Have you ever heard of Rosetta Stone(RST), one of the more recent IPO’s on the NYSE, a company that sells software that guides users through the difficult task of learning languages.  They are now suing Google in a case that could set an important precedent. It’s quite simple really. If you go to Google and search for “Rosetta Stone”, depending on your country, you will probably see ads by a few different companies. And that, according to Rosetta Stone is illegal because Google is making money off of Rosetta Stone’s trademark. Of course, this will be one those fights that Google will fight until the end because it is easy to imagine how many companies could go on and sue Google. There are so many trademarks that Google sells advertising on that it could also mean very important losses if ever Google had to stop.

“We allow trademarks to be used as keyword triggers in Adwords because users searching on Google benefit from being able to choose from a variety of competing advertisers” said a spokesman of Google. Of course, that defence seems very poor to me as there is no way a company can defend its actions simply by saying it is doing what is best for its users. Can you imagine all those torrent sites and others such as The Pirate Bay trying to defend themselves legally by saying that they are doing it for their users? Seems highly unlikely. Of course, Google will have a lot of other of arguments but I do think that this case should be followed very closely by all Google analysts. Today, the stock barely moved and actually rose 4,01$ to 414.40$ as few analysts give Rosetta Stone much of aa chance to succeed in this case. The story everyone is talking about is really about Google’s upcomming play on operating systems.

So is it the law case that will define Google? Of course not. But I think it is one we should follow closely as it might have an important impact on the search operations of Google, which to date, remain the only very profitable area in the internet giant.

What do you think? Think thaat Google should feel threatened by this legal action?

Only a couple of weeks ago, we published a series about Microsoft’s fate and one of the posts was about its very public battle with Google. The battle took a turn many expected to happen a lot further in time this week as Google confirmed its intentions of building an operating system that will compete with Microsoft Windows, which is in many ways Microsoft’s blood. Take out Windows and it is debatable how Microsoft could actually survive. In fact, Google would like to redefine what an operating system is and make it a lot faster (seconds to load) and mostly browser based. It’s obviously very unclear at this point how it could all work but it certainly seems like something to worry about if you are Microsoft right? Surprisingly to many, the stock market certainly did not think so as Microsoft did not suffer. Was it because it was nothing new and had been expected by the market? Doubtful. My impression is that the market simply does not think that Google will be able to put up much of an attack on Microsoft’s might operating system. That in itself is very surprising given the love story between Google and the stock market.

It will probably take 5-10 years to actually see results on this but it’s true that recent attacks by Google for example on the Office suite (with Google docs) have yet to show much progress and in fact have barely even had an impact on Microsoft’s business. There is no doubt that entering the highly complex world of operating systems will prove much more of a challenge. Google has also ventured into the browser game and while Chrome has some market share, its growth has been a disapointment to many. So this all comes down to analysts predicting that Google will remain a superior company, superior in search that is. For now, Google has very few believers in the fact it could pull off such a major offensive.

But then again, don’t you think that is exactly what Google wants to be? The underdog who nobody gives a shot to? Not too long ago, Google was a tiny company battling it out to try to make a name for itself.  Even its progress in the browser war seen by many as a failure is not seen as such by insiders of the company simply because they know how much time it takes for individuals and companies to switch gears.. and the operating system will be as long of a war as either company has ever seen…

You have perhaps read the story already, the story of a Russian-American computer programmer who was formerly employed by Goldman Sachs and is now held responsible for stealing much of the code behind a portion of their automated trading. Surprising? Not really, but still surprising to see the world awake to this news. It’s no secret, many firms around the world use “program trading”, or “black box trading” which usually works in one of two ways. Either the program will be looking for market inneficiencies or arbitrage possibilities and quickly execute the trades making a small profit. For example, a company could buy the stock of “Canon” in the US and then sell it in Japan. If after the fx trade is done, their is a profit, then there was an arbitrage possibility. Of course, the name of the game in such trading resides in the actual coding that tells the computers how to trade.

It seems that this programmer has transferred the code and Goldman Sachs is now very worried about the idea of finding the code made available on the internet. This would instantly make hundreds and thousands of institutions aware of how exactly Goldman is trading (on this particular program) and would make it easy to replicate. Of course, once that happens, the program that currently makes millions every year might become a lot less profitable.

The case is certainly interesting but it brings up even more questions. How in the world can a company protect itself from such cases happening. Probably the easiest way is to pay its employees well enough for them not to ever be tempted, but even that has its limits. It is becomming increasinly difficult for companies (not only financials) to protect their corporate secrets as they are always one upload away from a major disaster. I would personally predict that over the next decade we will see many more cases such as this one and that the topic will become increasingly important.

If a trading program or software code can be sent away with a simple click, it becomes very very difficult for companies to monitor the activity an employee and makes you wonder if simple individuals could destroy important revenue sources or even worse, put their companie’s future in jeopardy. Of course companies such as Goldman Sachs in this case will always have the possibility of legal recourse (as they do now), but that still has its limits….

Seems almost like science fiction when we hear about this in 2009 but it is not. Clearly, many governments of the world do not feel like their citizens shoukd have access to all information. Many reasons are given the main ones being to protect citizens, to avoid misinformation and to filter between correct and incorrect information. The bottom line though is that generally such actions are taken by repressive governments to make sure their citizens to not get an outside opinion, especially when that opinion might be negative.

China is certainly the prime example of this censorship as the central government has things fairly in control despite dealing with the world’s largest population. The main way to do this is for the government to have an army looking at websites day after day looking for “illegal content” which could be anything related to Tibet for example. When that happens, they simply block access for their citizens to the server. The tough part is dealing with proxy servers. Those make it possible for users to “indirectly” access websites so really the only way for the government is to block access to those as well. But with hundreds popping out every day, it is quite a task to say the least! Because of this, the government is constantly looking into ways to improve its technologies.

The other big story lately has been Iran, which has undergone much political tension following elections from a couple of weeks ago. With massive protests going on, Tehran was doing its best to not show either its citizens or the world it was losing control. Being new at this, it proved quite a challenge as users found numerous ways to post pictures, videos and texts from the streets of the capital. Having cell phones all over the country of course adds to the challenge tenfold.

This of course raises numerous questions as companies such as Google try to maintain their core while avoiding being blacklisted and then blocked by these governments. There are no easy ways to go about this though as any censorship performed by companies such as Google are doomed (with reason in my opinion) to be heavily critiqued by the entire world and can even lead to reputation issues for such companies! Do you have any thoughts as to how these companies should go about these issues?

I personally believe that it will become more and more difficult for companies to maintain such censorship. It will be easier to make reading outside news difficult but the thought of making it difficult for citizens to express themselves is almost impossible as almost any cell phone or internet connection can be used to spread news and multimedia by even “non geeks”.  Of course, that will probably not stop these governments in the short term but I would still think that regional or national censorship is doomed in the end!

It is a fairly known law in economics; pumping new money in an economy will lead to inflation later on. There is little to argue about and yet in a period of high crisis, that is exactly what the US government decided to do. Not to say that there were better alternatives. With crippled credit, pumping money (and lots of it) into the system was probably the only alternative. And so the real objective now will be for the US government to pull out its money in time before inflation spins out of control. Will it be easy? Of course not. That is the problem with most governments, they get into businesses but fail to get out in time.

The Wall Street Journal as well as Bloomberg have been reporting news of funds that are putting up huge bets on inflation going out of control, also called “hyperinflation”. Will it happen? Difficult to know. But having an increasing number of very smart people place bets on this certainly is a worrying trend. “Inflation uncertainty is probably wider today than at any time before the financial crisis,” says John Hollyer, co-manager of the $22 billion Vanguard Inflation-Protected Securities fund. “So having that protection in your portfolio is still valuable.”

What are good investments to hedge against inflation? There are many different ways to play it, but the two main ones are:

-Commodities
-Inflation protected bonds

Basically, commodities have generally been known as a good inflation hedge. Why? Because when prices go up, these assets keep their values while other assets can lose theirs. It is mostly because they have concrete value and if prices of everything goes up, owning “stuff” will mean that their value will go up as well

Inflation protected bonds are quite simple. They are bonds issued by the uS government but have one major difference. While the government might issue a bond paying 5% for example, these bonds would pay a differeny payout:

Inflation+3% for example

So yes, if inflation flies to 12%, then the government would be paying interest of 15%, not bad right? So far, the prices that inflation protected bonds (TIPS) are trading at imply a very low expected inflation. Why? Because most investors expect the US government to act on time. When we say government, we mostly mean the Fed. The Federal reserve’s main task in fact is inflation control.The Fed defends itself by saying that the economic law regarding inflation does not relate to the amount of money available but rather:

Money x Velocity

Velocity is the number of times that each dollar is used in one dollar. A few years ago, an individual would borrow to buy a house, then the bank would sell the mortgage to an investment bank, who would sell a repackaged product to investors, etc. But lately, money is not flowing as easily and because of that, the Fed maintains that inflation is still very much out of control. The real task if they are right is to carefully monitor the velocity so that when it picks up, the US starts to withdraw all the liquidity it added into the market… it should make for some interesting next few months and years.