The Daily Reckoning January 23rd


Tech Companies Showcase Innovations at CES

January is a busy time for technology and biotechnology companies. During the early weeks of the year, tech companies show off their latest innovations at the Consumer Electronics Show in Las Vegas. Biotech companies, on the other hand, engage investors at what is likely the year’s largest biotech investor event — the JP Morgan Healthcare Conference. I’m reviewing those presentations in the hunt for the next great biotechnology investment.

At CES, Corning (NASDAQ:GLW) showed off the newest iteration of Gorilla Glass. As you may know, Gorilla Glass has become a top choice as a cover for portable consumer electronics such as tablets and smartphones due to its toughness and damage resistance. Over a billion devices have been sold using Gorilla Glass, including top sellers such as Apple’s iPhone and Samsung’s Galaxy line of smartphones.


The latest version, Gorilla Glass 3, is a revamped product. Of an entirely different composition, it is tougher and more damage resistant than previous versions. According to James R. Steiner, senior VP and general manager of the company’s Specialty Materials division:

With Gorilla Glass 3, our scientists went to the atomic structure of the glass to fundamentally improve the way the glass responds to an impact or scratch. This solution significantly improves durability, while maintaining the thinness needed for touch-enabled consumer devices.

Corning has also introduced a new line of fiber-optic USB cable. Harnessing the power of glass, it replaces the copper wiring used in standard USB cables and boosts performance while being thinner and lighter at the same time.

Nvidia (NASDAQ:NVDA), on the other hand, revealed the next version of its popular Tegra line of mobile processors. Called Tegra 4, it is based on ARM Holdings’ (NASDAQ:ARMH) latest mobile processor architecture, A15. According to Nvidia, Tegra 4 consumes 45% less power than Tegra 3 and, with four A15 processor cores, delivers over 250% better performance for Web browsing and apps. It also contains 72 discrete graphics-processing cores, giving it 600% better graphics performance than its predecessor. Nvidia claims it now has the most powerful mobile processor on the planet.

Tegra 4 also boosts memory bandwidth using a dual channel interface. This corrects what was the weakest aspect of the older design. Most importantly, Tegra can now be bundled with a 4G modem chipset thanks to its 2011 acquisition of communications chipmaker Icera. This will help Nvidia compete with offerings from other mobile chipmakers such as Qualcomm, which have long included this important functionality.

Tegra 4 is just the most prominent of many new products using ARM’s designs. The company’s offerings are expanding into smart TVs, server processors and networking devices. ARM’s product road map includes processors designed to compete squarely against Intel in server designs. Furthermore, as more objects become smart and connected, demand will grow for ARM’s efficient processing technology in ways that will far outstrip what we’ve seen in the smartphone and tablet markets.

Nvidia also unveiled Project Shield, which represents its first foray into mobile gaming devices. Using the Android operating system and Tegra 4, the device can play gaming apps available on Google’s app market. However, unlike tablets or smartphones, it has buttons and joysticks, which improve game play. It can also stream PC-based games over a wireless network from a gamer’s computer using Nvidia’s graphics-processing technology and output video to an HDTV.

Speaking of television, Samsung showed off the world’s first curved OLED TV. A curved screen allows for more viewing angles than a flat one, and the image appears the same. We’ll have to wait and see if commercially viable TVs emerge from the project, but curved OLED TV technology is a foretaste of the flexible OLED smartphones Samsung is working on.

LG also showcased its own new high-definition OLED TVs. It will be offering the first commercially available televisions using OLED technology this year and is expected to be followed by Samsung.

Both companies are using technology licensed from Universal Display Corp. (NASDAQ:PANL), as well as the company’s OLED materials. The new HDTVs will be expensive, but that is no different than what happened when older display technologies, such as plasma and LCD, first became available.

2013 will see a continued ramping of OLED product availability as manufacturing scales up, and OLED has already debuted in smartphones such as Samsung’s Galaxy as well as others. Beyond displays, Universal’s technology will begin to penetrate the lighting market, where it will provide highly efficient lighting applications in totally new architectural forms.

In energy-efficient lighting, NXP Semiconductors demonstrated a solution that allows LED lamps to closely mimic traditional light bulbs. Consumers appreciate the warm, cozy light incandescent lamps provide when dimmed — something LED lighting hasn’t been able to match. NXP’s lighting solution combines white and amber LEDs to add warmer, more pleasing colors. It also includes smart technology that adjusts lighting quality to achieve the desired color temperature when dimmed. It also measures the temperature of the semiconductor-based lighting elements automatically for reliable control.

Ad lucrum per scientia (toward wealth through science),


Ray Blanco
for The Daily Reckoning

Tech Companies Showcase Innovations at CES appeared in the Daily Reckoning. Subscribe to The Daily Reckoning by visiting signup for an Agora Financial newsletter.

Marginal Steps Toward a Better Life

I’m at dinner and the hostess serves me pie for dessert. I gobble it up. Then the hostess says, “Would you like another piece?”

I politely decline.

In her head, she is thinking “he hates my pie,” but this is totally wrong. I love her pie, especially the first piece. But the second piece has slipped from A to B in my preference ranking, and “no pie” has moved from B to A. Im are not making a judgment on the whole stock of goods, I’m choosing based on my perceived value of the incremental unit. This is a gigantic difference.

“So you don’t like my pie enough to have a second piece?”

“No, I absolutely adore your pie. When I had the first piece, it was the most important thing in the world, and I went wild for it. But when you offered the second piece, I evaluated it as an independent unit of pie. I still love it so much! But eating it is B — not A — on my internal preference ranking. If the option to decline the pie were not present, I would eat it and be overjoyed. It just so happens that what economists call the marginal utility of the second piece is lower than the first, too low to be a point of action for my choosing person.”


“I see. You hate my pie!”

What’s going on here? The hostess doesn’t understand this idea of marginal utility as I do.

Having been steeped in this topic now for the better part of a week — all in anticipation of the release of Philip Wicksteed’s Common Sense of Political Economy — I can see why two generations of economists, from the 1870s-1910s, were in a total meltdown frenzy over the concept of marginal utility. This is an idea that can save the world.

I have a theory that if you understand it, you will be more civil. More friendly. More subtle and understanding. You will understand yourself and those around you better. It underscores the sheer complexity of human decision-making and shows why governments are utterly incapable of wise management of the world.

The discovery of marginal utility was to this generation as significant as the discovery of flight, electricity, and the theory of evolution. It was a paradigm shift, an insight that changed everything.

Until that time, economists puzzled about the value of stuff in terms of its total value to society. Water is pretty darn valuable. We have to have it to stay alive. Everyone wants it. Why, then, is it so cheap to buy, even as fripperies like lace and diamonds are so expensive? Does this mean that something is wrong with the world that needs fixing?

No, the prices are determined by the marginal choice given an accessible stock of resources. That may sound like a simple point, but it has profound implications.

What these economists discovered was that value is determined not by the total stock of a good or its perceived value to the whole of society. Value is determined by the incrementally consumed unit, one choice at a time. We rank our preferences from A to infinity, but at any one time, we can only choose one. We go for A, but if that is not possible, we shift B to A, and if that is not possible, we shift C to A. At any one time, we are only choosing one thing. We choose on the margin.

The ultimate book on marginal utility theory comes out this Friday in the Laissez Faire Club. It’s the book that has absolutely possessed me this week, which is why I can’t stop talking about it. It is Philip Wicksteed’s Common Sense of Political Economy. Club members get it for free.

Here is another example of marginal utility in action.

The girl says to the guy, “It’s not you; it’s me.” The guy thinks, I’ve heard that before; she doesn’t like me. But it turns out the girl is right. She does like him. She truly does. But the romance takes time and energy, and she would rather spend her time posting on Pinterest. Pinterest is A on her personal preference ranking. B is the guy. The guy doesn’t make the cut.


Or maybe not. Maybe A is Pinterest but B is getting school work done. C is practicing piano. D is watching The Wire. E is making biscuits. F is Snapchatting goofy images to her friends. Finally we get to G, which is “date this guy.” She really does like him, and if A-F were not options, she would be all about dating him. But A-F are possible realities. Jumping in the preference ranking from A immediately to G would be an error that would diminish her total happiness from what it otherwise might be.

You see how marginal utility clarifies human decision-making? It means that we don’t think and act in black-and-white terms. It is not love or hate, embrace or reject, go for it or spit it out. We make decisions on the margin within the context of a wonderfully complex and infinite array of choices that are ultimately hidden from the view of others.

It is this hidden aspect that feeds the paranoia that leads people not to think about marginal utility.

Another example.

A friend invites you to his wedding. You say that you would love to go, but you have a work meeting you must attend that very day. You really want to go, but you can only do one thing at a time, and protecting your career at this point seems gigantically important.

Your friend understands. For now. But then the wedding comes, and you are not there. The picture album comes out, and you are nowhere to be seen. The memories are beautiful and exciting, yet you are not part of them. Over time, your friend begins to think: Hey, I thought he was a friend, but he ditched my wedding with some lame excuse. He must not be the friend I thought he was. I hate him.

This happens all the time. It happens because people do not think about marginal utility. It is not constantly in our minds. That’s hardly a surprise, because it took humanity 500,000 years to discover it. In scientific terms, it is a fairly recent discovery. It will probably take another few hundred years before the concept is emblazoned on our hearts. Meanwhile, those who get it are better at navigating life.

We begin to understand that just because our friend doesn’t go the movie with us doesn’t mean he doesn’t want to go to the movies. He really does want to go. The problem is that the desire to go to the movie ranks slightly below the top item on the list, and we can only choose one item at a time.

The commercial implications are gigantic.

Let’s say you open up a donut shop. You sit there day after day trying to sell them. Over the course of a month, not one donut has sold. You conclude that people don’t want your donuts — a conclusion that at first seems entirely reasonable.

But actually, it is wrong. There is a whole community out there, thousands of people, who have preference rankings in their heads. If you had access to them, you would see thousands of people walking around with the idea of donuts, donuts, DONUTS, swirling around in their heads. They live and breathe DONUTS. It’s the first thing they think about in the morning and the last thing they think about at night.

So what’s the problem? Why aren’t they buying your donuts? The problem is that each one of them has one other thing that they are thinking about more. They want to get to work on time. They worry they are getting fat. They want to save money. They are interested in playing on their smartphones and drive right by your place. Whatever it is, it is preventing them from actually acting on their donut obsession.

What is your job as a donut entrepreneur? You have to figure out a way to crawl into their heads and replace whatever their choice A is with what might be their B choice. You have to switch the top two preferences. If the donut preference is G, you have to do better than bump it up to the B slot. There is only one slot in which donuts win: A. That’s when the bell rings. So you struggle and struggle to push and push that lower preference to the higher preference.

How do you do this? You can lower your price, increase your quality, offer different flavors, or whatever, but none of this actually accomplishes the task. Why? Because no one knows you are doing this! What you have to do is get into their heads. You have to market. You have to sell. You have to advertise. You have to create buzz through social media. Whatever you do, the goal is clear: Get donuts to the A slot.

That means you have to ramp it up. Maybe a bit of a nudge is all that is necessary for some people. But some people are not enough, and you don’t know that for sure anyway. You have to really win this one. So you ramp it up. If you are iPhone, you promise that everyone can be a movie producer. If you are Southwest Airlines, you promise vacation bliss. If you are Nike, you promise a new way of living. And so on.

Is this manipulative? Not in any way. What you are doing is trying to persuade people who WANT donuts anyway to actually take the step to spend money and make them part of their lives. You are helping people realize and act on their real desires, leading them to make an exchange to toward mutual betterment. You win. They win. Everyone wins.

Back to the example of the girl who says, “It’s not you; it’s me.” What should the guy do? He should realize that he might only be one tiny preference ranking below number one. He should accept that this could be temporary. He should immediately get to work thinking about how to ascend the ranking from B to A. To be on the safe side, he should be particularly amazing just in case he has to move from G to A.

In order to understand this process, you need to understand marginal utility. This is the concept that makes sense of how the world works. This is the notion that sheds light on the whole mystery of human decision-making. This is the idea that unlocks the mysteries of human interaction.

Small and great evils in the world have come from absolutism, the belief that there is only one way forward, and that if that way is not what you choose, that makes you the evil enemy. Governments think this way. They don’t think on the margin. A world of billions of people acting and thinking based on marginal utility is too complicated a notion for them. So they decide to just ignore it all and divide the world between us and them.

On the other hand, if you think in terms of marginal utility, you realize that the whole world is built in tiny steps as an extension of a complex decision-making process that is ultimately subjective, and that bringing people together can never come through force, but only through small acts of persuasion, one person at a time. Through the lens of marginal utility, we see the beautiful orderliness of anarchy.

Jeffrey Tucker

Original article posted on Laissez-Faire Today 

Marginal Steps Toward a Better Life appeared in the Daily Reckoning. Subscribe to The Daily Reckoning by visiting signup for an Agora Financial newsletter.

Praying for a Pullback

If you’re an investor, you should pray for a pullback.

Nothing earth-shattering, of course. Just a nice, orderly few days with stocks in the red.

What you need is a buying opportunity. More to the point, you’re looking to pick up some shares without feeling like you’re a dog chasing your neighbor’s Mustang down the street.

Don’t fret — the market understands. Stocks won’t move straight up forever. In fact, they’re showing early signs that a minor top is on the way in short order.

It’s all about bullish momentum…

Peak Bulls vs. Peak Momentum


This is a look at the S&P 500 Bullish Percent Index. The big middle section of this chart shows the percentage of stocks in the S&P that are currently displaying a longer-term technical buy signal. After retreating in October and November, the index is now showing that nearly 80% of its components are flashing buy signals.

But the real story lies in the top momentum gauge. Each time the index has heated up to extreme levels since the 2011 bottom, it has provided a nifty little short-term sell warning (red arrows). You can see the corresponding minor tops on the S&P on the bottom chart. We’re seeing these extreme levels again right now. Therefore, a momentum drop below 70 will be your first clue that this move will stall out — at least, temporarily.

The drop will be your chance to look for buying opportunities. But planning is required. Decide what names you like and have them ready. That way, when the time comes, you can quickly capitalize on the price action.

Greg Guenthner
for The Daily Reckoning

Praying for a Pullback appeared in the Daily Reckoning. Subscribe to The Daily Reckoning by visiting signup for an Agora Financial newsletter.

How To Profit From The Emerging Energy World

Despite what your mom said, you don’t matter that much.

In fact, with each passing day, you, me and the rest of the developed-world-dwellers are losing our clout. Today I’ll prove it to you with a few newfound energy statistics – plus, we’ll discuss what you can do about it.

As I type, the developing world is gobbling up market share for the world’s resources – oil, natural gas, coal, you name it. It’s the same story, really, but it’s coming true in front of our eyes.

To put it bluntly, the developing world is growing while we’re standing still — there’s more mouths to feed in developing countries, their population is growing, their income is growing and their demand for energy per capita is on the rise.

For your investment’s sake, you better get used to this changing of the guard…

Here are a handful of the latest facts, released last week in BP’s Energy Outlook 2030:

  • By 2030 world population is projected to reach 8.3 billion, which means an additional 1.3 billion people will need energy; and world income in 2030 is expected to be roughly double the 2011 level in real terms.
  • [Emerging market] energy consumption in 2030 is 61% above the 2011 level, accounting for 65% of world consumption.
  • Almost all (93%) of the energy consumption growth is in [emerging] countries.
  • Oil demand in China grows by 7 Mb/d to 17 Mb/d in 2030, surpassing the US in 2029 (US demand falls by 2 Mb/d to 16.5 Mb/d over the outlook period). Other [emerging] Asia also shows strong growth of 6 Mb/d (of which almost two-thirds are in India).
  • China is on pace to match Europe as the world’s leading energy importer by 2030, and will replace the US as the world’s largest oil importing nation by 2017.
  • However, the growth in Chinese energy imports will be taking place in a context of robust economic growth. Adjusting the volume of energy imports for expected economic growth will leave China relatively less dependent (per unit of GDP) than EU on imported energy.

(Emphasis added)

Getting back to my initial comments above, we’re less important. A great way to look at this visually is through energy demand projections. You, me and the rest of the developed world are represented as the blue lines below…

As you can see, the emerging/developing world (non-OECD, red) is launching a full-blown bid for the world’s energy. They have more people, more growth and now, more money!

China, for example, has money. It’s not some crazy new-fangled currency either – although that may be in the works. Instead, it’s good old fashioned U.S. dollars. Here’s a reminder of how it works…

The Chinese, for decades, have exported goods to the U.S. and, in turn, collected U.S. dollars. On a large scale, a lot of those dollars are then lent back to the U.S. in the form of treasury notes. These notes come in all forms (short-term debt, long-term debt), but all pay interest. So through this cycle, over time, the Chinese have amassed a large amount of U.S. cash.

In the meantime the Chinese have been growing their population and their economy at a rapid clip. And according to the BP data above, their energy consumption is set to skyrocket.

Add it all up, and just like the old-timer at the poker table, the U.S. is soon to be outmatched (and outbid) by China and other young-gun markets.

The recent run-up in oil prices is a good example of this. At home, the economic outlook is still rather bleak. Normally at a time like this the price of oil would be headed lower. But take a look at the ticker and you’ll see that oil prices are rallying higher. $96 at last check!

Doesn’t seem normal, does it?

That’s because there are new players at the table. Elbowing past the Europeans, these fresh faces saddled up right next to us. They’re calling our bluffs, bidding up prices and, worst of all, getting the drink lady’s attention first.

The drink lady, oil-rich nations in this case, doesn’t have any affinity to one player or another. As long as you have cash, she’ll take your order. The more cash, the better the service and the more she wants your business.

The Chinese have the cash and so do other emerging market contenders. The heydays are coming to an end for America’s world demand dominance. By 2030 this will be an elementary, well-known fact. Today, though, we’re still watching the opening credits.

Many talking heads think the price of oil will fall if Europe and the U.S. can’t spur growth. But, I urge you not to accept that tainted line of thinking. Growth is poised to come from outside of the Western world. The BP data is a testament to this thesis.

No, this isn’t the curtain call for the U.S. by any means, but there is a new cast entering the stage. Important for us, we’ve got to keep a close eye on this emerging trend.

The biggest short-term loser I see in this mix is Europe. If BP’s latest report is any indication, the Eurozone is in for an uphill battle – they have no energy supply, their economy is faltering and their currency is faltering.

So in a simple, transitive way, what Europe loses the emerging world will gain.

The world is going to be a different place in 2030. Keep your eyes open and stay tuned.

Keep your boots muddy,

Matt Insley

Original article posted on Daily Resource Hunter 

How To Profit From The Emerging Energy World appeared in the Daily Reckoning. Subscribe to The Daily Reckoning by visiting signup for an Agora Financial newsletter.


avatarThe Daily Reckoning - The Daily Reckoning posted Wednesday, January 23rd, 2013.

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