Two and a half years ago I declared in my mobile computing wars series that Google would commoditized the mobile computing space, thereby turning the industry on its head dramatically changing business models and margin outlooks. Curiously enough, despite rampant evidence that I've been nothing but correct, investors, pundits and even leading industry participants still don't get it. CNBC ran the following article this morning... Chinese Smartphone Users Snub Apple for Local Brands

Sales of smartphones in China are outpacing sales in the U.S., and yet many Chinese shoppers are choosing cheaper, local brands, which now have more than 50 percent market share. The Financial Times reports.

What CNBC failed to realize was that the primary beneficiary of all of this is Google, who benefits from volume in handset and tablet sales, not margin. I made this point clear in my paid research reports, free blog posts and multiple interviews - to wit:

Google's "less than free" business model has successfully put it on track to becoming the next Microsoft. Once it has 90+% market share in mobile OSs (it's currently knocking on 89%'s door), it will have the door opened to lead as the de facto provider of cloud services, basically acting as the Windows operating system (remember the importance of this OS in the 1990s) of the Web. We're not even broaching the topic of Google being the shepherd of global data and information throughout the web and the Internet connected world!

Let's face it, Smartphone Hardware Manufacturers Are Dead, Long Live The Google-like Solution Providers! 

For those who disbelieve this statement, remember, there are no such things as cheap Chinese knockoffs anymore. It's all made in China, at least from a hardware perspective. The only thing that wasn't outsourced to Cheap Chinese Labor (CCL, but soon to be known as iCCL - inflation dinged not so cheap anymore Chinese Labor) was the IP and tech behind the OS and software. Here, Google easily reigns supreme, with its only viable competitors being Microsoft Windows Phone 8/RT/Pro and Apple's iOS6. Apple is nearly out of the picture, its just that the Hoi Polloi haven't received the memo yet (as was the case with our view of RIMM 2 1/2 years ago, and you see how that ended). Microsoft is simply an OTM call option with a decent amount of time premium still on it.

chinese wholesale android

Here you have a device available right now for just $160 retail, even less wholesale, unsubsidized. It actually blows the spec pants off of the iPhone 4S and keeps the iPhone 5 in the conversation! For the record, the iPhone 5 retails for $650 to $850 dollars!

phone1phone2phone3

Potentially profitable and disruptive? Ask the classified and newspaper industries (or at least what’s left of them) if Google knows what it’s doing!!!!

As excerpted from our nearly 70 page forensic Google report (Subscribers, see Google Final Report 10/08/2010), I attempt to educate on the investment prowess of Google (that is both internal investment and external acquisition). Remember, many of Google's investments have become the largest instances of their type in the indsutry. The largest web video presence: YouTube! The largest mobile OS? Android! The largest mobile ad presence? Admob! the largest online productivity suite? Docs/Drive! I can go on with Gmail, Voice, etc., but if I haven't driven the message home yet then I probably never will. Google management has made it clear that YouTube will compete with major networks and Google Docs will compete and is actually pulling some business from Microsoft Office in the Enterprise. These are mere anecdotal examples. We all know the Android story already...

Google Final Report Sep 29 Page 49Google Final Report Sep 29 Page 49

Google Final Report Sep 29 Page 50Google Final Report Sep 29 Page 50

Google Final Report Sep 29 Page 51Google Final Report Sep 29 Page 51 

Google Final Report Sep 29 Page 52Google Final Report Sep 29 Page 52

Google Final Report Sep 29 Page 53Google Final Report Sep 29 Page 53

Google Final Report Sep 29 Page 54Google Final Report Sep 29 Page 54

Industry Leading, Subscription Based Google Research

All paying subscribers should download the Google Q1-2012 Valuation Summary, wherein we have updated the valuation numbers for Google using a variety of metrics. Click here to subscribe or upgrade

Google still exhibits the likelihood that they will control mobile computing for the balance of the decade.

Subscription research:

file iconGoogle Final Report 10/08/2010

A couple of bits from our archives...


There are currently 7 Google reports available. Select the "Google Final Report" and click the "Download" button. You will receive a 63 page analysis that looks like this on the cover...

The table of contents outlines how we have broken Google down into distinct businesses and identified both the individual business models and the potential revenue streams, as well as  valuation for each business line.

Page 57 of the analysis shows a sensitivity table which outlines the various scenarios that can come into play and how it will change our outlook and valuation opinion.

Professional/institutional subscribers can actually access a subset of the model that we used to create the sensitivity analysis above to plug in their own assumptions in case they somehow disagree with our assumptions or view points. Click here for the model: Google Valuation Model (pro and institutional). Click here to subscribe or upgrade.

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Goldman's strategy desk just came out with a recommendation that mirrors my guidance to subscribers, a 3 weeks later, reference Armageddon Puts Versus Truly Busted CRE REITS: Looking for that 5x-10x ROI 

Yesterday, I received a couple of emails along the lines of the one displayed below...

"Hi Reggie,

Can you please put out any guidance on your Armageddon Puts for your lowly retail subscribers?

Thanks"

Well, I would like all to know that I'm not a typical mo-mo type trader. I'm a strategist. With that being said, I'm also not the one to look a strong risk/reward proposition in the face and do nothing. Below is a set of charts that should drive the mindset home.

 

SPX_puts

 

The actual chart with the series and strike of the puts can be found in the retail investor's discussion forum. I will also be available to chat there as well.

If one would have averaged small OTM put purchases with with ample time value attached over the last week and a half, one would have amassed a neet little collection of Armageddon puts that will start popping into the money today. They were cheap enough to throw away in the rallying market, and if things go awry (quite likely) three digit returns are virtually guaranteed. The following is Goldman's note from this morning...

Published 10:46 AM Thu Jun 21 2012 ________________________________

Noah Weisberger

Aleksandar Timcenko

We are recommending a short position in the S&P 500 index with a target of 1285 (roughly 5% below current levels) and a stop on a close above 1390. This morning, the Philly Fed print of -16.6, down sequentially and worse than expected, provides further evidence that weakness has extended into June. Although yesterday's FOMC delivered easing as expected, with a dovish statement, positive risk sentiment ahead of the FOMC had already buoyed markets. And we now think, with incremental US monetary policy on hold, the market will need to confront a deteriorating growth picture near term. The risk to our recommendation is that the data soon reverts to the 2-percent growth path our economists expect, that China growth turns, or that European policy-makers' rhetoric buoys risk sentiment further from here, with the upcoming end-of-June summit a focal point on this count.

The MSM headline barrage continues to confirm my multiple warnings on the increasingly ugly macro situation both here and abroad...

This is how the European banks were killed in the first place -  Dead Bank Deja Vu? How The Sovereigns Killed Their Banks & Why Nobody Realizes They're Dead. The ECB will become the world's largest insolvent hedge fund (sans the hedges, of course) if it is not so already...  .

More MSM headlines to drive the point home

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Published in BoomBustBlog

Yesterday, I received a couple of emails along the lines of the one displayed below...

"Hi Reggie,

Can you please put out any guidance on your Armageddon Puts for your lowly retail subscribers?

Thanks"

Well, I would like all to know that I'm not a typical mo-mo type trader. I'm a strategist. With that being said, I'm also not the one to look a strong risk/reward proposition in the face and do nothing. Below is a set of charts that should drive the mindset home.

SPX_puts

The actual chart with the series and strike of the puts can be found in the retail investor's discussion forum. I will also be available to chat there as well.

The REIT analysis referred to in the chart can be found here for subscribers (the property by property valuations are for Professional/Institutional subscribers only):

I have just revisited the performance of this company (last update was at least a quarter ago). If my paid subscribers recall, we valued the company at rougly 10% of its current market price (see File Icon Cashflows and Debt Preliminary Analysis), with a variety of scenarios to be played out that may affect said valuation. This was based on valuation of key properties of the company, which together accounted 78% of the total portfolio in value terms.

Since then the company has released its full year 2012 results and 1Q2012 quarterly performance. There is no visible improvement in the performance of the company. The company is struggling to handle massive leverage, industry average defying LTVs, proportionately large debt liabilities coming due - the bulk of which is expected to face the music sometime in 2012 in view of upcoming liabilities of over nearly $700 million during the remainder of the year.

In recent times the company has used revolving credit facilities to fund debt repayments.It looks unlikely it will be able to do so this time around. Below is the depiction of projected cash shortfall in 2012...

Subscribers can download this full update from the next post, to be published within 24 hours...

Published in BoomBustBlog
Thursday, 07 June 2012 11:20

A Quick Note On China's Rate Cut

The MSM reported U.S. Stocks Rise as China Cuts Interest Rates this morning. China Cut Their Rates for First Time Since '08, and we all know what happened in 2008, right? As the momentum driven, server controlled trades ramped the markets up, I placed Armageddon put (way out of the money, with material time value) purchases on throughout the morning - for literally pennies. This was to accent the FIRE sector work that I have been putting on throughout the month (see Reggie Middleton Sets CNBC on FIRE!!!). As you can see from the archived posts and videos below, I always believed that China was a Ponzified bubble with no true organic growth to speak of, and if the Europeans and the global economy was waiting for this country that ramped up lending into a pile of expanding NPAs to bailout out the world, then put profit expansion, here I come!

Monday, 06 February 2012 11:20reggie_speaks

 reggie_speaks

A 7 minute video of my opinions on Greek haircuts, US and Manhattan real estate overvaluation, China bubble busting and hard landings, Case Shiller shortcomings and Germany's penthouse suite in the EU roach motel.

My stance on China's comeuppance for attempting to pack 50 years of growth in to 3 years is still quite unchanged. I am fully aware that many "smart" bankers and analysts have different perspectives, but as I posted a couple of weeks ago, "Currency Crisis! Inflation! Sovereign Defaults! Bahhhh… Who Are ‘Ya Gonna Believe, The Government Or Your Lyin’ Eyes?". From Bloomberg, this morning: U.S. Index Futures Fall After China Raises Banks’ Reserve Ratio

 

I have not had a chance to revisit my China thesis in a while, but it is coming once I round off the European recap and finish up my US technology thesis. China will most likely play a key portion in global financial and economic contagion that is simmering over in Europe. A commenter on another popular blog had this to say of my most recent post regarding Ireland (Erin Gone Broken Bank: The 2nd EMU Nation That Didn’t Need a Bailout Get’s Bailed Out Within Months, Next Up???):

Look, Big Surprises Coming from the UK and China!!! UK and Chinese Growth Slower Than Expected, but Exactly Where BoomBustBlog Said It Would Be

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 reggie_speaks

A 7 minute video of my opinions on Greek haircuts, US and Manhattan real estate overvaluation, China bubble busting and hard landings, Case Shiller shortcomings and Germany's penthouse suite in the EU roach motel.

 Below I have aggregated hours worth of related content via video, blog postings and subscriber research...

 Related Videos

The First Major Real Estate Collapse In Europe? I've Found The EU Equivalent Of GGP, The Largest Real Estate Failure In US History Monday, 19 December 2011

What many do not understand is that the real estate crash of the previous decade is far from over, because The True Cause Of The 2008 Market Crash Looks Like Its About To Rear Its Ugly Head Again, With A Vengeance. This is true for not only the US, but the EU countries as well. Unlike our European and Asian counterparts, many US investors are much too detached to what occurs overseas, quite possibly from a hubristic, apathetic or even ignorant stance that what happens over there has little effect on us stateside. Unfortunately, that is not the case. What do you think, pray tell, happens when the liquidity starved, capital deprived, overleveraged banks fail to roll over all of that underwater Eu mortgage debt?

Slide21

Investors seeking safety in Germany, the UK and France may truly be in for a rude awakening!

Slide22

 

Interesting Documentary on the Power of Rating Agencies, Reggie Middleton Excerpts

Reggie_VPRO_Ratings_agencies

Continuing my rant on the effectiveness (not) of the ratings agencies, I bring to you an interesting documentary on the rating agencies' effect on the sovereign debt crisis in Europe, produced by VPRO Tegenlicht out of Amsterdam. You can see the full video here, but only about half of it is in English. I appear in the following spots: 4:00, 22:30, 40:00...  Reggie Middleton Discussing the Rating Agencies effect on Sovereign Europe

 Subscriber Research

Published in BoomBustBlog

On 5/24/11 I recorded a podcast interview with the Sound of Money, an interesting financial show that airs on NYC's WNYE radio. You can listen to 46 and a half minutes of my viewpoints and opinions via this link, Sound-money-interview-of-reggie-middleton-05-24-11. Be sure to peruse the blog of the show as well.

 

Published in BoomBustBlog

For anybody who didn't catch the hint, another banking crisis the continuation of the banking crisis is inevitable. I've said it before, Is Another Banking Crisis Inevitable? This is the current landscape, undoubtedly fudged over by optimistic marks.

Banks NPAs to total loans

Source: IMF, Boombust research and analytics

Euro banks remain weak as compared to their US counterparts

Health of European banks is weaker when compared to US banks. European banks are highly leveraged compared to their US counterparts (11.1x versus 4.1x) and are undercapitalized with core capital ratio of 6.5x vs. 8.5x. Also, the profitability of European banks is lower with net interest margin of 1.2% compared with 3.3%. However, non-performing loans-to-total loans for European banks are slightly better off when compared to US with NPL/loans at 4.9% vs. 5.6%. Nonetheless, considering the backdrop of high exposure to sovereign debt in Euro peripheral countries, we could see substantial write-downs for Euro banks AFS and HTM portfolio, which would more than offsets the relative strength of loan portfolio.

I really do mean substantial!

Published in BoomBustBlog

Here's a quiz for you. An ages old correlation that has pretty much remained rock solid is now upon us. Real estate has been highly correlated to inflation and has acted as an inflation hedge for a very long time. This makes sense, since hard assets that both throw off income and have an actual demand for physical use (in other words, they have have intrinsic value) that hold when fiat currencies assimilate toilet paper in both value and use as input prices skyrocket. The question du jour is, "What happens when you have a glut of unused real estate supply abound in a tight credit environment, a guaranteed increase in rates AND higher input prices?". Of course the smart people out there (in other words nearly everyone with the impetus to read BoomBustBlog) are then forced to challenge the thesis, "So is this time different? After all Reggie, you have been bearish on real estate."

The short answer is, no this time is not different. It rarely ever - if ever - different this time. The key is the terminology. You see, many in the media are throwing around the word "inflation", and understandably so as they see prices (particularly staples, commodity and input prices) and money injected into the system go up appreciably. The problem is that the core real assets are not only in a deflationary cycle, but in a downright depression - reference . How can you have inflationary input prices and deflationary real asset prices amid stagnant employment? The answer is STAGLFATION! I have been calling for stagflation since 2008, and it definitely seems as if I called it correctly. Keep in mind that this will be one of the corner stone topics discussed in the ING Real Estate Valuation seminar in Amsterdam on April 8th, which has now sold out its capacity of 250 seats -see www.seminar.ingref.com. Amsterdam is a very interesting city to have such a discussion, for the pundits there are calling for a 25% office vacancy rate at a time of increasing inflationary pressures. On top of that, they have actually called in the world's leading real estate bear as the keynote speaker! It should be fun. I actually have an implementable solution to this mess. I wouldn't necessarily call it light at the end of the tunnel, but it is a way of pricing, valuing and transacting in these depreciating, illiquid assets correctly. Something that is currently lacking. Let's dig in, shall we...

Published in BoomBustBlog

The Huffington Post has an alarming story on its front page. Although alarming, I think we all know it to be fact before today.

The White House is preparing for a situation in Japan that could be "deadly for decades," a U.S. official tells ABC News. According to the official, the U.S. believes a larger evacuation zone should be imposed and that the next 24-48 hours are "critical."

"It would be hard to describe how alarming this is right now," ABC quoted the anonymous official as saying.

The nuclear crisis in Japan has intensified since the massive earthquake first damaged nuclear facilities. On Wednesday, the White House advised Americans within 50 miles of the Fukushima nuclear facility to evacuate and plant employees were temporarily forced to retreat as radiation levels "soared."

The difficulties caused by the evacuations were blamed for "escalating" the chances of a meltdown.

"They need to stop pulling out people -- and step up with getting them back in the reactor to cool it. There is a recognition this is a suicide mission," the unnamed U.S. official was quoted by ABC as saying.

Published in BoomBustBlog

My condolences truly go out to the people of Japan. A massive earthquake, a horrifyingly destructive tsunami, and then multiple nuclear emergencies and radiation poisoning is more distress than any nation had had to endure in such a short period of time in recent history. I am reticent to discuss the ramifications of such, alas that is the crux of the analysis of BoomBustBlog. I have noticed that many professional investors are detached from the real world causes and consequences of volatility and large swings in the markets. In a way, I can sort of understand. It's like playing a video game. All you are doing is pushing buttons in reactions to changing pixels on a glowing screen. Unfortunately, the reality of the matter is sometimes much more than that. Thus, as we go on to illustrate what I see will probably come out of this situation, let’s keep in mind that real people are getting hurt to very significant extent. Real children, real families, real grandparents...

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