Tension has got to be running high at the world’s most valuable company about now. Sales of the clunky, rickety old iPhone 4S took a big hit last quarter, with Apple missing their 28m target by 2m, and resultantly falling short of their profit forecasts by $1bn. Though their fleecing of Samsung in the US courts reimbursed them in damages here, this by no means will form an unproblematic blueprint for future litigation worldwide, and Samsung are poised to take revenge if any new Apple products are deemed to have infringed on their strong 4G patents.

It seems that Apple’s courtroom victory was a pyrrhic one – the case has chipped away at the veneer of mystique surrounding Apple, its products and its practices, leaving many cynical about its creative credentials. Consumer technology companies seem to be digging themselves into the trenches, armed with all the esoteric tech patents they can stockpile, in the hope of destroying their competition in a legal world war of attrition, rather than outperforming their rivals on the innovation front. A lot is riding on the commercial success of the new iPhone 5 over the coming weeks, having been announced on September 12 to a less than overwhelming response.

Furthermore, new research says that the US economy could enjoy a substantial material benefit from iPhones if they fly off of the shelves this autumn. In a recent research note, JP Morgan’s chief economist Michael Feroli estimates that iPhone 5 sales “could potentially add between 0.2 and 0.5%-point to fourth quarter annualised GDP growth.” The sums are quite straightforward: 8m in Q4 sales, times $400 (the approximate retail price of $600, minus the $200 worth of components sourced from abroad) equals $3.2bn, or $12.8bn annually. Obviously this is not going to ‘singlehandedly rescue the US economy’, but with recession fears flaring, and a ‘fiscal cliff’ looming at the end of the year, any boost is not to be scoffed at – “The third of a percentage point lift would limit the downside risk to our Q4 GDP growth projection, which remains 2.0%,” as the analysts’ note says.

Now, this is just guesswork, and has already come under scrutiny. Some have questioned the high sales figures, as well as the premises underpinning their conclusions, pointing out that if people buy iPhones with money they would have just spent elsewhere, there would be no GDP boost, just displaced spending. But there’s the rub.

The classical liberal economist Frederic Bastiat wrote in his 1850 essay ‘That Which Is Seen and That Which Is Unseen’ a fable called ‘The Parable of the Broken Window’ to illustrate why the destruction of assets can never be of net benefit to society. Suppose a shop window is broken. It costs six francs to repair the damage, and therefore six francs are transferred from the pocket of the shopkeeper to the pocket of the glazier. The breakage encourages trade to the amount of six francs. Furthermore, in a world of unemployed glaziers, smashing windows can rattle the economy by putting the unemployed back to work. They too then spend the money they make from fitting new glasswork.

However, Bastiat warns, if you then come to the conclusion that it is a good idea to go around breaking windows to cause money to circulate, remember that it is not necessarily true that the six francs spent by every shopkeeper with a brick-shaped hole in his shop-face would not have been spent on something else anyway, like books or clothes or pretentiously marketed consumer electronics. This is called displacement.

Right, but does Bastiat’s fallacy hold? With consumer confidence in a ditch and banks warily sitting on their hands in the wake of the subprime mortgage meltdown of 2007-8, there is evidence that savings are being hoarded, and capital is clogged. Uninvested reserves can be noxious to an economy – smashing windows is like coercing confidence in spending. But wouldn’t it just be easier to say to a glazier, “don’t smash my window, and I’ll give you fifty quid”?

Sadly, alternation between fenestration and defenestration initiatives doesn’t make for sustainable policy. And if I just donate to glaziers, that isn’t trade, and could cause protection racketeering and the formation of a vicious glassmaker mafia. Both charity and creative destruction have very little stimulative effect because they don’t address underlying and long-term problems. Prosperity is best served by innovation and productivity.

Is this relevant to Apple? It depends what you think about ‘upgrades’. You might consider each new reincarnation of the iPhone to be a new product in its own right, in which case upgrading is not so much a case of replacing a broken window as it is investing in a brand new shop front. Or, like me, you might think that it’s a shocking waste of money to throw away your expensive phone to buy a more expensive phone on the strength of minor incremental improvements to its specifications. You might think that buying a new iPhone amounts to breaking your own window just to have it fixed. The point is that the broken glass model’s applicability is contingent upon the belief that the iPhone’s saleability has little or nothing to do with the intrinsic quality of the product, and more to do with the fact that you idiots will go out and buy one anyway. Pressure’s off for Apple then.

But it gets me thinking, wouldn’t it be nice if we, and our friends across the pond, could rely on recovery through intelligent stimulus projects – investment in useful stuff like infrastructure, encouraging employment and growth – rather than on our periodic trashing of old capital.

If it ain’t broke…

Diane Von Furstenburg’s runway show at New York Fashion Week caused a stir not only in the world of fashion. The show’s models strutted their stuff all donning one much-hyped accessory – the Glass by Google augmented reality glasses – while Google co-founder Sergey Brin took up an unlikely spot in the fashionable front row. What can we take from this unlikely collaboration about Google’s innovative product? And is this technology really going to take the world by storm?

Google Glass is a research and development project by Google X, which aims to incorporate digital technologies into everyday life. The head mounted display (HMD) will have similar capabilities to a smartphone, but will interact more ‘seamlessly’ with the surrounding world. This is referred to as ‘augmented reality’ as the display will superimpose information e.g. maps and travel information over the wearer’s field of vision. Interaction with the device could involve voice commands or simple manual actions (such as pushing a button on the side of the device to take a photograph).

This all sounds very futuristic but Google Glass has faced criticism and been the subject of internet parody since its inception. Concerns include questions about the safety of such a device, the possibility that Google could include advertising in an increasingly obtrusive way into users’ lives, queries over the quality of internet signal necessary for the smooth interaction Google’s promotional materials suggest and the effects the widespread use of the technology could have on social etiquette and individual privacy. Some have gone so far as to suggest that the technology’s only real life application might be watching illicit material in public, doing for visual pornography what the Kindle has done for erotic literature. Talking to someone who may be recording you or checking their facts on Wikipedia could also be a little disconcerting. The failures of previous Google X projects, such as the self-driving car, have also been cited as a model for the future of Google Glass.

While some software developers have been given the opportunity to pre-order a prototype for $1500, media outlets have reported that the eventual product should retail at a similar price to high end smartphones. Google’s decision to showcase the glasses on the DVF catwalk suggests its keenness to highlight the company’s innovative edge in the field of wearable technologies, at a time when all eyes are turned towards Apple’s iPhone5. What the early marketing of the product indicates is that Google is most concerned that the headset appear aesthetically desirable (more chic, less geek) and practical (skydivers filmed their falls on the glasses in a stunt in June). Ultimately it may be Google’s ability to convince the public of this, rather than the technology’s intrinsic inventiveness, which determines the project’s success.

Whiter teeth, Swarovski earrings and a romantic break in Reading are among the deals being offered in the Oxford area by leading daily discount company Groupon today. Yet you might be right to wonder not only about the quality of the offers, but about the basic business model of these increasingly popular websites (especially if you saw the episode which featured them in the last series of The Apprentice). Harnessing the marketing power of email and social media, these companies flog coupon deals to the public, taking as much as fifty per cent commission for their services, while already offering these goods and services for significantly slashed prices.

The merchants see a huge, sometimes impossible to execute, rise in orders but are paid slowly – the coupon sellers see an immediate cash injection. It is this liquidity in terms of cash flow, as well as the association with tech and social media companies, such as successfully-floated social network/careers service Linkedin, which led to excitement at market-leader Groupon’s listing on the NASDAQ stock exchange last November. The markets responded well. Shares were priced at $20, rising to $28 at the end of the day’s trading, valuing the company at approximately $13billion.

Ten months later, the picture is very different. With shares currently priced at approximately $5, major investors are jumping ship, including those who invested heavily in Groupon, prior to its IPO (initial public offering or stock market launch). These include Marc Andreeson, multi-millionaire entrepreneur, investor and software developer, whose Silicon Valley venture capital firm Andreessen Horowitz invested $40million in Groupon in the months leading up to its flotation. Hedge fund Maverick Capital is reported to have cut its Groupon shares from over six million in March to fewer than two million by the end of June.

What has changed to spark such a widespread loss of trust in the business?

1. Groupon is suffering both from its association with, and division from, technology firms. Following the disastrous the Facebook IPO, lots of tech stocks are struggling. Groupon has been affected by this loss of confidence in the industry as a whole. On top of this, however, the increased competition Groupon is facing has made it clear that the company has no intrinsic advantage over its competitors – they use technology, rather than produce it. Investors bought into a futuristic vision of e-commerce and are now realising this is ultimately a coupon company.

2. The novelty is wearing off. Not only for investors, but for business partners and consumers too. Merchants are starting to consider the real costs involved in offering such massive discounts and paying a middle man. Customers are starting to question the quality of the end products (something outside of Groupon’s direct control) and questioning how good a bargain they might be getting after all. The company is even facing litigation from consumers claiming the coupons’ expiry dates are illegal as they should be considered gift cards (and thus valid over a five year period).

3. Growth brings competition. As Groupon looks to expand into new areas, competition becomes a bigger issue. Its Groupon Goods section for instance (delivering electronics and other household items to American customers) puts it in competition with retail Goliaths such as Amazon and Wal-mart. With Amazon announcing its first UK daily discount service in the last few weeks, initially targeting the London market, Groupon needs to respond quickly and decisively.

4. Groupon hasn’t helped itself. Concern over the company’s accounting practices, following a revision of its fourth quarter financial results, has yet to be allayed. Groupon has bolstered its credentials by appointing Deloitte vice-chairman Robert Bass and Chief Financial Officer of American Express Daniel Henry to its board this May, but the market needs convincing that Groupon is ready to grow into the internet giant it was supposed to be.

Bob Dylan has just put out his thirty-fifth studio album, Tempest. It features an angry track called ‘Early Roman Kings’ which, contrary to its title, has a deal of contemporary resonance.

Dylan growls about crooked bankers in their “shark skin suits/Bow ties and buttons and high-top boots…Meddlers and peddlers, they buy and they sell/They destroyed your city, they’ll destroy you as well”. Dylan it seems then is still, well into his 73rd year, sticking it to the man. And good on him for putting a bit of fire and spit into his new effort, his most unsettling album since 2009’s Christmas in the Heart.

Yet the times have a-changed, and now the music that once provided the soundtrack for the disillusioned counterculture of 1960s America may become a selling point for an unusual bond offering marketed to the wealthiest individuals in the US financial sector.

The $300m bond, which was to due be packaged by Goldman Sachs on behalf of Sesac, a privately held performing rights organisation from Nashville Tennessee, was to be backed by royalties from music by Dylan, as well as Neil Diamond and Canadian rock outfit Rush. Recently however, the scheme has encountered resistance, and its future is currently uncertain.

On the one hand, it’s easy to see why Dylan’s royalties would represent a lucrative investment. The prolific folk legend has certainly put out a lot of songs, which not only means for a lot of royalty-backed bonds, but also a lot of scope for bored journalists to convert track titles into laboured finance puns, such as ‘Tangled up in Annuity’, ‘Like a Rolling Interest Rate’, and bizarrely, ‘Blowin’ in the Bond Market’. I will of course refrain from such hack-work throughout…

On the other hand, so-called ‘esoteric’ asset-backed securities haven’t the most illustrious history. In the late 1990s, David Bowie introduced a security, worth over £30m, backed by the royalties from a catalogue of classics from the heyday of Ziggy Stardust and Aladdin Sane. Bowie was something of a pioneer in this, the benefit for him lying in his being able to take a lump-sum advance on royalties which otherwise would have unfurled their value only over a number of years.

For investors however, the venture was about as disastrous as Major Tom’s, with the bonds falling to Earth when ratings agency Moody’s downgraded them repeatedly from A3, the seventh highest rating, to only one level above ‘junk’. Revenues missed their estimates by several millions. That’s pretty far out.

Bowie, ever the trendsetter, actually started a craze that resulted in a hotbed of ‘securitization’ in the financial sector, most infamously in the subprime mortgage market. Like Bowie, banks looked for an up-front payment from their debt, selling securities all too often backed by subprime mortgages – loans handed out indiscriminately to customers highly likely to default. Notoriously, when these sham loans were exposed, banks made billions in losses, major financial institutions such as Bear Stearns and Lehman Brothers ceased to exist, and the world went into a credit meltdown. So there you go, the Thin White Duke caused the credit crunch.

In the pre-crisis years, esoteric securities were backed by all kinds of weird and wonderful assets. In 2007, one ABS deal pooled together cash flows generated by shares of stallion syndicates.. In the competitive world of horse racing, a thoroughbred with a winning record can command astonishing breeding fees, or ‘stud fees’. American thoroughbred Storm Cat famously commanded a $500,000 stud fee, making for a horse so valuable that he was placed under the protection of a twenty-four-hour armed guard. Theoretically, there is a predictable cashflow associated with a thoroughbred siring offspring, and therefore racehorse semen is not an uncommon asset with which to bolster securities. Now there’s an investment with sticking power.

Today, despite an understandable caution about esoteric securities in the wake of the credit crunch, investors are dabbling in a range of unusual assets, from publishing rights to pharmaceutical patents. In March this year, Domino’s Pizza sold $1.6bn of bonds offering hungry investors a slice of future restaurant franchise revenues. Last year, Miramax Film completed the sale of $550 million in debt backed by licensing and distribution revenues of films in its library, such as Pulp Fiction, The English Patient and Good Will Hunting.

The interminable hunt for high yields has inspired wide-ranging creativity on the part of investment banks in this area – the ‘miscellaneous’ section of asset-backed securities data compiled by JP Morgan makes up a full 5% of its $128bn asset total this year. According to data from Barclays, there has been $13.6bn worth of issuance of esoteric ABS so far this year, compared with $13bn for the whole of 2011.

The resurgence of royalty-backed bonds has much to do with the advances in technology we’ve seen since Bowie bonds rocketed onto the scene almost twenty years ago. With a proliferation of dedicated digital-TV channels, the popularity of iTunes and the prevalence of online ads, sales volumes promise to be greater this time around, even in spite of the potential disruptions of music piracy. It is also possible that, after the financial meltdown, way hedge-fund managers would be keen to hold bonds that capitalize on intellectual property and therefore aren’t quite so closely tied to the vicissitudes of broader market forces. Whether investors will see an encore performance for these derivatives in the near future however is yet to be seen.

Sooner or later, one of us must know.