A “cheeky” Jim Rogers appeared earlier on CNBC Europe (which incidentally is orders of magnitude better than its US equivalent), and confirmed the depths to which the once relevant and informative TV station has now fallen. In a discussion over the European Stress BS, the topic turned to the role of PR agencies when it comes to shaping popular perceptions, at which point this slipped: “The whole purpose of PR is to make stocks go higher. That’s what CNBC and many many PR agencies are all about. Yes, they make things look better for a while. Are they really better? No.” Propaganda, in other words. And in the corporatist circle jerk world, advertisers still flock to it, even as the broader public reaches levels of skepticism never before seen courtesy precisely of such blatantly fraudulent media contraptions, and vacates the GE soon to be spin off in unprecedented quantities. The American public may be lazy, but it sure is getting more intelligent, and wiser to the tricks of the media propaganda trade.

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Via AP News:

WASHINGTON (AP) — Goldman Sachs & Co. has agreed to pay $550 million to settle civil fraud charges that the Wall Street giant misled buyers of mortgage-related investments.

The settlement was announced by the Securities and Exchange Commission on Thursday, hours after Congress gave final approval to the stiffest restrictions on banks and Wall Street since the Great Depression.

The deal calls for Goldman to pay the SEC fines of $300 million. The rest of the money will go to compensate those who lost money on their investments.

The penalty was the largest against a financial company in SEC history. The settlement amounts to less than 5 percent of Goldman’s 2009 net income of $12.2 billion after payment of dividends to preferred shareholders — or a little more than two weeks of net income.

Word that Goldman had settled began leaking about a half hour before the market closed on Thursday and appeared to please investors. Goldman had been trading at about $140 a share. The stock rose to close at $145.22, up $6.16, and shot up to $153.60 in after-hours trading.

The stock rose over 6 bucks in the last few mins of regular trading and another 6 bucks after the close based on “rumors”. One would think that it is illegal. To those who would cry foul about this leak I say, “Welcome to America wher the bigger the fraus, the better protected you are.”

This settlement is a disgrace to SEC, more specifically to the Democrats, who essentially got sold out. Zero Hedge opines:

This is all that Goldman consents was done wrong, without admitting or denying guilt:

Goldman acknowledges that the marketing materials for the ABACUS 2007-ACI transaction contained incomplete information. In particular, it was a mistake for the Goldman marketing materials to state that the reference portfolio was “selected by” ACA Management LLC without disclosing the role of Paulson & Co. Inc. in the portfolio selection process and that Paulson’s economic interests were adverse to CDO investors. Goldman regrets that the marketing materials did not contain that disclosure.

We, in turn, regret that America no longer has a fair and just legal system

There is still some vague hope that a Judge Rakoff wannabe will block this travesty of justice but we are not holding our breath. And sorry Fab Fab, you are still going to be the sacrificial lamb (for now).

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