The next big thing: a combination

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Bloomberg News surveyed technology investors to discover that over 70 percent of them believe that Apple has lost its innovative edge, either permanently (28 percent) or temporarily (43 percent). It would seem that this perception correlates with the company’s stock decline.

So, this got me wondering. What would Apple have to produce to rekindle investor enthusiasm? What could be its next big thing?

Steve Jobs allowed that one reason for his success was a penchant for saying no. His goal, apparently, was to create a unique combination of hardware and software that “just worked,” and getting complicated things to work well together meant sticking to the principle that less is more.

The brief histories of the iPhone and iPad suggest an initial “revolution” followed by continuous improvement and refinement—as opposed to copy first then offer feature after feature with the hope that something sticks with consumers. Each iteration of Apple products is superior to its predecessor. Operations become faster and more elegant. Quality reigns supreme. And this strategy has been handsomely rewarded in the form of outrageous profits. People are almost fanatically anxious to pay Apple a sizable premium for the devices Jobs wrought.

There is much speculation, fueled to a large extent by Jobs himself and now by his successor, Tim Cook, that Apple has several major products in the pipeline. What could these be, and could they be as revolutionary as the iPhone and iPad?

I suspect that Apple’s “next big thing” will be a new combination of existing concepts and technologies, designed with exquisite attention to detail and ease of use. That’s the Apple way, one that investors have yet to figure out, it seems, but that millions of consumers recognize. Also, remember that many of these same investors went apeshit over mortgage-backed securities, sub-prime loans, and financial derivatives that no one could understand.

Easy money

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The Federal Reserve embarked on a deliberate policy to expand the monetary base and to keep interest rates low. It has done so mostly through what is known as “quantitative easing.” In the popular vernacular, the FED is “printing money.”

monetary base as of May 2013

Conservatives have warned repeatedly that “easy money” will cause prices to rise. But inflation has remained low, too low as far as Fed chairman Bernanke is concerned.

core inflation may 2013

Meanwhile, unemployment rates remain higher than normal and wages stagnate, indications that the recovery, such as it is, has not benefited the Rest of Us.

unemployment rate through May 2013

Corporate profits continue to soar, despite the anemic economy.

corporate after tax profits to May 2013

If Ben Bernanke could wave a magic wand he’d compel Congress to spend more money, a lot more, on public goods and services, since the private sector has been reluctant to expand production given persistent uncertainty about returns. Bernanke and another bearded Princeton economist believe that inadequate demand is the problem. The solution is to give money to a lot more people so that they will spend it. Short of simply doling out cash, the acceptable method is to put people to work building things we need.

This Congress, however, is loathe to follow such prescriptions. As Speaker Boehner proclaims, “We’ve got a spending problem.” Thus, his solution is to effectively reduce aggregate demand, which would only make matters worse. Unfortunately, that may very well be his intention, as cynical as that seems, so he can exploit dismal economic news for political gain.

So far, Boehner and his band of loonies have prevailed in preventing fiscal expansion. Indeed, government budgets have shrunk.

total government spending gdp

The austerians, against a lousy track record, insist that we continue to tighten our fiscal belts, and as long as there are Republicans in government, austerity will be practiced. Pain and suffering be damned.

So far, Bernanke has not been cowed by protest. He will likely continue to pump money into the economy, though he’d love to get his hands on that magic wand.

The things we don’t need

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First on my list is ammunition for the looney right. But that’s just what the Obama administration has done, and may still be doing, with the revelations of I.R.S. targeting of conservative groups.

To be sure, the tax code has been exploited, if not circumvented, by a slew of organizations whose leaders assert with straight face that they’re all about promoting social welfare. In reality they’re avoiding taxes as they work to influence political outcomes.

And it’s politics that ultimately bites you in the butt. A more clear-eyed president and his minions would know better than to allow Republicans, especially this current brand, to control the narrative, which is precisely what they’re doing. Once they seize on an alleged scandal, they will not relent. They are like sharks in bloody water, intent on devouring their prey.

Obama, stymied at every turn, needs to be on the offensive—big time. Yet, with each new disclosure, he’s put on the defensive.

The audacity of hope has morphed into a state of perpetual backpedaling. This is not pretty.

On the other hand…

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I don’t like the idea of sports franchises dancing with cities. Sacramento has the Kings, and should always have them, notwithstanding a shoddy bunch of Maloofs. The Sonics, born and raised in Seattle, should never have left.

The Board of Governors should approve a new franchise in Seattle. Hansen et al. can then draft any foreign player to populate the reborn Sonics, without having to steal from existing NBA rosters.

Better yet, Congress, which really needs to prove that it can accomplish something, could outlaw professional sports cartels and subject the owners to anti-trust laws. If a bunch of rich guys want to own a franchise in Seattle or anywhere else and pay for a new arena to house the players, so be it.

Seattle denied

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When the NBA board of governors, otherwise known as “the owners,” approved the sale and relocation of the Sonics to Oklahoma City, where they would become the Thunder, the reason was made clear: Seattle voters said no to a new arena, the kind worthy of billionaires with toys. Yesterday, essentially the same owners turned thumbs down on a lavish proposal to relocate the Sacramento Kings to Seattle, despite a bona fide plan to construct a state-of-the-art facility next to Safeco Field.

So, what’s going on here?

I think Matthew Yglesias got it right. He suggested that the owners loathe private financing of basketball arenas, as Seattle’s proposal included. They want the public to pay the lion’s share of facility costs. If they had approved the record-setting deal of Messrs. Hansen, Balmer, and Nordstrom, they would have established a precedent. Municipal citizens could demand that rich people pay for their own toys.

Or, it could just be that David Stern is a jerk.

Simple, one would think

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Memories fade, which is a shame. It wasn’t that long ago that Enron was up to no good manipulating energy markets, with the blessing of the ratings agencies. People went to jail following the exposure of criminal activities. But the rating agencies continued. More recently, the agencies dubbed mortgage-backed securities triple-A, their highest. The collapse of the housing bubble (prices do fall) nearly destroyed the economy, and we’ve yet to recover.

So, in the aftermath of the latest misadventures Congress proposed to eliminate a glaring conflict of interest, which had bond-issuers soliciting ratings from the agencies, who were paid by the issuers. You can see the incentive here for the agencies to stamp their highest approval; they want repeat business. But that would be simple, too simple it seems.

Economist Dean Baker, who identified the rising housing bubble and warned of its collapse, tells us:

Senator Al Franken proposed a simple way to eliminate this obvious conflict of interest. He proposed having the issuer use the Securities and Exchange Commission (SEC) as an intermediary in the hiring process. Essentially, this means that the issuer would have to call the SEC when they wanted to have an issue rated and the SEC would then pick the rating agency. This would eliminate the incentive for the rating agency to issue an investment grade rating to get more business. The Franken Amendment passed the senate by a huge 65-34 majority, winning bi-partisan support. (Disclosure: I had written about this sort of reform and discussed it with Franken’s staff.)

While this might have seemed like a victory for simple common sense, the amendment was largely eviscerated in a conference committee, apparently at the urging of then House Finance Committee Chair Barney Frank. Instead of implementing the amendment, the conference bill called for the SEC to study the issue and make a decision by the end of July, 2012.

Oh, and there’s been no decision yet. Don’t hold your breath.