New $5 USD Bill released today

To stifle counterfeiters who would bleach $5s and make them into $100s, the Federal Mint today released its new grey/purple "honest Abe" fiver.

Since M2 (the # of $ in circulation and in all checking and savings accounts) has effectively tripled in the past 20 years, it is nice to know that when these dollars are pulled out in the form of M1 (the # of $ in physical paper money form) that they will look nice and have the latest security features.

Fed cuts rates by 0.5%

Executing the first ever cut by the Bernanke led Fed, the Fed Funds Rate is now down to 4.75% from 5.25%. Conforming 30 year fixed rates almost immediately dropped 1/4 point to 6.0%. The US continues to ease market fear with cheap, diluted dollars. Stocks cheered, many up 3-5%, but will the euphoria continue to push the S&P500 and other indexes to new all-time highs?

Apple moving into video rentals?

Rumor has it that a meddling user stumbled across some interesting help pages in the iTunes support site. They found links for "wrong video rental received" and other things that implied that Apple (AAPL) may be planning to enter the video rental market. Similar to book retailers, which got gutted by online vendors such as Amazon (AMZN), video rentals which used to be delivered by throngs of mom-and-pop corner shops that are now being threatened by a few online giants:

• NetFlix (NFLX) - The inventor of the concept of mail-in DVD rentals now has everyone after them. Their only hope to achieve dominance is to build their national brand-name outside of their comfort zones (local city market such as the Bay Area) and add subscribers.
• Blockbuster (BBI) - Trying to leverage their bricks-and-mortar strength to add value to and steal away the NetFlix business model.
  

The Wandering Economist

This is an interesting audio Podcast on economics. Be sure to listen to the ones on inflation and ending the gold standard (Bretton Woods Agreement).

Apple offers more for less

Apple (AAPL) continues on its path of being a consumer super-product assembly line. Today it announces several new iPods including one with WiFi capability, and slashes the price on its sizzling iPhone device by $200. These moves should drive its volumes up and improve its market share in the smart phone market. The stock has been volatile in between $120 and $145 over the past few weeks, with investors buying aggressively on weakness despite an over 50% YTD gain thus far. There are many reasons for Apple to remain strong within the technology segment. Besides now being perhaps the largest % component of the Nasdaq 100 Index (QQQQ), it has a small and growing ~4.5% share of the OS and PC market, and a relatively low market cap compared to MSFT and INTC.

Liquidity Scare

This sub-prime lender crisis is well underway. Countrywide (CFC) is undergoing serious issues and may go bankrupt. Capital One closed a large lending arm (Greenpoint). Many financial companies have tanked drastically. There are reasons to believe that things aren't as bad as the markets are making them out to be however. If the wider impact of these sub-prime issues turn out to be overblown, some potential companies to look into are:

• Thornburg Mortgage, Inc. (TMA) - Lender to wealthy, high quality Jumbo clients. Highly leveraged, but their loans are unlikely to default.
• Deerfield Capital Corp. (DFR)
• RAIT Financial Trust (RAS)
• Crystal River Capital, Inc. (CRZ)

All of these issues have high dividend rates, low P/E, and are valued well below their book value currently. Each hit a massive low in mid August -- down over 50% from June. If fears subside, some nice speculative gains may be possible.

A note on sub-prime: when mortgage rates (10-year bond + ~1.75%) hit a historic low in 2003, many borrowers over-leveraged themselves with very cheap 5-year ARMs or interest only loans. The low 2002 rates are beginning to expire, and while some borrowers were already paying 50-75% of income for their housing, they now cannot sustain the increased cost of their ARMs going to a variable rate. As these 5-year ARMs move from fixed to a variable rate tied to the Fed Funds Rate or LIBOR, which has risen by 2-3%, borrows are faced with paying hundreds of dollars a month more for their mortgage. With housing prices softening, more borrowers in such situations are going into foreclosure. This phenomenon is likely to continue into 2008 as the 2003 ARMs expire. Also, with the dollar weakening and inflation growing, there will be pressure for rates to go up over time. However it turns, this should be an interesting trend to follow.