Just as he’s preparing to leave the scene, and just as a worldwide whirlwind is striking, Fed Chairman Alan Greenspan is falling deep asleep, abdicating his role as an inflation fighter.
He has repeatedly failed to announce rate hikes of more than a meager quarter point at a time, despite mounting pressure to do so, and yesterday he did the same.
He has failed to catch up with inflation, allowing U.S. interest rates to languish below the government’s already-understated price barometers.
And he has turned a blind eye to the unambiguous inflation warning signals coming straight from the marketplace itself …
Inflation Warning #1. Bond prices sliding; yields rising! Every attempt to rally the bond market in recent months has failed. Each time, investors have used the rallies to sell their bonds, driving prices lower and yields higher.
Reason: Bond investors are among the first to suffer the consequences of inflation … and they have therefore been the first to head for the hills when they see the Fed failing to do its job.
That’s the situation we’re in right now. And that’s why the price of 30-year Treasury bonds has plunged 8 points since June, driving its yield to 4.74%.
Inflation Warning #2. Gold market going berserk! Fed Chairman Greenspan used to be an avid gold watcher. Whenever gold surged, he grew more concerned about what it was signaling for the future of inflation.
So when the yellow metal started exploding in value recently, you’d think Mr. Greenspan would stand up and pay attention. Strangely, he’s doing nothing of the kind.
Result: International investors are going to continue rushing into gold. To protect themselves from inflation, they figure they have no choice.
Sure enough, after the Fed announcement yesterday gold investors registered one more vote of no confidence in the Fed, driving bullion another dollar higher.
Inflation Warning #3. U.S. dollar starting to get hammered again! Until just a few days ago, the dollar was holding up pretty well. But now, it’s starting to get hammered.
Just in the past two days, the dollar has fallen sharply against the euro, the Swiss franc, the Japanese yen, the Australian dollar and even against the Brazilian real.
This is the world’s response to Alan Greenspan’s Fed: “Get with it or we’re getting out!”
This decline in the dollar also adds weight to everything we’ve been telling you recently about seriously considering foreign investments.
Tony told you about the appeal of Japanese companies on Friday. I told you about the opportunities in Brazil yesterday. And today, Tony’s back with an update on Japan …
Blu-Ray Technology
to Sweep the World
by Tony Sagami
No, I’m not talking about a ray gun like the one Flash Gordon carried on his belt. And it’s also not a secret weapon invented by Darth Vader.
Rather, it is a new DVD technology that I expect you’re going to hear a lot about in the very near future. I’ll show you why in just a moment. But first let me take you back several decades to where it all began.
When: 1946
Where: Tokyo
Shortly after the end of World War II, two ambitious Japanese entrepreneurs working from a bombed-out basement in Tokyo — Akio Morita and Masaru Ibuka — start a small company that repairs household appliances.
Their grateful customers often give them gifts of rice, a difficult-to-get commodity. And their rice gifts lead them to invent the first electric rice cooker.
Rice cooker sales are good, and they expand their product line to include space heaters. Soon, they also make the first transistor radios in Japan.
Today, that once-tiny company is Sony, the largest consumer electronics maker in the world. And it’s also the inventor of the revolutionary Blu-Ray technology …
When: December 2005
Where: Madison Avenue
In a midtown-Manhattan showroom, a 70-inch TV plays the movie Lawrence of Arabia. Passersby are mesmerized.
Hundreds of Arabs mounted on camels and wielding their swords race from left to right across the screen.
On the left side, the images are so blurred that it’s hard to distinguish the camels from the sand — let alone the faces of the warriors. But as soon as they cross over to the right side, the transformation is like magic. The image suddenly becomes so crystal clear that you can see their contorted faces, even the beads of sweat rolling down their foreheads.
The image on the left is composed of 87,000 color pixels, the most that conventional DVD technology can provide. The image on the right is 490,000 color pixels, the product of the new Blu-Ray DVD. That’s not just double or triple the clarity. It’s 5.6 times sharper, far more than most run-of-the-mill enhancements many consumers have become inured to.
There’s no contest between the new and the old generation of DVDs. As soon as consumers see the difference in clarity between the two, they will be hooked. Instantly.
Plus, they will be swayed by a series of better-mousetrap advantages that go far beyond just the sharpness of the image:
Better-Mousetrap Advantage #1: Blu-Ray DVDs use blue lasers that have a shorter wavelength and smaller beam spot than the red lasers used in conventional DVDs.
And with this critical improvement, they are able to hold as much as 20 times the data. Think about that — 20 times more songs, 20 times more graphics, and many times more movies.
Better-Mousetrap Advantage #2: Blu-Ray DVDs not only store more digital data, they can also download and record data from the Internet. This has broad consumer and commercial applications.
For example, with the press of a button on a remote control, a viewer could instantly switch from a movie purchased at the store to games downloaded from the Internet to the movie soundtrack, to a personal collection of images — all stored on a single DVD.
Similarly, businesses could create presentations that leave currently available slide shows in the dust.
Better-Mousetrap Advantage #3: Movie and record companies are losing billions of dollars to piracy. The situation is so bad that movie theaters in Asia and Eastern Europe are slowly but steadily going out of business. Blu-Ray DVDs make it possible to stop piracy in its tracks and put those billions of dollars of lost revenues back into the pockets of movie and record companies.
Do you think those industries are interested in Blu-Ray DVDs? Bet your boots they are!
How Sony Will Capitalize on
Its Blu-Ray DVD Technology
Blu-Ray DVD will sweep the world of consumer electronics like a tidal wave, impacting Sony in two major areas:
First, it will protect Sony itself from rampant worldwide piracy. When you think of Sony, you may visualize TVs, video games, and stereos. But don’t forget that Sony is also one of the world’s largest media conglomerates in the world, one of the first to benefit from the ability to prevent the theft of its valuable intellectual property.
Second, Sony’s new PlayStation 3, due to be released in early 2006, plays the new Blu-Ray DVDs. The PlayStations are a protected beachhead into the homes of its customers.
The new units will become a home computer/media center — much more than just a video game terminal. They will be powerful computers that play DVDs, videos-on-demand, and music, as well as surf the Internet. They will allow consumers to navigate the Internet and download everything from movies to action games, while billing consumers’ credit cards for their use.
How to Play the Blu-Ray Revolution
One way to play the Blu-Ray revolution is to buy shares in Sony Corporation (SNE), and you could do pretty well. Blu-Ray DVDs can only help boost Sony’s bottom line. But with sales of $58 billion in the last 12 months, and with many other major divisions, Sony is too big and diverse to be viewed as a direct play on Blu-Ray.
A more direct approach: Play Blu-Ray technology by going after smaller companies — such as Singulus Technologies in Germany which makes disc stamping machines, and Nvidia, which is supplying the graphic chips for PlayStation 3.
These are the kind of companies that could see their earnings double, triple, or quadruple thanks to Blu-Ray.
At the same time, it’s equally important to avoid the Blu-Ray losers:
Loser #1: Toshiba
Back in the 1980s, when consumer video tape was in its early stages, the raging battle to become the standard technology was between the format first introduced by Sony (Betamax) and a rival format introduced by a consortium of Sony competitors in Japan (VHS).
VHS won and became a standard piece of equipment for millions and millions of homes while Betamax machines became a mere asterisk in the history of technology.
Today, Toshiba is pushing its own competitive format, HD-DVD format, but to me, it looks like a clear loser.
Sony has learned its lesson from the defeat of its Betamax format in the 1980s. It knows that to make a new technology become the standard, it can’t go it alone. So for Blu-Ray, Sony has already won backing from MGM Studios, Disney, and Buena Vista … from technology leaders like Dell, Hewlett-Packard, Apple, Samsung and Phillips … and from video game giants Electronic Arts and Vivendi.
I don’t think Toshiba can compete with Sony on this. So if you own mutual funds with major positions in Toshiba, like Morgan Stanley Japan (JPNAX), I would be concerned.
Losers #2: PCs as Home Media Centers
Blu-Ray is going to make it possible for the new Sony PlayStation 3 to duplicate the functionality of the home computer and eat into PC sales, especially those that are positioned as home media centers.
In that sector of the market, even endorsers of Blu-Ray such as Dell, Gateway, and Hewlett Packard (not to mention Intel and Micron) are about to run into a foe they cannot defeat. I haven’t been a fan of the PC food chain for years. I’m even less enthusiastic about it now — because of Blu-Ray.
You’re going to start seeing major news headlines about Blu-Ray DVDs in 2006. I say that because I am convinced Blu-Ray technology is going to revolutionize the way we access the Internet and entertain ourselves.
In the process, it will also create some very exciting investment opportunities. But as with many of the groundbreaking innovations today, most of the best stocks to invest in are overseas.
Best wishes,
Tony
About MONEY AND MARKETS
MONEY AND MARKETS (MAM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Larry Edelson, Tony Sagami and other contributors. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MAM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MAM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Contributors include Marie Albin, John Burke, Beth Cain, Christine Johnston, Amber Dakar, Michael Larson, Monica Lewman-Garcia, Julie Trudeau and others.
© 2005 by Weiss Research, Inc. All rights reserved.
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