Technology is a wonderful thing of course in that it improves productivity and one of the leading changes is the arrival of cloud computing. Nice name isn’t it? Actually cloud computing is quite a simple concept in that it only means internet based software. So instead of opening an excel spreadsheet, you connect to the internet and open a program from your internet browser. The most obvious example is the difference between Microsoft Office and Google documents. On one hand you have Microsoft that has a group of programs namely Excel, word, Powerpoint, etc. But cloud computing is probably something you already use. When is the last time you downloaded Google Maps on your computer? Never of course as you can use it from your browser.

Here are the main aspects i see in such traditional software:

-Usually Purchased physically (cd, etc)
-One time purchase
-New program versions are an incentive to buy a new cd
-Bugs must be repaired through patches, downloads, etc.
-Backups necessary

Compare that to Cloud programs:

-Usually would be paid monthly or annually
-Generally no upgrades necessary
-No support required as any fixes or batches will be made for the user
-Accessible from anywhere that has internet access (increasingly anywhere)

You can see how from the user perspective, there are many advantages in cloud computing because there is less support necessary and no upfront payments. The major advantage of course is that in such an offering, there is almost no limits to the flexibility that can be offered. A small company could purchase only the parts of a software that it will really use, could change its number of licences daily or modify its requirements. And generally, in cloud computing, you can be charged for what you really use, not so much for what you think you will be using a few months in advance when you negotiate with your software provider.

With all of that said, the real question is how to profit from this trend and to me right now it is not clear at all. We are in the opening minutes of this game. Google might be the obvious leader but Microsoft is also pushing hard to catch up and obviously has a lot of advatanges from its dominating existing software. And let’s not focus only on the Microsoft suite as there are countless different software types in specialised fields. To give an example, in the Finance software field, Bloomberg is heads and shoulders above anyone else. But who says a web based company could not provide a comparable service that could be offered at a lesser cost than the 3,000$/month generally charged for a Bloomberg licence.

I wrote last week about how playing Bank of America was almost like going to the casino and indeed this week that is pretty much what it turned into with giant swings. Just today, Bank of America was down 30% at one point and finished the day about 2,5% down.

The current environment has been truly amazing to me. But the current environment has been tough psychologically for investors all around the world. Recently, investors have been gravitating towards two main feelings; fear and hope.  Which is worse? In my opinion, both can have tragic impacts on a portfolio.

And unfortunately, many investors are making critical mistakes because of both feelings. Fear will usually tend to get investors to sell their investments and often act with panic. As any financial advisor or specialist would tell you, panic is probably the worst feeling you could have while trading. The most important thing is to remain down to earth. While investors that got out probably will suffer less losses, they will most likely also miss the stock rebound as usually happens in such cases and so they end up losing more.

A more dangerous feeling however might be hope. Why? Because hope tends to get investors excited and into taking more risks than warranted. I’ve seen several cases of investors thinking they know when rock bottom has occured. How bad can it get? Imagine investors that a few months ago decided to get into the action big time. So if you have no money, how can you do it? You can open a margin account at your bank. Then, send money from that account to a trading margin account and invest. Basically, you can be trading 50-60K without having put a dime of capital. And then things turn bad. If you suffer a loss of 20% (very possible in this environment), then you have actually lost 12K… and at one point, the loss becomes more psychological than anything else. And instead of investing with your head, you are always looking for homeruns, for that one trade that will help you get back into profit territory, and that’s when things usually get even worse… Read any trading book and they will all tell you, the most difficult aspect of trading has never, and will never be the technical aspect. It’s always about sticking to your system when things go bad or when they go too bad…

Unfortunately, I think such mistakes can have very long term impacts. If you are a speculative investor, set aside money, an amount that you can lose, and separate that amount from any retirement fund or any other specific goal that you might have. And use discipline. If you have reached your “stop loss”, get out of the market. Don’t all of these also apply to visiting a casino? Told you.. these days, for most investos, the difference is minimal between the two…

Since the start of the crisis over a year ago, much has been said about the similarities and differences between the current slowdown and the “lost decade” of Japan, a slowdown that affected the world #2 economy for well over a decade and which it has yet to recover from. There are many differences of course, but a lot had been blamed upon the reluctance by Japanese authorities to let “sick” financial institutions go down. And at least in that regard, there are many similarities with US authorities trying to save several US institutions (although even letting others fail has been regarded as a mistake by many thus confirming that there is no way to come out on top in such a context).

And today is a grim day even by Japanese standards. They were set to release their GDP for the last quarter and estimates were very negative with a consensus of a -11,6% decline. But it came out a lot worse actually, with a 12,7% decline, the worst since 1974. Exports of cars and high end goods such as tv’s. And of course the rising yen is not helping at all. So exports came in with a decline of 13,9%. “There’s no doubt that the economy is in its worst state in the postwar period,” Economic and Fiscal Policy Minister Kaoru Yosano said in Tokyo. “The Japanese economy, which is heavily dependent on exports of autos, electronics and capital goods, has been severely hit by the global slowdown.”

Is the same to be expected of the US economy? Thankfully, not for now at least as the US economy is less dependant on exports and its major stimulus should be able to get things more stable. Of course, a deterioration of either the real estate markets or confidence in the financial markets could put more downward pressure leaving the Fed and Treasury will little left to do.

And perhaps the worst scenario would be the one where the world starts to lose belief in the US dollar and in the ability of the US government to pay back its debt. There have already been hints that countries like the US could lose their AAA credit rating and that could be setting a very dangerous background for the world in general.

Am I being dramatic? Perhaps. But let’s not forget that Japan is one of the major economies in the world and the US is not beyond such tragic problems. It is important to act as quickly as possible because once you reach a point like Japan has, there is little left to do except wait for things to get better, and as Japan has discovered, once that happens, you are in for a long wait.

The positive aspect about all of this is that everyone seems to agree on the urgency of the situation and the need to act now, which might be what saves the US economy in the end…