Reggie Middleton's BoomBustBlog - Reggie Middleton's BoomBustBlog - Displaying items by tag: Current Affairs http://boombustblog.com Tue, 23 May 2017 14:45:49 -0400 en-gb T-Mobile Threatens Deadbeat Carriers With The Death Of The American Wireless Business Model http://boombustblog.com/blog/item/9215-t-mobile-threatens-deadbeat-carriers-with-the-death-of-the-american-wireless-business-model http://boombustblog.com/blog/item/9215-t-mobile-threatens-deadbeat-carriers-with-the-death-of-the-american-wireless-business-model

 It started in 2012 wiith the article "Deadbeat Carrier Creative Destruction In The Ongoing Mobile Computing Wars". That's when I warned that margins in the carrier space will collapse - just as they did in the cellular handset space, as new business models and the effect if Android start to ripple and reverbrate. My latest article in the series, "The Smallest & Liveliest Of The DeadBeat Carriers Successfully Launched Wireless WMDs" detailed how T-Mobile will throw the gauntlet down and turn the wireless industry on its head - at great risk not just to margins but entire business models. To wit:

There are 4 major national carriers in the US, basically two big ones two smaller ones. The smallest of the 4, T-Mobile, consistently get beat up - losing out on the right to subsidize the iPhone at a loss (like AT&T used to and Sprint still does) and basically losing subscribers. Then they decided to do something about it. They said, "Hey, let's stop being deadbeats!". By changing their pricing plans and eliminating subsidies and instead selling pure access to their virtual pipes (like a carrier is supposed to) combined with actual "real" financing of the hardware (at competitive rates, nonetheless) they essentially committed DeadBeat Carrier Blashphemy. The only issue was, it worked, to the chagrin of the competition - reference:

 Reggie Middleotns Carrier Cost ComparisonReggie Middleotns Carrier Cost Comparison

Reggie Middleotns Carrier Subsidy Cost ComparisonReggie Middleotns Carrier Subsidy Cost Comparison

  As a matter of fact, in Deadbeat Carriers Compete, aka #MarginCompression!!! (exactly ONE year ago), I prognosticated that T-Mobile will kick off a pricing war that will bring about the greatest savings to the wireless consumer it has seen since the birth of the industry. I even went so far as to include and online interactive spreadsheet for readers to analyze their own savings - or potential therefore.

Well, fast forward to today and we get to see if Reggie's thesis is still holding water. From the Street.com in How the Consumer Wins In the Wireless Wars:

Carriers are engaging in a price war in order to win market share, with T-Mobile's "uncarrier" plans really shaking things up. T-Mobile has been aggressively trying to grab market shares by eliminating consumer "pain points," specifically the issue of locking customers into two-year contracts. T-Mobile has been rolling out programs to entice customers to switch their carrier, with the latest three offerings announced in April, where the company under the "Simple Starter," "Tablet Freedom" and "Overage Freedom" - eliminated all domestic overage charges for consumers, even those on legacy plans. T-Mobile had announced in March 2013 its "Simple Choice" plan that offered no annual service contract and low out-of-pocket costs on smartphones.

The company must be doing something right, given its impressive first-quarter subscriber growth of 2.4 million total net customer additions for the three months, making it the "fastest growing wireless company in America," it said in its earnings release last week.

Both Verizon and AT&T are combating T-Mobile by touting payment agreements for customersthat require little to no down payment, more data, and fewer service charges when it comes to multiple phones or being able to pay for the device itself in installments as appealing features to switch over. (Check with your carrier to see the latest offers available.)

That said, it's easy for consumers to get confused by the growing array of options, but it's clear that for once, the consumer is winning since costs associated with smartphones are becoming more transparent and understandable. "This trend, combined with a wider selection of fully functional mid-range and low-end devices, should help win over the undecided consumers but also will shift the growth away from the high end," Kantar stated.

Between the first quarter of 2013 and the first quarter of this year, spending on smartphones on contracts dropped to $93 from $119, while pre-pay spending dropped to $148 from $187, Kantar said.

Now, the mainstream media and sell side analytical community is just a year (or two) late in realizing this, but better late then never, eh? Also from the Street.com we have Why T-Mobile Is Beating AT&T and Verizon:

 T-Mobile US shares were surging 8.1% to $31.67 following news that larger rival Sprint was prepping plans to propose a buyout of the carrier as its impressive subscriber growth for the first-quarter shows that consumers are digging its offerings.

T-Mobile, known for its "Un-carrier" initiatives, has been aggressively trying to grab market share by eliminating consumer "pain points," specifically the issue of locking customers into two-year contracts like Verizon , Sprint and AT&T . T-Mobile has been rolling out programs to entice customers to switch their carrier, with the latest three offerings announced in April, where the company under the "Simple Starter," "Tablet Freedom" and "Overage Freedom" - eliminated all domestic overage charges for consumers, even those on legacy plans. T-Mobile had announced in March 2013 its "Simple Choice" plan that offered no annual service contract and low out-of-pocket costs on smartphones.

The company must be doing something right, given its impressive first-quarter subscriber growth.

T-Mobile reported first-quarter earnings results earlier this morning in which it boasted 2.4 million total net customer additions for the three months, which included more than 1.8 million branded net customer additions, making it the "fastest growing wireless company in America," it said in its earnings release. T-Mobile ended the quarter with 49.1 million customers, it said. On the other hand, the company experienced "record low" churn of 1.5%, down 20 basis points from the fourth quarter and down 40 basis points from the year-earlier period.

...  T-Mobile actually posted a net loss of $151 million, or 19 cents a share, for the three months ending March 31, compared to a profit of $106 million, or 20 cents a share in the year-earlier quarter, according to its quarterly filing. However, revenue at the Bellevue, Wash.-based company rose 47% to $6.87 billion year over year. 

... Adjusted EBITDA came in at $1.1 billion, down 12.2% sequentially, which it attributed to increased equipment sales due to the "significant acceleration in customer growth and the success of its Un-carrier 4.0 - Contract Freedom offer." Adjusted EBITDA margin was 20% compared to 24% in the fourth quarter of 2013.<story_page_break>

... T-Mobile expects branded postpaid net additions between 2.8 million and 3.3 million for the full year and adjusted EBITDA to be in the range of $5.6 to $5.8 billion, it said.

Althouth T-Mobile may be hard pressed to replicate that pop in revenues and subscribers, I expect the trend to continue until and unless the other carriers match it in both pricing model and marketing efforts. I doubt they will do this until it is too late. They should, but they won't. That is unfortunate for thier investors for, as T-Mobile is the smallest of the top 4 national carriers, this is Verizon/ATT/Sprint's (in that order) fight to lose!

In addition, as revenue and subscriber rate increases subside, EBITDA may level off as the switching incentive costs amortize. This is not even considering what may happen if an entrepenurial and disruptive force (ex. Google Loon offshoots) appears on the scene.

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reggie@youcanreachmeatthisemail.com (Reggie Middleton) BoomBustBlog Wed, 07 May 2014 09:48:34 -0400
Does Mt. Gox Mark The Beginning of the End for Bitcoin? http://boombustblog.com/blog/item/9210-does-mt-gox-mark-the-beginning-of-the-end-for-bitcoin? http://boombustblog.com/blog/item/9210-does-mt-gox-mark-the-beginning-of-the-end-for-bitcoin?

On or about February 23rd, 2014, Mt. Gox (on of the larger bitcoin exchanges) collapsed. The MSM (mainstream media) had a field day...

kapre

LA times on btc

yhoo on btc

I warned everybody that the fall of Mt. Gox was simply a poorly managed small business getting its just dues. To correlate the fortunes of Mt. Gox with the fortunes of the Bitcoin ecosystem is akin correlating the fortune of the World Wide Web with that of Pets.com or Alta Vista in the 1990s. Sounds silly doesn't it? Well, fast forward 3 weeks from the Gox'd experience and this is what we find... BTC volatilityThe week after the media frenzy regarding Mt. Gox started to fade, the price of BTC (bitcoins) started a dramatic phase of price stabilization. This apparent price stabilization was verified by the very dramatic drop in standard deviation.

If we drill down to the weeks in question, we find... BTC volatility1

This price stabilization has occurred even before the wide scale adoption of UltraCoin. 

As always, I'm looking for:

  1. financial capital
  2. intellectual capital
  3. developers, management and sales/marketing expertise.

If you have any of this in abundance, hit me at reggie@ultra-coin.com.

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reggie@youcanreachmeatthisemail.com (Reggie Middleton) BoomBustBlog Sun, 16 Mar 2014 11:49:55 -0400
Yahoo borrows a page from Google's book and gets disruptive for 2014. I like!!! http://boombustblog.com/blog/item/9179-yahoo-borrows-a-page-from-googles-book-and-gets-disruptive-for-2014-i-like http://boombustblog.com/blog/item/9179-yahoo-borrows-a-page-from-googles-book-and-gets-disruptive-for-2014-i-like
Yahoo borrows a page from Google's book and gets disruptive for 2014. I like!!! 

The old media is ripe to be shaken up even further, and why should everyone let Google's Youtube have all of the fun. Lauren Lyster, a personality who used to interview me often on RT joined Yahoo last year as well. She's good and Yahoo is aggressively recruiting talent and investing in this space. 
Now, the old guard media, if they had any sense, would retaliate by pushing harder into the new media space. Don't hold your breath for that one to happen any time soon, though.

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reggie@youcanreachmeatthisemail.com (Reggie Middleton) BoomBustBlog Mon, 25 Nov 2013 11:57:04 -0500
What Sell Side Wall Street Doesn't Understand About Apple - It's Not The Leader Of The Post PC World!!! http://boombustblog.com/blog/item/6276-what-sell-side-wall-street-dont-understand-about-apple-its-not-the-leader-of-the-post-pc-world http://boombustblog.com/blog/item/6276-what-sell-side-wall-street-dont-understand-about-apple-its-not-the-leader-of-the-post-pc-world

I was going to name this piece "Why Sell Side Wall Street and the Mainstream Media Can't Touch Me", but I decided to go the humble route :-) Do you guys remember those highly paid Wall Street analysts and popular MSM guys who had $1,000+ price targets on Apple just a few months ago? Let's reminisce, shall we...

Let's contrast this to what I have espoused over a similar time frame...
  1.  - This pretty much says it all, right Mr. Munster of Piper Jaffrey??? Yeah, I called you out on this one! Here is an excerpt for good measure, but before you read it remember that Apple's thrashing at the exchange has forced it to renounce its earnigns manipulating ways - just as I anticipated!!!
    • Riddle me this - If Apple can consistently beat the estimates of your favorite analysts quarter after quarter, after quarter - for 11 quarters straight, shouldn't you fire said analysts for incompetency in lieu of celebrating Apple's ability to surprise? ... Apple management consistently lowballs guidance to such an extent that it can easily manage, no - actually create outperformance. This has has a very positive effect on their valuation... The analytical community and the (sheeple) investors which they serve... Subscribers can download the data that shows the blatant game being played between Apple and the Sell Side here: Apple Earnings Guidance Analysis. Those who need to subscribe can do so here.

      Below, I drilled down on the date and used a percentage difference view to illustrate the improvement in P/E stemming from the earnings beats.

      In our analysis of Apple, we are using real world assumptions of future performance derived from backing in to the low balling this company is prone to. If you look at its history carefully you can gauge what management is comfortable with, hence what they may be capable of on the margin. Using these more realistic numbers, it is much more likely Apple will deliver a miss in the upcoming quarters in its battle with the Android! The following is the reason why.

  2. A Glimpse of the BoomBustBlog Internal Discussion Concerning the Fate of Apple - This reviews the history of the commoditization of the PC at the hands of Microsoft (2010)
  3. Math and the Pace of Smart Phone Innovation May Take a Byte Out of Apple’s (Short-lived?) Dominance - This illustrates the pace of Android innovation forcing Apple to take a back seat or face margin compression
  4. Apple on the Margin - This is an illustration of margin compression, before the fact. Yes. Tomorrow's financial news,,, yesterday!

 Now, on to the title of the article and why these guys just don't understand Apple...

Apple is not the leader of the post PC world!Rotten plus GreenApple

Post PC World! That was part of the marketing mantra created by Steve Jobs and his RDF (Reality Distortion Field). PCs are personal computers. Personal computers are small (relative to mini computers and mainframes) computing devices. Apple made/makes nearly ALL of its revenues from PCs, particularly once they became imbued with always on telecommunication capabilities (ex. the Internet). These PCs include iMacs. Macbooks, iPods, iPads or iPhones - any way you look at it they are just PCs or ultra-portable PCs.
  1. So point one, PCs are still alive and well (thus far)...
  2. Point two, Apple makes nearly all of its money from PCs...
  3. Point three, Apple is not the leader of the PC world right now. It's not Dell nor HP, either. An Asian company is the PC leader - Samsung!

Samsung has out innovated, out distributed, outran and outsold Apple using the leverage of a free OS/ecosystem that is currently best of breed and improving at what is at least 3x the speed of the competition. Here's a tidbit to chew on..

Worldwide (traditional) PC shipments totaled 89.8 million units in the fourth quarter of 2012 (down 6.4% from Q4 2011) and is on  rapid and continuous downward decline in terms of growth (4Q12) - IDC

In the worldwide smartphone market, vendors shipped 219.4 million units in 4Q12. The year-over-year growth was 36.4%, as compared to what most people consider the PC's growth of negative 6.4% Althought the high-growth smartphone market was dominated by Samsung and Apple, prices are being driven down substantially by challengers.  As excerpted from IDC's mobile press release:

Kevin Restivo, senior research analyst with IDC's Worldwide Quarterly Mobile Phone Tracker. "Vendors with unique market advantages, such as lower-cost devices, can rapidly gain market share, especially in emerging markets. A good example is Huawei, which overtook LG as a Top 5 vendor in the overall mobile phone market and passed HTC to become a Top 5 smartphone vendor."

"The fact that Huawei and ZTE now find themselves among the Top 5 smartphone vendors marks a significant shift for the global market," noted Ramon Llamas, research manager with IDC's Mobile Phone team. "Both companies have grown volumes by focusing on the mass market, but in recent quarters they have turned their attention toward higher-end devices. In addition, both companies have pushed the envelope in terms of industrial design with larger displays and smaller form factors, as well as innovative applications and experiences."

What do ALL of these Asian companies have in common? What do ALL of these companies, except Apple, have in common? Well, for one, they're all growing a hell of a lot faster than Apple. In addition, Samsung has already overtaken Apple. But there's more. Here's a hint... Math and the Pace of Smart Phone Innovation May Take a Byte Out of Apple’s (Short-lived?) Dominance - This illustrates the pace of Android innovation forcing Apple to take a back seat or face margin compression.

So, what else is the sell side missing? Hardware is Dead!

Or at least the fat margined hardware model. Reference Smartphone Hardware Manufacturers Are Dead and Computer Hardware Vendors Are Dead, Part Deux! Yeah, you're not going to hear this from many investors or analysts, but then again how many can really see the forest for the trees? So, you ask, "How is it that hardware is dead?" Well....
  1.  For one: The open source OS paradigm calls for rapidly improving hardware specs at ever lower prices. I have pointed to evidence of this above, as these Asian OEMs produce ever better product at ever lower prices - just like the old school PC industry. This drives Google's info-centric business model which is why Google pushes free Android.
  2. Two: after years of outsourcing manufacturing tech and UP to low cost labor Asian countries, those countries have found a way to produce trinkets of their own. Of limited quality and value so you say? Well, remember the iPhone is a Chinese phone, through and through -at least Chinese built. So now you argue, it's American designed, just Chinese made! Please peruse the Oppo Finder 5, a phone that's drastically superior to the iPhone 5 in practically every single way, retailing for $100 less than the cheapest iPhone 5 made. Low cost, low margin products combined with Google's free OS will drive the price of hardware down to near zero, if not negative. Google even has its own hardware arm now (Motorola) to facilitate this downward march in margins and prices. Suppose Google decides to create best of breed Nexus devices and give them away just below cost? Imagine the best smartphone available in the world, unlocked, without a contract, for the cost of a single monthly wireless phone payment??? Google's Nexus program is acting as a training ground to teach Google's Motorola division to build best of breed! Google's biggest and most successful partner - Samsung, is an Asian company. Samsung Electronics of South Korea reported today that its quarterly profit  jumped 76%, as its Galaxy smartphones beat rival Apple's iPhone in each quarter of 2012. What many seem to have missed is that EBITDA, Operating and Gross margins all slipped QonQ though. A sign of things to come??? Remember, Google benefits most when the barriers to access information are least. Reference "Cost Shifting Your Way To Prominence Using The Network Effect, Or Google Wins - Apple, RIM & Microsoft Have ALREADY LOST!" as well as my videos below...

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Samsung is also currently Google's biggest threat. This (soon to be combative) symbiotic relationship is akin to the relationship that Samsung had with Apple. Competitors, yet symbiotic partner/clients. Samsung and Google are poised to have a slugfest. Their relationship is similar to that of Samsung and Apple, with Samsung being the Apple in this case. Apple is highly reliant upon Samsung for memory and processor chips, and screens. Although Apple is a the biggest Samsung client, it's by far not the only one and the Chinese manufacturers are up and coming. 
Since Samsung is highly reliant on Google's Android but Google has significant diversification when it comes to its reliance on Samsung, Samsung's role is reversed here. You do see who's winning the Samsung/Apple battle, don't you? Expect the same conflict with similar results when Samsung butts heads with Google, unless some significant changes come into play - Which is quite possible in this rapidly morphing landscape.
Despite this, I'm sticking with Google on this for now. You see, despite Samsung's meteoric growth and triumphs over Apple, even its margins are sliding Q on Q, but most miss this because of the massive jump in earnings. Yes! Margin compression! Remember, RIMM and AAPL (and Nokia too) both exhibited this massive jump in earnings before commoditization born from the Android less than free model struck home. Many were caught with their pants down who didn't read BoomBustBlog.
I warned in plenty of time to both avoid loss and profit on the short side for each company:

Now, Samsung seems to be the most innovative of the handset vendors to date, but if I'm right, they will end up having to innovate in a commodity space just like the traditional PC manufacturers (Dell, HP, etc.) have to do now. Why?  Because of point number Three...

The new PC is not even a PC anymore, its a multi-tiered, multi-function, distributed cluster of interactive, location aware, multimedia applications sharing your social activities and data through a network of servers - in short, it's the cloud!

For right now, GOOGLE IS THE CLOUD! See my video descriptions of Google's business models above.
 
Apple can't do cloud! 
 
Simply ask those iMap (our whatever it's called) users who were Bamboozled into switching from Google Maps.... and Apple will not learn the Cloud until it has been a "has been" in the likes of Sony and the Walkman or the PlayStation. That's the base case scenario. The optimistic case is that Apple learns to do the cloud enough to compete with and possibly beat Google, and burns deep into its cash horde, reducing margins along the way. Yes, that's the best case scenario. You see, it's not about who has the best products services at this point. I believe that's Google and its partners, but again that belief is beside the points.  In order for Apple to be competitive in a truly post PC world (I can't even say remain competitive) it simply HAS TO DROP MARGINS!!!
 
When Apples MARGINS drop (which they will have to) then the stock valuation drops. That's the margin compression theory that I've been pushing since 2010, culminating with a public call to short the stick into the lower band off the valuation range that I posted my paying subscribers on my site. See  Deconstructing The Most Hated Trade Of The Decade, The 375% BoomBustBlog Apple Call!! Was I right? Well when the most loved and highly captialized stock in the world drops fro $707 to about $440 in  few months, you tell me?
 
This should have been glaringly obvious to anyone who actively used and followed the products and services of Google and Apple, and had even a rudimentary understanding of business valuation. You know, it's amazing how far an awareness of cognitive biases and a mastery of second grade math can get you on Wall Street. It can actually bring you tomorrows news yesterday! Subscribe to BoomBustBlog today!
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reggie@youcanreachmeatthisemail.com (Reggie Middleton) BoomBustBlog Fri, 25 Jan 2013 09:28:27 -0500
Is Germany's Recent Move A New Storage Plan Or A Salvo In The Currency War? http://boombustblog.com/blog/item/6269-is-germanys-recent-move-a-new-storage-plan-or-a-salvo-in-the-currency-war? http://boombustblog.com/blog/item/6269-is-germanys-recent-move-a-new-storage-plan-or-a-salvo-in-the-currency-war?

In 2009, Max Keiser warned interviewed the Bundesbank and uncovered the fact that much of (if not most) Germany's gold resided in NYC. Well, now as this information has become mainstream, the Bundesbank has announced that it is repatriating much of their gold to national lands, under a stated "storage plan", aka potential currency war.

{youtube}8lnslMWhOTw{/youtube}

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reggie@youcanreachmeatthisemail.com (Reggie Middleton) BoomBustBlog Sun, 20 Jan 2013 08:06:25 -0500
Bigger Tax Payer Bank Bailouts Cometh? If You Think Taxes Are Gonna Be Higher You Ain't Seen Nothing Yet!!! http://boombustblog.com/blog/item/6248-bigger-tax-payer-bank-bailouts-cometh?-if-you-think-taxes-are-gonna-be-higher-you-aint-seen-nothing-yet http://boombustblog.com/blog/item/6248-bigger-tax-payer-bank-bailouts-cometh?-if-you-think-taxes-are-gonna-be-higher-you-aint-seen-nothing-yet

While perusing the news today, I came across this most interesting article in Bloomberg, Swaps ‘Armageddon’ Lingers as New Rules Concentrate Risk'. Before we delve into it, I want to review how vehemently I've sounded the alarm on this topic over the last 6 years. Let's start with So, When Does 3+5=4? When You Aggregate A Bunch Of Risky Banks & Then Pretend That You Didn't?, where I've aggregated my warnings into a single article. In a nutshell, 5 banks bear 96% of the global derivatives risk. The argument to defend such ass backwards risk concentration is "but it's mostly hedged, offset and netted out". Right! You know that old trader's saying about liquidity? It's always available, that is until you need it!

Even though I've made this point of netting = nonsense multiple times, I must admit, ZH did a more loquacious job, as follows:

..Wrong. The problem with bilateral netting is that it is based on one massively flawed assumption, namely that in an orderly collapse all derivative contracts will be honored by the issuing bank (in this case the company that has sold the protection, and which the buyer of protection hopes will offset the protection it in turn has sold). The best example of how the flaw behind bilateral netting almost destroyed the system is AIG: the insurance company was hours away from making trillions of derivative contracts worthless if it were to implode, leaving all those who had bought protection from the firm worthless, a contingency only Goldman hedged by buying protection on AIG. And while the argument can further be extended that in bankruptcy a perfectly netted bankrupt entity would make someone else who on claims they have written, this is not true, as the bankrupt estate will pursue 100 cent recovery on its claims even under Chapter 11, while claims the estate had written end up as General Unsecured Claims which as Lehman has demonstrated will collect 20 cents on the dollar if they are lucky.

The point of this detour being that if any of these four banks fails, the repercussions would be disastrous. And no, Frank Dodd's bank "resolution" provision would do absolutely nothing to prevent an epic systemic collapse. 

Hey, there ain't no concentration risk in US banks, and any blogger with two synapses to spark together should know this... From An Independent Look into JP Morgan.

Click graph to enlarge

 image001.pngimage001.pngimage001.pngimage001.png

Cute graphic above, eh? There is plenty of this in the public preview. When considering the staggering level of derivatives employed by JPM, it is frightening to even consider the fact that the quality of JPM's derivative exposure is even worse than Bear Stearns and Lehman‘s derivative portfolio just prior to their fall. Total net derivative exposure rated below BBB and below for JP Morgan currently stands at 35.4% while the same stood at 17.0% for Bear Stearns (February 2008) and 9.2% for Lehman (May 2008). We all know what happened to Bear Stearns and Lehman Brothers, don't we??? I warned all about Bear Stearns (Is this the Breaking of the Bear?: On Sunday, 27 January 2008) and Lehman ("Is Lehman really a lemming in disguise?": On February 20th, 2008) months before their collapse by taking a close, unbiased look at their balance sheet. Both of these companies were rated investment grade at the time, just like "you know who".

So, the Bloomberg article that got this rant started basically says that the risk is being shifted from the banks to clearing houses, who demand above board, translucent collateral for transactions. This should solve the problem, right? Hardly! You see, the Fed and US banking regulators have made it legal and acceptable for banks to outright lie about the qualit of their collateral and the condition of their finances. It all came to light with my research on Lehman (and Bear Stearns, amonst others). These mistakes are so repetitive of the ones made in the past, I literally do not have to right any new material, let's just re-read what was written several years ago:

Lehman Brothers and Its Regulators Deal the Ultimate Blow to Mark to Market Opponents

Let's get something straight right off the bat. We all know there is a certain level of fraud sleight of hand in the financial industry. I have called many banks insolvent in the past. Some have pooh-poohed these proclamations, while others have looked in wonder, saying "How the hell did he know that?"

The list above is a small, relevant sampling of at least dozens of similar calls. Trust me, dear reader, what some may see as divine premonition is nothing of the sort. It is definitely not a sign of superior ability, insider info, or heavenly intellect. I would love to consider myself a hyper-intellectual, but alas, it just ain't so and I'm not going to lie to you. The truth of the matter is I sniffed these incongruencies out because 2+2 never did equal 46, and it probably never will either. An objective look at each and every one of these situations shows that none of them added up. In each case, there was someone (or a lot of people) trying to get you to believe that 2=2=46.xxx. They justified it with theses that they alleged were too complicated for the average man to understand (and in business, if that is true, then it is probably just too complicated to work in the long run as well). They pronounced bold new eras, stating "This time is different", "There is a new math" (as if there was something wrong with the old math), etc. and so on and associated bullshit.

So, the question remains, why is it that a lowly blogger and small time individual investor with a skeleton staff of analysts can uncover systemic risks, frauds and insolvencies at a level that it appears the SEC hasn't even gleaned as of yet? Two words, "Regulatory Capture". You see, and as I reluctantly admitted, it is not that I am so smart, it is that the regulator's goals are not the same as mine. My efforts are designed to ferret out the truth for enlightenment, profit and gain. Regulators' goals are to serve a myriad constituency that does not necessarily have the individual tax payer at the top of the hierarchical pyramid. Before we go on, let me excerpt from a piece that I wrote on the topic at hand so we are all on the same page: How Regulatory Capture Turns Doo Doo Deadly.

You see, the banking industry lobbied the regulators to allow them to lie about the value and quality of their assets and liabilities and just like that, the banking problem was solved. Literally! At least from a equity market pricing and public disinformation campaign point of view...

A picture is worth a thousand words...

fasb_mark_to_market_chart.pngfasb_mark_to_market_chart.pngfasb_mark_to_market_chart.png

So, how does this play into today's big headlines in the alternative, grass roots media? Well, on the front page of the Huffington Post and ZeroHedge, we have a damning expose of Lehman Brothers (we told you this in the first quarter of 2008, though), detailing their use of REPO 105 financing to basically lie about their
liquidity positions and solvency. The most damning and most interesting tidbit lies within a more obscure ZeroHedge article that details findings from the recently released Lehman papers, though:

On September 11, JPMorgan executives met to discuss significant valuation problems with securities that Lehman had posted as collateral over the summer. JPMorgan concluded that the collateral was not worth nearly what Lehman had claimed it was worth, and decided to request an additional $5 billion in cash collateral from Lehman that day. The request was communicated in an executive?level phone call, and Lehman posted $5 billion in cash to JPMorgan by the afternoon of Friday, September 12. Around the same time, JPMorgan learned that a security known as Fenway, which Lehman had posted to JPMorgan at a stated value of $3 billion,was actually asset?backed commercial paper credit?enhanced by Lehman (that is, it was Lehman, rather than a third party, that effectively guaranteed principal and interest payments). JPMorgan concluded that Fenway was worth practically nothing as collateral.

Well, I'm sure many are saying that this couldn't happen in this day and age, post Lehman debacle, right? Well, it happened in 2007 with GGP and I called it -  The Commercial Real Estate Crash Cometh, and I know who is leading the way! As a matter of fact, we all know it happened many times throughout that period. Wait a minute, it's now nearly 2013, and lo and behold.... When A REIT Trading Over $15 A Share Is Shown To Have Nearly All Of Its Properties UNDERWATER!!!

Paid subscribers are welcome to download the corporate level valuation of PEI as well as all of the summary stats of our findings on its various properties. The spreadsheet can be found here - File Icon Results of Properties Analysis, Valuation of PEI with Lenders' Names. In putting a realistic valuation on PEI, we independently valued a sampling of 27 of its properties. We found that many if not most of those properties were actually underwater. Most of those that weren't underwater were mortgaged under a separate credit facility.   

PEI Underwater  Overly Encumbered Properties

What are the chances that the properties, whole loans and MBS being pledged by PEI's creditors are being pledged at par? Back to the future, it's the same old thing all over again. Like those banks, PEI is trading higher with its public equity despite the fact that its private equity values are clearly underwater - all part of the perks of not having to truly mark assets to market prices.  

 From Bloomberg: Swaps ‘Armageddon’ Lingers as New Rules Concentrate Risk

Clearinghouses cut risk by collecting collateral at the start of each transaction, monitoring daily price moves and making traders put up more cash as losses occur. Traders have to deal through clearing members, typically the biggest banks and brokerages. Unlike privately traded derivatives, prices for cleared trades are set every day and publicly disclosed.

And what happens when everybody lies about said prices? Is PEI's debt really looking any better than GGP's debt of 2007?

GGP Leverage Summary 2007

Properties with negative equity and leverage >80% 32
Properties with leverage >80% 44
% of properties with negative equity (based on CFAT after debt service) 72.7%

PEI Summary 2012

PEI Underwater  Overly Encumbered Properties

Both of these companies have debt that have been pledged by banks as collateral. Would you trust either of them? The banks then use the collateral to do other deals leading to more bubbles. What's next up in bubble land? I warned of it in 2009...

Check this out, from "On Morgan Stanley's Latest Quarterly Earnings - More Than Meets the Eye???" Monday, 24 May 2010:

Those who don't subscribe should reference my warnings of the concentration and reliance on FICC revenues (foreign exchange, currencies, and fixed income trading).  Morgan Stanley's exposure to this as well as what I have illustrated in full detail via the  the Pan-European Sovereign Debt Crisis series, has increased materially. As excerpted from "The Next Step in the Bank Implosion Cycle???":

The amount of bubbliciousness, overvaluation and risk in the market is outrageous, particularly considering the fact that we haven't even come close to deflating the bubble from earlier this year and last year! Even more alarming is some of the largest banks in the world, and some of the most respected (and disrespected) banks are heavily leveraged into this trade one way or the other. The alleged swap hedges that these guys allegedly have will be put to the test, and put to the test relatively soon. As I have alleged in previous posts (As the markets climb on top of one big, incestuous pool of concentrated risk... ), you cannot truly hedge multi-billion risks in a closed circle of only 4 counterparties, all of whom are in the same businesses taking the same risks.

Click to expand!

bank_ficc_derivative_trading.pngbank_ficc_derivative_trading.png

So, How are Banks Entangled in the Mother of All Carry Trades?

Trading revenues for U.S Commercial banks have witnessed robust growth since 4Q08 on back of higher (although of late declining) bid-ask spreads and fewer write-downs on investment portfolios. According to the Office of the Comptroller of the Currency, commercial banks' reported trading revenues rose to a record $5.2 bn in 2Q09, which is extreme (to say the least) compared to $1.6 bn in 2Q08 and average of $802 mn in past 8 quarters.

bank_trading_revenue.pngbank_trading_revenue.png

High dependency on Forex and interest rate contracts

Continued growth in trading revenues on back of growth in overall derivative contracts, (especially for interest rate and foreign exchange contracts) has raised doubt on the sustainability of revenues over hear at the BoomBustBlog analyst lab. According to the Office of the Comptroller of the Currency, notional amount of derivatives contracts of U.S Commercial banks grew at a CAGR of 20.5% to $203 trillion by 2Q-09 from $87.9 trillion in 2004 with interest rate contracts and foreign exchange contracts comprising a substantial 84.5% and 7.5% of total notional value of derivatives, respectively. Interest rate contracts have grown at a CAGR of 20.1% to $171.9 trillion between 4Q-04 to 2Q-09 while Forex contracts have grown at a CAGR of 13.4% to $15.2 trillion between 4Q-04 to 2Q-09.

In terms of absolute dollar exposure, JP Morgan has the largest exposure towards both Interest rate and Forex contracts with notional value of interest rate contracts at $64.6 trillion and Forex contracts at $6.2 trillion exposing itself to volatile changes in both interest rates and currency movements (non-subscribers should reference An Independent Look into JP Morgan, while subscribers should referenceFile Icon JPM Report (Subscription-only) Final - Professional, and File Icon JPM Forensic Report (Subscription-only) Final- Retail). However, Goldman Sachs with interest rate contracts to total assets at 318.x and Forex contracts to total assets at 11.2x has the largest relative exposure (see Goldman Sachs Q2 2009 Pre-announcement opinion Goldman Sachs Q2 2009 Pre-announcement opinion 2009-07-13 00:08:57 920.92 Kb,  Goldman Sachs Stress Test ProfessionalGoldman Sachs Stress Test Professional 2009-04-20 10:06:45 4.04 MbGoldman Sachs Stress Test Retail Goldman Sachs Stress Test Retail 2009-04-20 10:08:06 720.25 Kb,). As subscribers can see from the afore-linked analysis, Goldman is trading at an extreme premium from a risk adjusted book value perspective.

bank_forex_exposure.pngbank_forex_exposure.png


Back to the Bloomberg article:

Disaster Scenario

The need for a Fed rescue isn’t out of the question, said Satyajit Das, a former Citicorp and Merrill Lynch & Co. executive who has written books on derivatives. Das sketched a scenario where a large trader fails to make a margin call. This kindles rumors that a bank handling the trader’s transactions -- a clearing member -- is short on cash.

Remaining clients rush to pull their trading accounts and cash, forcing the lender into bankruptcy. Questions begin to swirl about whether the remaining clearing members can absorb billions in losses, spurring more runs.

“Bank customers panic, and they start to withdraw money,” he said. “The amount of money needed starts to become problematic. None of this is quantifiable in advance.” The collateral put up by traders and default fund sizes are calculated using data that might not hold up, he said.

The collateral varies by product and clearinghouse. At CME, the collateral or “margin” for a 10-year interest-rate swap ranges between 2.89 percent and 4.06 percent of the trade’s notional value, according to Morgan Stanley. At LCH, it’s 3.2 percent to 3.41 percent, the bank said in a November note.

How Much?

The number typically is based on “value-at-risk,” and is calculated to cover the losses a trader might suffer with a 99 percent level of confidence. That means the biggest losses might not be fully covered.

It’s a formula like the one JPMorgan used and botched earlier this year in the so-called London Whale episode, when it miscalculated how much risk its chief investment office was taking and lost at least $6.2 billion on credit-default swaps. Clearinghouses may fall into a similar trap in their margin calculations, the University of Houston’s Pirrong wrote in a research paper in May 2011.

“Levels of margin that appear prudent in normal times may become severely insufficient during periods of market stress,” wrote Pirrong, whose paper was commissioned by an industry trade group.


Oh, but wait a minute? Didn't I clearly outline such a scenario in 2010 for French banks overlevered on Greek and Italian Debt (currently trading at a fractiono of par)? See The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!

The problem then is the same as the European problem now, leveraging up to buy assets that have dropped precipitously in value and then lying about it until you cannot lie anymore. You see, the lies work on everybody but your counterparties - who actually want to see cash!

 

image012image012

Using this European bank as a proxy for Bear Stearns in January of 2008, the tall stalk represents the liabilities behind Bear's illiquid level 2 and level 3 assets (including the ill fated mortgage products). Equity is destroyed as the assets leveraged through the use of these liabilities are nearly halved in value, leaving mostly liabilities. The maroon stalk represents the extreme risk displayed in the first chart in this missive, and that is the excessive reliance on very short term liabilities to fund very long term and illiquid assets that have depreciated in price. Wait, there's more!

The green represents the unseen canary in the coal mine, and the reason why Bear Stearns and Lehman ultimately collapsed. As excerpted from "The Fuel Behind Institutional “Runs on the Bank" Burns Through Europe, Lehman-Style":

The modern central banking system has proven resilient enough to fortify banks against depositor runs, as was recently exemplified in the recent depositor runs on UK, Irish, Portuguese and Greek banks – most of which received relatively little fanfare. Where the risk truly lies in today’s fiat/fractional reserve banking system is the run on counterparties. Today’s global fractional reserve bank get’s more financing from institutional counterparties than any other source save its short term depositors.  In cases of the perception of extreme risk, these counterparties are prone to pull funding are request overcollateralization for said funding. This is what precipitated the collapse of Bear Stearns and Lehman Brothers, the pulling of liquidity by skittish counterparties, and the excessive capital/collateralization calls by other counterparties. Keep in mind that as some counterparties and/or depositors pull liquidity, covenants are tripped that often demand additional capital/collateral/ liquidity be put up by the remaining counterparties, thus daisy-chaining into a modern day run on the bank!

image006image006

I'm sure many of you may be asking yourselves, "Well, how likely is this counterparty run to happen today? You know, with the full, unbridled printing press power of the ECB, and all..." Well, don't bet the farm on overconfidence. The risk of a capital haircut for European banks with exposure to sovereign debt of fiscally challenged nations is inevitable.

You see, the risk is all about velocity and confidence. If the market moves gradually, the clearing house system is ok. If it moves violently and all participants move for cash at the same time against bogus collateral... BOOMMMM!!!!!!!

Back to the Bloomberg article...

Stress Levels

What’s more, clearinghouses can’t use their entire hoard of collateral to extinguish a crisis because it’s not a general emergency fund. The sum represents cash posted by investors to cover their own trades and can’t be used to cover defaults of other people.

Clearinghouses can turn to default funds to cover the collapse of the two largest banks or securities firms with which they do business. They have the power to assess the remaining solvent members for billions more, enough to cover the demise of their third- and fourth-largest members.

But wait a minute, the other members are only solvent because they have hedges against the insolvency of the insolvent members. If those hedges fail, then the so-called solvent members are insolvent too! Or did nobody else think of that?

After all, this circular reasoning worked out very well for Greece, didn't it? See Greece's Circular Reasoning Challenge Moves From BoomBustBlog to the Mainstream...

 

 


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reggie@youcanreachmeatthisemail.com (Reggie Middleton) BoomBustBlog Fri, 21 Dec 2012 08:56:05 -0500
Cost Shifting Your Way To Prominence Using The Network Effect, Or Google Wins - Apple, RIM & Microsoft Have ALREADY LOST! http://boombustblog.com/blog/item/6246-cost-shifting-you-way-to-prominence-using-the-network-effect-or-google-wins-apple-has-already-lost http://boombustblog.com/blog/item/6246-cost-shifting-you-way-to-prominence-using-the-network-effect-or-google-wins-apple-has-already-lost

One of the inevitable results of cost shifting (see the video below) is not just the compression of margins, but the rapid advancement of adoption by the masses. This rapid adoption causes users producers, and in the tech space - programmers and hardware OEMs to dump significant amounts of resources into the product in the race for revenue and proftis. The end result? A materially superior product, even if that product started off inferior to the competition. This was the case with Windows back in the 80's and 90's, where Windows 2.0 was trash, and by the time you got to Windows 95, the application space was ubiquitous.

Well, the new millenium digital master of cost shifting, has taken its less than free product and imbued it with technology from both a hardware and software perspective that is totally unmatched by ALL of its competiion. reference this article from Bloomberg: HTC Said to Halt Larger Windows Phone on Display Resolution

 HTC Corp. (2498) scrapped plans to produce a large-screen smartphone using Microsoft Corp. (MSFT)’s operating system because the screen would have had lower resolution than competing models, a person familiar with the project said. The Windows software doesn’t support resolutions as high as that on Google Inc. (GOOG)’s Android platform, said the person, who asked not to be identified because the information isn’t public.

It should be noted that Apple's iOS can't support anything near the 1080p resolution as well. Microsoft does have the Windows RT and Pro OS lines. I'm typing this on a Windows 8 convertible tablet/notbeook (the Lenovo Yoga 13, a truly wonderful device that should make Apple iPad purchases seem daft in retrospect), but I feel it may be too little to late to make any inroads into the mobile space that will truly dent Google's prominence.

Chief Executive Officer Peter Chou’s decision to halt the project using Windows Phone 8 software leaves HTC with only Android for phones measuring larger than 5 inches diagonally, dealing a blow to Microsoft in its efforts to win share from Google and Apple Inc. (AAPL) Taoyuan, Taiwan-based HTC had planned to introduce the device next year to claw back share from Samsung Electronics Co., which offers Galaxy Note devices with larger screens using Android. Android snared 72 percent of the market in the third quarter, while Apple’s iOS software had 14 percent, according to Gartner Inc.

Microsoft isn't the only casualty here, for Bloomberg reports: First China Mobile, Now Russia's MTS Drops iPhone. Basically, the largest of the foreign carriers are either dropping Apple are demanding larger concessions from the company before they decide to carry the phone. This results in two things, unrestricted reign for Google's Android to proliferate (first indicated by BoomBustBlog nearly three years ago, Math and the Pace of Smart Phone Innovation May Take a Byte Out of Apple’s (Short-lived?) Dominance), and margn compression in Apple - a thesis presented nearly three years ago again - Android Now Outselling iOS? Explaining the Game of Chess That Google Plays in the Smart Phone Space, and perfected within a week or two of Apple's all time high and consequent fall from grace:  (see Right On Time, My Deconstructing The Most Hated Trade Of The Decade, The 375% BoomBustBlog Apple Call!! I went into detail with Deconstructing The Most Accurate Apple Analysis Ever Made - Share Price, Market Share, Strategy and All). 

The call to short Research in Motion two years ago () was born from the same logic. We all know how that story turned out - BoomBustBlog Research Performs a RIM Job! and Another RIMM Job? It's Amazing How Many Institutions Don't Read ... Margin will not be available to companies using last millenium's software model, and fat margined hardware is dead. The hardware is quickly becoming a commodity, see Smartphone Hardware Manufacturers Are Dead, Long Live The Google-like Solution Providers and Computer Hardware Vendors Are Dead, Part 2). ALL of the hardware vendors need to do what the (use to be) pre-eminent software vendor is doing now, reference Microsoft Is Doing What The "Has Been Giants Of Yesteryear" Were Afraid To Do, Make A Radical Change BEFORE ITS TOO LATE! All of these "emergencies" are borne from Google and thier extremely dangerous cost shifting business model.

Google's cost shifting business model, explained...

{youtube}NIt9TBE3hy4{/youtube}

Google's last three mobile phone software incarnations (Android 4.0, 4.11/2, & 4.2) are so materially superior to all of the competition in nearly everyway as to be nearly incomparable. Now, thanks to massive adoption by hundreds of OEMs around the world and the extreme rate of R&D expansion into this space, the hardware pushing the software is incomparable as well, with 8 core CPU chips and full 1080p unbreakable screens breaking the horizon next quarter, all with battery lives that can pierce the 36 hour mark. This is fascinating for smart phone shipments now handily outpace traditional PC shipments (I say traditional because smartphones are essentially ultra mobile PCs now). The company that controls the smartphone platform becomes the new age Microsoft of the last millenium. It amazing, since the old age Microsoft was the one best suited (at least it appeared) to be the new age Microsoft, but big company mentality, mixed with hubris and execution errors allowed Google to reinvent the software business model.

Could anyone have seen this coming? Of course they could have, at least they could have if they read BoomBustBlog...

Two and a half years ago, on Thursday, 05 August 2010 I penned: Android Now Outselling iOS? Explaining the Game of Chess That Google Plays in the Smart Phone Space. Let's traipse through it to see how accurate these near three year predictions in this volatile space have been:

Many commenters are lamenting on the fact that Google is not making money on Android sales since the OS is given away for close to free while Apple is making $250 per handset sold. Those who are looking at it from this perspective are missing the forest due to that big fat tree that is in their way! Yes, Apple is making a killing on its iPhone sales, and it would be difficult to attempt to catch them with a fat margined product. They have managed to produce both margin and volume and have wrapped it up with extreme customer loyalty. What the armchair pundits are missing is the power of reach. Google is developing massive reach, and developing it ridiculously quickly. A byproduct of this reach is the commoditization of the smart phone platform which will probably cut the fat margined business model off at its knees. That is not to say that Apple will be cut off at the knees, but they will have to alter their business model for the competitor-less margin that they enjoyed for the last three years will no longer be a given. It also means that anyone else reaching for the crown (including Apple) will have to spend more upfront to gain less per unit sold. This actually benefits Google, for they are not in the hardware race, yet they benefit from each and every handset, tablet, desktop and automotive unit sold. Google is trying to become the new Microsoft!

As clearly anticipated, Apple's margins have dropped, and are expected to drop even more and at a faster rate. Bingo! Right On Time, My Prediction Of Apple Margin Compression 8 Quarters From My CNBC Warning Landed Right On The Money!

In the meantime, Google ramps up the potential to push software as a cloud service, downloadable software and interactive, activity/context sensitive rich media ads and services to hundreds of millions of new users. This opens up a phenomenal opportunity for Google, and it appears as if many are missing the point because Google (wisely) decided not monetize it immediately, but to let it gestate and grow. Do you remember 15 years ago when many felt the same about search and the fact that Google wasn’t making any money providing search (pre-advertising)? Now this is not to say that Google is going to win the Smart Phone Wars, although at this point Google looks like the number one contender (IMO, Apple, Google and Microsoft are the ones to look out for). Apple has a very different and unique approach that is executing quite well from a profit and market share approach. Google has very strong momentum, and Microsoft has, by far, the strongest infrastructure. The only definite that I see is that this is a very exciting time to be a consumer of these products, for the competition is forcing everybody to push out the best that they have to offer – very much unlike the time when MSFT ran everything and which produced Windows Vista. Don’t believe me? Well, if you haven’t had a chance to yet, check out the features packed into the new Windows Mobile 7 OS - After Getting a Glimpse of the New Windows Phone 7 Functionality, RIMM is Looking More Like a Short Play.

Other perks from the Smart Phone Wars competition:

    • You can bet your left ass cheek that the iPhone 5 will have an Evo-sized screen with resolution to match today’s LCD flat screens, accompanied by the opening up of the iPhone to standards-based peripherals, ex. HDMI plugs and USB. The screen size increase is a definite, but peripherals is a maybe. Die hard Apple fans won’t mind that they have to jump through hoops to connect their device, but the rest of the world will lean towards an Android device if they can’t easily use their phone/tablet with existing hardware. Apple sees this as well as I do. I’m sure they’ll find a way to gimp the standard somewhat, but more open is better than less open.

The iPhone 5 did come out with a larger screen, albeit just now quiet large enough. For power users and those who are on their phone a lot  or consume significant multi-media, this is a deal breaker. Apple also went deeper into the proprietary field versus more standards based. This will give a temporary blip upwards in profits and lock-in, then ultimately cause #FAIL as Android ubiquity seeps in. This was a major error on the part of management.

    • You will probably see Nokia adopt Android or Windows Mobile on some of its devices, or you will see continued market share decline. Nokia makes some kick-ass hardware, and will challenge HTC if they had the OS to go along with it.

 As predicted, Nokia did adopt the Windows platform, and it did so en masse - reference The Nokia/Microsoft Alliance & Android's Commoditization Of the Mobile OS Platform. While many believe this to have been a foolish move on the part of Nokia, I believe it was their better bet. Now, they need to work on pushing the hardware boundaries like Samsung, HTC, et. al. This is not to say they will win, but it makes losing marginally less likely.

    • Microsoft is guaranteed to extend their hegemony on the desktop and enterprise server space to the handset, as well as their reach into the consumer living room via the Xbox. The result? More functionality, more usability, and better overall products.

Another accurate prediction as Microsoft goes full tilt into the hardware business (not peripherals, but actual computers with their Surface intiative). This was a very risky move on Microsoft's part, but something had to be done and the move is applauded by this author, as is the switch to the Windows 8 touch paradigm. Again, reference reference Microsoft Is Doing What The "Has Been Giants Of Yesteryear" Were Afraid To Do, Make A Radical Change BEFORE ITS TOO LATE!

Roughly 3 years ago in my "mobile computing wars" series, I foretold of The Creatively Destructive Pace of Technology Innovation and the Paradigm Shift known as the Mobile Computing Wars! In particular, I warned of the benefits to the consumer and pitfalls to the potential losers of the battle between Apple, Microsoft and Google, reference There Is Another Paradigm Shift Coming in Technology and Media: Apple, Microsoft and Google Know its Winner Takes All. By the way, by Q1 2010, it was already evident to BoomBustBloggers that Research In Motion was a goner - ). While the bulk of my opinion and analysis was directed between the upcoming heated battle between Apple and Google (The Mobile Computing and Content Wars: Part 2, the Google Response to the Paradigm Shift and An Introduction to How Apple Apple Will Compete With the Google/Android Onslaught) which was accurately called, I also appeared to be the lone gunman in warning that Microsoft is not even close to being out of the race just yet - . This was early 2010. Well, nearly 3 years later, we have MSFT doing what IBM, LOTUS, HP, DELL, and a wide variety of other tech companies simply didn't have the balls to do. What is that, you ask? They risked cannibalizing their cash cow revenues and kicking their lazy, unmotivated (despite declining margins and market share, via ass whoopin's from Google and Apple) OEM's in the nuts, forcing either an exponential growth via a pheonix-like rebirth style wake-up call or a collapse from atrophy. Either way, Microsoft is attempting to position itself to benefit. The previous world tech rulers simply got too comfortable in their make money by doing nothing, cash cow, monopolistic business lines and sat around while more innovative and nimble competitors literally ate their lunch then came bombarding in demanding dinner as well (say Apple).

    • The Android clan (which is nearly everybody who is not RIM, Apple and MSFT, and maybe Nokia) will try their best to pump their R&D departments to their limits, and you will be getting bleeding edge products pushed to your door step on a quarterly basis until a clear winner is selected - which will probably be sometime from now.


Again, another very prescient call, as can be referenced through the public release of our latest report on Apple, :

Like the Galaxy Note 2 clearly makes the iPhone appear to be a toy rather than a useful device, the Surface does the same to the iPad.

{youtube}KxtE9vNVoy4{/youtube}

{youtube}pVZyOkd-TjE{/youtube}

Apple -Competition and Cost Structure - unlocked Page 09

Currently, the best phone on the market (feature-wise) also happens to be the cheapest phone on the market, and also happens to be a Chinese phone... Sold by a Chinese Company.

The-OPPO-Finders-Different-Views

This phone is one of the thinnest phones ever sold at 6.99 millimeters thick.

It has a 5 inch, FULL HD 1080p screen resolution with 441dpi density. This is approaching twice the resolution of the iPhone 5 and a full 1/3 greater pixels more than the "retina' screen.

The phone has the fastest chip on the market, the new quad-core Snapdgragon, materially faster than the chip inside the iPhone, and not just spec-wise but actual real world performance as well.

It has a 2.1 mega-pixel front facing camera that can do full HD video conferencing and a 12 mega-pixel rear facing camera with dual xenon flash (one of the highest resolutions in the market).

This cell phone will outrun and outperform a Macbook air laptop in many instances!

It is not a cheap Chinese knock-off. If anything, the iPhone 5 is a cheap American designed, Chinese made knock-off. Try doing this with your iPhone 5....

{youtube}6tMyDKdFs-o{/youtube}

Oh yeah! A two year old already tried it, not with a grown man via hammer and nails, but just with her mommy's keys (may I add that iFixit is a well respected outfit):

{youtube}OSFKVq36Hgc{/youtube}

Long story short, if anything, the iPhone 5 is the cheap knock off in terms of speed, durabilty or functionality!

This phone retails, unsubsidized and fully unlocked for just over $500 USD, as compared to the iPhone 5 which starts at $649. As I have been saying for quite some time, Apple is WAAAAYYYY behind the curve in terms of functionality, specs and quality and the only way they can catch up to the Android clan (that is if they even can catch up) is through share price destroying #MarginCompression, as told throughout this blog's Apple research history (see, again, Right On Time, My Prediction Of Apple Margin Compression 8 Quarters From My CNBC Warning Landed Right On The Money).

Must read Smart Phone Wars commentary from 3 years ago becomes true in real time:

    1. There Is Another Paradigm Shift Coming in Technology and Media: Apple, Microsoft and Google Know its Winner Takes All
    2. The Mobile Computing and Content Wars: Part 2, the Google Response to the Paradigm Shift
    3. An Introduction to How Apple Apple Will Compete With the Google/Android Onslaught
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!

I have lamented several times before the anti-Apple rhetoric hit the MSM, Which Is The More Sustainable Business Model - Selling The World's Information or Selling Shiny New Things??? as Apple Bias In The Media Has Simply Gone Too Far, Potentially Hoodwinking Investors Into Believing Apple Has Not Reached Its Zenith!

Related BoomBustBlog Subscription-only Research:

Apple 4Q2012 update professional & institutional

Apple 4Q2012 update - retail

 

Apple -Competition and Cost Structure - unlocked Page 03Apple -Competition and Cost Structure - unlocked Page 03 

Apple -Competition and Cost Structure - unlocked Page 04Apple -Competition and Cost Structure - unlocked Page 04 

Apple -Competition and Cost Structure - unlocked Page 05Apple -Competition and Cost Structure - unlocked Page 05 

Apple -Competition and Cost Structure - unlocked Page 06Apple -Competition and Cost Structure - unlocked Page 06 

 Apple -Competition and Cost Structure - unlocked Page 08

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.

file iconGoogle Q1-2012 Valuation Summmary 04/20/2012

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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reggie@youcanreachmeatthisemail.com (Reggie Middleton) BoomBustBlog Tue, 18 Dec 2012 03:42:47 -0500
What Happens When The Markets Call The Collective Bluffs Of The IMF, EC & ALL Major Rating Agencies' LIES? http://boombustblog.com/blog/item/6231-what-happens-when-the-markets-call-the-collective-bluffs-of-the-imf-ec-all-major-rating-agencies-lies? http://boombustblog.com/blog/item/6231-what-happens-when-the-markets-call-the-collective-bluffs-of-the-imf-ec-all-major-rating-agencies-lies?

 Throughout the last two quarters I have bandied about corny, colloquial, yet highly descriptive articles describing the factual representation of Spain's outlook, such as The Economic Bloodstain From Spain's Pain Will Cause European Tears To Rain or You Have Not Known Pain Until You've Tried To Limit The Borrowing Costs of Spain!!! Well, as humorous as my nascent stand-up routine may appear to be, the facts of the matter should have market participates on edge. 

Fact 1: As revealed in the post, The Embarrassingly Ugly Truth About Spain: The IMF, EC and ALL Major Rating Agencies Are LYING!!! Spain has serious asset/liablity mismatch and extreme issues with NPAs in its banking system. It will NOT be able to grow out of this situation in the near term and this was apparent 3 years ago! 

I warned that Spain was effectively ignoring some very large, bank related and budgetary problems as far back as 2009/10.... Reference The Spain Pain Will Not Wane: Continuing the Contagion Saga:

In the general our analysis Spain public finances projections_033010, the first four (of 12) pages basically outline the gist of the Spanish problem today, to wit here are the first two:

Spain_public_finances_projections_033010_Page_02

Fact 2: These NPAs will get much worse before they get better, detailed in As The Truth Catches Up With Spain, Will Banks Finally Be Forced To Mark To Market? You don't need my analysis to see the light. Spain currently sports more than  than 50% youth unemployment. Greater than 50% - and it's major grading partners are not far behind, or even far ahead!

See this chart from  ZeroHedge:

Data: Bloomberg and Greek Statistics Office

Fact 3: Spain is already on FIRE, yet so few refuse to smell the fumes.

What is FIRE? See Reggie Middleton Sets CNBC on F.I.R.E.!!! and First I set CNBC on F.I.R.E., Now It Appears I've Set...

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For more on this, see The F.I.R.E. Is Set To Blaze! Focus On Banks, part 1. A lot of people, even professionals, truly believed that the FIRE malaise would not be European in nature. Whaattt????!!!

Here are some more anecdotal facts fanning the FIRE...

Egypt Pays Less Than Spain for Euros as IMF Talks Persist

Businessweek- Egypt locked in lower borrowing costs than higher-rated Spain in selling a more-than-planned 640.2 million euros ($817 million) of debt, 

Spain's bad loan ratio hits new record of 10.7%: central bank

MADRID -- Spanish banks' bad loans surged to a new record level in September with more than one in ten classed as high risk, the central ...

Spain Sells 4.94 Billion Euros of Debt, Exceeding Maximum Target

Spain exceeded its maximum target at an auction of bills and its borrowing costs were little changed from a month ago as euro region finance ..

To bad the Spanish aren't Egyptians, though... Egypt Pays Less Than Spain for Euros as IMF Talks Persist

Egypt locked in lower borrowing costs than higher-rated Spain in selling a more-than-planned 640.2 million euros ($817 million) of debt, ..

The Spanish heat is not just in real estate and banking, either. Reference this European Insurer That Needs Insurance As $6B Of Its Bonds Are Instantly Subordinated Due To "Spain's Pain". Insurers are very heavy investors in European sovereign debt AND the debt of financial institutions. This is a wonderful place to be when you are recovering from the most expensive natural disaster that hit the US eastern seaboard, eh? But hey, weren't the European financial institutions getting killed by choking on Sovereign debt (reference Dead Bank Deja Vu? How The Sovereigns Killed Their Banks & Why Nobody Realizes They're Dead)? You know the saying, "You can run but you can't hide?" Well, banking officials have been doing a lot of hiding (of NPAs), and soon its going to be time for the running to come into play. In case you missed the pun, European Bank Run Watch: Spaniard Edition

It would be interesting to see who will be in the condition to feast at the Spanish barbecue...

 thumb_Reggie_Middleton_on_Street_Signs_Fire

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reggie@youcanreachmeatthisemail.com (Reggie Middleton) BoomBustBlog Tue, 20 Nov 2012 06:18:14 -0500
Microsoft Is Doing What The "Has Been Giants Of Yesteryear" Were Afraid To Do, Make A Radical Change BEFORE ITS TOO LATE! http://boombustblog.com/blog/item/6205-microsoft-is-doing-what-the-has-been-giants-of-yesteryear-were-afraid-to-do-make-a-radical-change-before-its-too-late http://boombustblog.com/blog/item/6205-microsoft-is-doing-what-the-has-been-giants-of-yesteryear-were-afraid-to-do-make-a-radical-change-before-its-too-late

Roughly 3 years ago in my "mobile computing wars" series, I foretold of The Creatively Destructive Pace of Technology Innovation and the Paradigm Shift known as the Mobile Computing Wars! In particular, I warned of the benefits to the consumer and pitfalls to the potential losers of the battle between Apple, Microsoft and Google, reference There Is Another Paradigm Shift Coming in Technology and Media: Apple, Microsoft and Google Know its Winner Takes All. By the way, by Q1 2010, it was already evident to BoomBustBloggers that Research In Motion was a goner - ). While the bulk of my opinion and analysis was directed between the upcoming heated battle between Apple and Google (The Mobile Computing and Content Wars: Part 2, the Google Response to the Paradigm Shift and An Introduction to How Apple Apple Will Compete With the Google/Android Onslaught) which was accurately called, I also appeared to be the lone gunman in warning that Microsoft is not even close to being out of the race just yet - . This was early 2010. Well, nearly 3 years later, we have MSFT doing what IBM, LOTUS, HP, DELL, and a wide variety of other tech companies simply didn't have the balls to do. What is that, you ask? They risked cannibalizing their cash cow revenues and kicking their lazy, unmotivated (despite declining margins and market share, via ass whoopin's from Google and Apple) OEM's in the nuts, forcing either an exponential growth via a pheonix-like rebirth style wake-up call or a collapse from atrophy. Either way, Microsoft is attempting to position itself to benefit. The previous world tech rulers simply got too comfortable in their make money by doing nothing, cash cow, monopolistic business lines and sat around while more innovative and nimble competitors literally ate their lunch then came bombarding in demanding dinner as well (say Apple).

Well, this is a good time (albeit a risky one) for MSFT. With revenues and margins declining on a structural basis for the first time (in its history) it is actually attempting to reposition itself to lead in the fastest growing segment in technology, not to mention the segment that is currently eating its lunch. That is the ultra mobile computing segment. Windows phone is a work in progress, and while capable from a software perspective, still lacks the downright killer hardware and flexibility of Android high end devices an also lacks the cult-like following and brand loyalty of Apple's devices. It's a shame since MSFT was actually in this space early, nearly first. Actually, it was early in smart phones, right behind Nokia and Psion (both European companies) and was first in actual usable (arguably) tablets - both in the early 1990's. It that monopolistic apathy that allowed Apple to come from behind with relatively dumbed down tech and outgrow Microsoft. The Surface Tablet is MSFT's revenge though. CNet calls it the best productivity app yet...

{youtube}7FolCnNeH1M{/youtube}

Like the Galaxy Note 2 clearly makes the iPhone appear to be a toy rather than a useful device, the Surface does the same to the iPad.

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 I noticed that many pundits pan the Surface for its lack of available apps. The Surface is a 1st gen product, and it does lack a wealth (or even a moderate amount) of 3rd party apps. What seems to be overlooked is that MSFT has built the Surface around the most in demand, the most profitable, and the least likely to be accurately replicated apps in the industry - the ubiquitous Microsoft Office Suite of apps. To assert that the Surface doesn't have any apps when it ships with the latest and the only touch-centric version of this app suite is to totally miss the point of the product. Let's be serious here- the iPad, and most Android tablets (save the Asus Transformer series) is/are useless for true productivity where content creation (sans drawing on a screen) and productivity are concerned. They come nowhere near PC replacements. Even those products that can come near (such as the Transformer Prime) lack a truly accurate reproduction of the office suite that is used in 90% of the workplaces world wide. As this Bloomberg article states: Microsoft’s Surface Tablet Lacks Apps to Rival IPad

Microsoft Corp. (MSFT) will be constrained in a contest against Apple Inc. (AAPL) in the market for handheld computers by unveiling a tablet that doesn't work with some of the most widely used downloadable applications. The Surface RT, a tablet that runs the latest version of Microsoft’s flagship operating system and goes on sale tomorrow, won’t feature applications for Facebook Inc. (FB)’s social-networking service or Apple’s iTunes music store.

One can combine the profits (and daily users) from Facebook and iTunes, double the sum, and you probably wouldn't get to half the profits of the Office franchise. True Office compatibility is what is holding back those who spend the truly big bucks in both the consumer and the enterprise side from adapting tablets en masse and truly dropping the desktop or notebook form factor PC for good. Comparing Facebook and iTunes to Office is like comparing a go kart to a minivan. Anyway you look at it, factoring superior build quality, pleasing aesthetics, and most importantly, something you can actually use to get work done, Microsoft has released a truly credible threat to the Android/Apple franchise in the tablet space - I still remain unconvinced in the phone space (where Android is killing them), but the jury is still out and the curtains don't' close till the calorically challenge chick sings...book

The Surface is being touted as a full PC (Ballmer: Microsoft Surface 'Literally a Full PC), and it appears as if there's some credibility to that. It will be very interesting to see what Google's response is (they have purchased a popular mobile phone/tablet office suite to bolser their current Google Apps/Drive cloud storage offering. Bundling this into both high end tablets and thier upcoming $99 offerings with ultra thin keyboard covers would be just what the doctor offered for both the enterprise and the student markets. Unfortunately, I feel Apple's hubris may be their shortcoming, for the iPad-mini is a disappointment, and appears to be simply an answer to the Nexus 7 and Amazon tablet, overpriced to avoid the margin compression inevitably coming down the pike (). The same appears to go for the iPhone 5, for I feel they should have packed much more tech into that device. It is so far behind the Samsung Galaxy Note 2 and S3 (roughly two years behind) that the only real sales they will get will come from extreme brand loyalty or from those who have never tried the Samsung and other competing Android products. While this may permit Apple to grow at impressive rates, basically they will start to simply cannibalize their existing user base and many new users will opt for the best and the newest tech. Apple may feel "Blackberried" or "RIMM"ed sooner than expected.

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reggie@youcanreachmeatthisemail.com (Reggie Middleton) BoomBustBlog Thu, 25 Oct 2012 09:35:07 -0400
Apple Bias In The Media Has Simply Gone Too Far, Potentially Hoodwinking Investors Into Believing Apple Has Not Reached Its Zenith http://boombustblog.com/blog/item/6181-apple-bias-in-the-media-has-simply-gone-too-far-potentially-hoodwinking-investors-into-believing-apple-has-not-reached-its-zenith http://boombustblog.com/blog/item/6181-apple-bias-in-the-media-has-simply-gone-too-far-potentially-hoodwinking-investors-into-believing-apple-has-not-reached-its-zenith

TechCrunch reports: iPhone 5 Sells Over 5M In Opening Weekend, Limited Only By Device Supply

Apple broke records again opening weekend, with the iPhone 5 selling more than 5M in its first three days, compared to 4M for the iPhone 4S.

Wait a minute! Apple's share price was spiking due to speculation that the iPhone 5 debut may double or more the sales of the iPhone 4S, remember? Let's take a gander at some of the bullshit that came out of the press.

  1. Analyst Estimates On iPhone 5 Launch Weekend SalesRange From 3M-10M TechCrunch‎ - 5 days ago Analysts have begun making their predictions about the iPhone 5's odds of success for launch weekend sales, and in fact there's quite a range ...
  2. Blockbuster iPhone 5 launch expected to push Apple stock to $850 Apple Insider‎ - 3 days ago
  3. iPhone 5 Crushes Sales Forecast In First Weekend - Forbes – Apple (AAPL) announced today that pre-orders for the new iPhone 5 have now exceeded supplies, forcing some phones to be shipped in ...
  4. Surge in iPhone 5 sales forecast - FT.com Sep 13, 2012 – Apple's rapid international rollout of the new iPhone 5 has prompted many analysts to upgrade their sales forecasts for the smartphone, with ...
  5. Some analysts increase iPhone 5 sales predictions - CBS News Sep 13, 2012 – (CNET) Some analysts expect the iPhone 5 to be so popular that they've recalculated their iPhone sales estimates for September despite a lack ...
  6. Holiday iPhone sales projected to reach 46.5M as pundits ... – Holiday iPhone sales projected to reach 46.5M as pundits 'underestimate' Apple. By Neil Hughes. Tech pundits who find the iPhone 5 "boring" ...
  7. iPhone 5 Sales Projections: 10 Million Units to be Sold Following ... – The iPhone 5 has high expectations upon its release, not just for Apple customers, but the effect it could have for the US economy. Apple began ...
  8. iPhone 5 sales to hit 170 million over next year, predicts analyst ...cnet.com/.../iphone-5-sales-to-h.. And based on past sales, the iPhone 5 will capture around 85 percent of ... Schiller explained the company's ... 

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From Business Insider:

Apple sold the iPhone 5 in 9 countries over its opening weekend. It sold the iPhone 4S in 7. It actually sold fewer iPhones per country this year than the last. That's not just deceleration, that's shrinkage:

iPhone Sales per country

Decelerating growth is not good for a company like Apple, which despite a modest P/E ratio, has one of the most generous trailing 12 month revenue multiples of any hardware company on the public markets.

 As I explained in detail on the Max Keiser show, Google will be a very difficult company for Apple to successfully compete with. The problem is that practically no one seems to understand what kind of company Google is, and hence why Apple will have a nigh impossible time competing....

{youtube}NIt9TBE3hy4{/youtube}

This thesis has come into its own with Apple's new iOS6 operating system and its exclusion of Google Maps for its inclusion of its own in-house mapping system. The end result? #FAIL, ##disasater!!!

Hacker reportedly ports Google Maps to iOS CNET‎ 

iPhone 5 Problems: Apple Tries to Steal Google Maps Staff to Fix Its iOS 6 Maps Mess PolicyMic

iOS 6 Maps problem, maybe Apple should have called it beta ... www.phonesreview.co.uk/...

Wrong turn: Apple's buggy iOS 6 maps lead to widespread - The Verge Apple has a maps problem. The major new feature of the company's new ...

Apple Mapocalypse Sends iOS 6 Users Into a Tizzy, Riverbank - Wired

Apple On iOS 6 Maps Flubs: This Is Hard, Okay?

Apple statement apologises for iOS 6 Maps problems | Electricpig

 

This is what happens when a handset manufacturer attempts to take on the world's largest data company. Now to be fair, Apple had very liitle choice in the matter since its relationship with Google and its OEMs have gotten global litigation level bad, but still this is an area where Apple is sorely outclassed and it will never hav a chance to catch up while maintaining those uber-fat margins that the hedge fund hotel crowd has grown to relay on.
This guy Ben Parr over at Cnet was the only one in the Apple adoring press that seems to have gotten it right, read on...
 
Mapping is a core function of any smartphone. Every person who has a smartphone has a need for maps. If Apple removed Maps from iOS completely, customers would start switching to other smartphones. It's just that important.

So if you're Tim Cook, you have two choices. You can either A) let your enemy Google continue to power your default Maps application, or B) you can build your own Maps app and kick Google to the curb.

This is the decision that Tim Cook and his team faced when they decided to jettison Google Maps as the default mapping application for iOS. Instead, Apple decided to build its own Maps application, powered partly by data from TomTom.

As many of you know by now, Apple Maps has been under fire since its release. The complaints are numerous: Maps doesn't come with transit directions, mislabels cities and other landmarks, forgets rivers and thinks farms are airports. There's even a popular Tumblr dedicated to the mistakes iOS 6 Maps makes.

iOS 6 Maps, while a beautifully-designed application, clearly wasn't ready for prime time. This shouldn't come as a surprise: Google Maps is more than seven years old, and Google employsmore than 7,000 people on it, including the thousands of drivers who make Street View possible. Apple, on the other hand, is frantically hiring engineers to fix the gaping holes users have uncovered in Maps.

Let's go back to the original question: did Apple make the right decision with Maps? It's easy to say in hindsight that Apple should have stuck with Google or waited another year to release its own Maps app. However, consider the factors that Apple had to deal with:

  • Allowing Google to control a key piece of iOS was unacceptable. If Apple had no alternative to Google Maps, the search giant could have made high demands that Apple would have had to accept. Having no default Maps application is unthinkable for a major smartphone.
  • The longer Apple took to release its own Maps app, the more entrenched Google Maps would be.
  • The only way to test a new map application at a large scale it to release it to users. They will be able to find holes quicker than a small team of engineers.
  • A mapping application can only go so far without large amounts of user-generated data.

....iOS 6 Maps is a disappointment any way you slice it. I have friends who refuse to upgrade to iOS 6 because of Maps. But Apple wasn't going to learn anything keeping Maps locked away for another year, and there was no way it was going to let Google control its mapping technology for a minute longer than it had to.

Apple's taking some serious blows for its buggy Maps app. But it made the right decision releasing it. Now it's just a question of how quickly Apple can fix iOS 6 Maps' many flaws and stem the negative press it has generated. Apple's probably going to be feeling the pain for a while.

I clearly called Apple's problem in the Max Keiser interview above. Google is light years ahead of Apple in cloud/distributed computing/applied data tech, experience and capabilities. This maps fiasco is merely the beginning, for Apple TV will face a real challenge from YouTube once it becomes an actual network in lieu of simply a platform (witness and reference the push for new, original content) and Google's many cloud based apps start making the iOS functionality appear as dated as it is. Apple has a very, very slim chance of catching up, and if it does it will because it spend a LOT of money, chopping up those margins.

Hence the prophetic, yet lonely and controversial piece from two years ago - Apple on the Margin, as well as Evidence Of Apple's Margin Compression Crops for its tablets.

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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.

Unique, Indpendent and Accurate Apple Research

]]>
reggie@youcanreachmeatthisemail.com (Reggie Middleton) BoomBustBlog Mon, 24 Sep 2012 09:06:10 -0400
Presidential Myths, Lies and Campaign Promises Along With Retail Cos. We Look To Short http://boombustblog.com/blog/item/6169-presidential-myths-lies-and-campaign-promises-along-with-retail-cos-we-look-to-short http://boombustblog.com/blog/item/6169-presidential-myths-lies-and-campaign-promises-along-with-retail-cos-we-look-to-short

The presidential elections are coming up again. The last 4 years went by very quickly, and as always, we are confronted with BS blown all over the mainstream media. This time (like last time) the focus is on the POTUS and the economy. I fear many lay persons and even some who should know better fail to realize that the president has very little willful control over the economy - at least to the upside. Now, it is possible for a president to wreck the economy. For instance, we had one not too long ago who took it upon himself to start several concurrent wars while cutting taxes at the apex of a cyclical economic peak (aka, bubble about to burst), but that rarely occurs, right?

Generally, the POTUS is either blamed or glorified for things that are largely out of his control. Prominent examples have been:

  • Reagan, whose policies actually sucked but rode a cyclical bull to acclaim...
  • Clinton, whose policies sucked less, but still rode a cyclical bull to acclaim.
  • Carter, the poor bastard... Wrong place at the wrong stagflationary time.
  • And last but not least, Obama - there was no way in hell anyone, regardless of who it was other than the almighty God/Buddha/Allah [fill in the blank] himself could have extricated the country from the mess that Bush contributed to.

To be fair, although I would like to say he (as in George Bush Jr.) made the mess, in all actuality he simply was in office when the bubble burst. His greatest crime (other than being the worst president this country has ever seen - and despite the fact that he was re-elected [or re-appointed if you followed that whole hanging chad thing]) was that he exacerbated the effects of the downfall by squandering our resource cushion in unnecessary wars and tax breaks and failed to invest in the entrepreneurial spirit of American small and medium sized businesses, where ALL of the big business (his constituency) actually came from. 

As an aside, see How Inferior American Education Caused The Credit/Real Estate/Sovereign Debt Bubbles and Why It's Preventing True Recovery for my views on education in America. This video tells a tale as well. Please take note of the comments in the video - here's a tell tale burb, "I'm sure Reggie is well aware why this video only has 3667 views, when it should easily be in the millions...........sad........­.sad...sad...sad.....pray for your children"..

{youtube}6hjilejJ8SA{/youtube}

See also:

Is this a brother from another mother???

{youtube}8ogCc8ObiwQ{/youtube}

My highly entrepreneurial and uber-cognitive 11 year old son (my older son is and artistic genius wrapped around a true scientist and my young daughter is a legitimate powerhouse and leader - yes, all three of my children are special and yes I am biased :-)) asked me to sit in on his homework assignment of critiquing the presidential candidate speeches. I explained to my boy that a tertiary (if not primary) labor of the POTUS is to pump BS to the masses. Jobs... Schmobs... As clearly articulated in BS At The BLS Leads To Profitable Short Opportunities As Hopium Smokers Get High Off Of Depreciated Dime Bags Of Manipulated Euphoria! Following up on the premise of that article is our next release in the follow of overpriced and over valued retailers. This time around, we get wet... Subscribers, download - Retailer_Final (801.03 kB 2012-09-11 01:30:21)

Now, back to the original premise - Guess what my 11 year old uncovered in the process...

Reggie Middleton on Obama vs Romney Acceptance Speeches

'Nuff said!

]]>
reggie@youcanreachmeatthisemail.com (Reggie Middleton) BoomBustBlog Tue, 11 Sep 2012 01:34:00 -0400
Here's The Reason Apple Has The Litigation Hots For It's Biggest Vendor: The Galaxy S3 Has Overtook The iPhone As Top Selling Smartphone http://boombustblog.com/blog/item/6165-heres-the-reason-apple-has-the-litigation-hots-for-its-biggest-vendor-the-galaxy-s3-has-overtook-the-iphone-as-top-selling-smartphone http://boombustblog.com/blog/item/6165-heres-the-reason-apple-has-the-litigation-hots-for-its-biggest-vendor-the-galaxy-s3-has-overtook-the-iphone-as-top-selling-smartphone

Last week I lamented Many Don't Understand The Google/Apple/Microsoft Business Model Dynamics. If it this was was widely understood, it would be common belief that Samsung is most likely to be the one to beat in the smart phone race, and Google's Android is nigh the de facto standard mobile OS. Apple's cult-like popularity has blinded many to facts, figures, trends and logic, but here goes anyway...

As most know by now, Apple won a billion dollar settlement against Samsung week before last (Apple v. Samsung verdict). That billion dollars pales against potential Samsung flagship phone sales though. Apple's problem is that it has shifted from trying to compete in the market to trying to compete in the courts. That is the mark of a company that has reached its peak. Don't believe me? Check out the result of trying to induce legal restraints on raw market forces... Meanwhile, Galaxy sales go supernova - New York Post.

As reported by Business Insider...

chrt

That's right! The forced imposition of legal restrictions on the free market actually boosted Samsung's Galaxy sales significantly. People are now starting to research the "Better Product". So, what does Apple do instead of learning its lesson? As a result, Apple enjoins the Samsung flagship model as well. Apple is now apparently run by lawyers instead of designers, creative talent and engineers. Let's see how well that works out for them. In the meantime, let's see the actual market's reaction...

Samsung Galaxy S3 now outselling iPhone 4S in Southern California - San Fransisco Examiner

A survey of 32 Verizon, Sprint, and AT&T retailers in Los Angeles, Orange County and San Diego show that the Samsung Galaxy S3is easily outselling the iPhone 4S. 28 of the locations that were surveyed are saying that Samsung is the winner. This is based on sales from the past 10 days.

The Samsung Galaxy S3 is on its way to becoming the biggest Android headset yet. Not only has it received excellent reviews, but sales figures are staggering. Samsung is expected to announce another Android headset very soon.

Samsung Outsells Apple iPhone Two-to-One Thanks to Galaxy S3

Samsung Outsells iPhone, Breaks Shipping Records

Samsung Galaxy S3 Knocks iPhone 4S Off Mobile Top Spot ...

Samsung galaxy S3 is now the most pre-ordered gadget in history ...

Hopefully, you get the hint by now, because it's apparent Apple's management doesn't. Less money legal fees, more money on R&D!!!

Most people don't even get the endgame here. This is not going to be a battle between Apple and Samsung. Apple has already lost this by maximizing profits last year in milking the iPhone 4 franchise with the iterative, barely evolutionary iPhone 4S instead of coming out with a revolutionary iPhone 5. Yes, it made them he most profitable company in the world, but it sold their prospects to hold that title in the future to Samsung and Google. The real battle will be between those two companies - Samsung and Google. As Samsung both eliminates the threat of Apple through market while at the same time effectively narrowing the playing field by marginalizing the other Android players (even the good ones) such as HTC, it allows Google to take the gloves off its Motorola Mobility acquisition and truly get busy. You see, there will be no OEMs to anger because Samsung would have put them all out of business or sidelined them. An all out, R&D budget busting battle between Google and Samsung with Samsung innovating on the software side (ex. the S3) while Google innovates on the hardware and business model side (ex. the Nexus series) will be a boon for consumers. If you think the GS3 is a phenomenal device (and it is, try one out if you haven't already), wait until Google opens up the spigots!!! 

Waiting in the background for someone to make the hubristic error that Apple just made will be Microsoft and their synthetic purchase of Nokia, throwing some pretty innovative tech at the marketing waiting for it to stick. The battle royale has yet to come, here's one of the reasons why...

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Many people are still totally oblivious to exactly what it is that Google does. Here's a tutorial.

{youtube}NIt9TBE3hy4{/youtube}

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.

Unique, Indpendent and Accurate Apple Research

File Icon Apple Margin & Valuation Note

As excerpted: 

It is worth noting that the key assumptions that underline the above valuations – (1) iPhone continuing to witness stupendous growth *******  in 2012 and ****** 2013 over a larger base and (2) iPhone margins continue to remain healthy off stable prices and despite increase in material cost – should be keenly watched over the next couple of quarters. 

Then ask them bout the logical argument behind the concern with Apple and the extremely volatile price action of the last few weeks. As stated many times in the past, The BoomBustBlog argument and analysis is solid.

What else is there to the earnings announcement? Well we were absolutely correct in terms of the oncoming margin compression of the the product lines, something that was actually easy to see coming but many refused to admit. Of course, there will be those select few that say, "But wait, the company reported an INCREASE in margins while you said there will be a decrease!". Yes, that's true and both can exist simultaneously.

Apple_2Q2012_results_analysis_Final_Page_2Apple_2Q2012_results_analysis_Final_Page_2

Apple_2Q2012_results_analysis_Final_Page_3Apple_2Q2012_results_analysis_Final_Page_3

Apple_2Q2012_results_analysis_Final_Page_4Apple_2Q2012_results_analysis_Final_Page_4

Comments are always welcome.

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]]>
reggie@youcanreachmeatthisemail.com (Reggie Middleton) BoomBustBlog Tue, 04 Sep 2012 09:30:28 -0400
Many Don't Understand The Google/Apple/Microsoft Business Model Dynamic Nor How Dangerous This Apple Legal Win Can Be For Consumers http://boombustblog.com/blog/item/6162-many-dont-understand-the-google-apple-microsoft-business-model-dynamic-nor-how-dangerous-this-apple-legal-win-can-be-for-consumers http://boombustblog.com/blog/item/6162-many-dont-understand-the-google-apple-microsoft-business-model-dynamic-nor-how-dangerous-this-apple-legal-win-can-be-for-consumers

In continuing my rant on the Apple v. Samsung verdict, I wish to make clear once again that the vast majority of consumers of Google's and Apple's products are absolutely oblivious to the business model of Google, the business practices of Apple and the shadowy aggressive survival tactics of the behemoth that is Microsoft. If I am correct in this assertion then the potential ramifications of Apple actually defeating Samsung in the patent case decided last week is also lost on most. That is dangerous. Since it has been explained at least as good as I could have done already, let's peruse one of my favorite legal sites, Groklaw, on why understanding Apple's grand objectives in patent litigation matters:

To explain why I think it matters, I need to remind you of other things that have been going on, trying to exclude FOSS from the market. Because that really is what I think this is about.

Remember how Oracle tried to expand copyright law to cover the structure, sequence, and organization of Java APIs? It failed (subject to appeals). But it tried hard. Had it succeeded, it would have upended how any open source software could be built and used, and it would have excluded individual developers like Linus Torvalds in his student days creating Linux in his bedroom, because only those with money to pay royalties would be able to do any coding for the marketplace, if moves like that had succeeded. One of Michael A. Jacobs' law students volunteered to help cover the trial for Groklaw, and she told me that this is what she had learned about the case in class. I take it that means it was its purpose. Do you want a world where only the present incumbents are allowed to create anything meaningful? How does that benefit you or me?

Remember when Microsoft did its patent deal with Nokia and then they both did patent deals with MOSAID, a nonpracticing entity that presumably will be using the patents those two lovebirds provided to sue Android vendors and who knows who else? Patents exclude. That is their purpose. Android is the target. Did you notice how Microsoft crowed in public about the Apple verdict, predicting it would be beneficial to Microsoft?

Remember back when Microsoft helped SCO afford lawyers in the very early days of the SCO saga? What was the goal there? To slap royalties on Linux and get rid of the GPL, so as to block Open Source's free development model, and make it so expensive no one would want to use Linux on servers any more. Remember when SCO even offered to help Linux-using companies move not to SCO's UNIX products but to Microsoft servers?

Now, it's Apple and Microsoft on a jihad against Android and hence Google. That's why you see attacks on Google in an endless stream in the media and even in regulatory bodies, where Microsoft friends who take Microsoft money complain about Google. Android is eating Apple's and Microsoft's lunch in the marketplace, because people love it and OEMs love it, so the proprietary world has apparentely decided o use the legal system give them a win there, since they can't win fair and square in the marketplace. Actually, they could, but they'd rather not.

What are the weapons? IP law. They have copyright, they have patents, and now they have a new weapon of choice -- trade dress and design patents -- thanks to Apple. And that is why this case is so appalling, because Apple has now opened up a new area for litigation and exclusion. That's what the L.A. Times noticed:

Nevertheless, it's worth remembering that Apple made its name building successful, even iconic products based on ideas that other companies pioneered. The iPhone, for example, was a significantly better version of the smartphones Nokia introduced more than a decade earlier. Innovation is by its nature an iterative process, and good patent policy creates an incentive to innovate more. Bad policy just makes it easier for patent holders to extract royalties from anyone venturing within reach of their claims.

The risk is especially great in the area of patents on design, such as the ones that covered the look and feel of Apple's iPhones. There's a fine line between designs that are purely decorative (which, oddly enough, are the ones eligible for patents) and those that serve a function (which aren't). For example, do rounded corners on a phone simply help set it apart, or do they make the device slip more easily in and out of a pocket? ...

If Apple's win slows the wonderfully frenetic pace of product development in mobile devices and leads companies to battle in courts instead of the marketplace, consumers will be the ultimate losers.

There's no if about it. It certainly will have that effect. My point is, it's all about the same thing -- to make it impossible for Android to survive as it is, and now we will see litigation after litigation -- Apple has already filed another lawsuit against Samsung -- and the end result is to make Android cost more because of encrusting it with high royalty obligations, so it cuts into the vendors' profits sufficiently that it will end up making it undesirable to use. That's why, I believe, Apple offered licenses to Samsung on its first visit to discuss matters at such a high price. It would have cut Samsung's profits so radically, it would no longer make much sense to use Android. I think they had to know Samsung couldn't agree to that price. Apple itself is complaining about a much, much lower price for FRAND patents, after all, saying it can't afford to build its products with that price added. Did Microsoft pay that high price?

But, I hear you say, that's anticompetive behavior. Isn't that patent misuse? Misuse of the courts? I think it is. But I'm not a lawyer. And antitrust law is complicated, and thanks to folks who think business should be unregulated, it's a little bit toothless at the moment.

Time will tell how others view it, but I despise the strategy. The purpose of both copyright and patents is to encourage innovation and progress. The purpose of trade dress protection is to make sure consumers are not confused as to origin of goods and products. Design patents are supposed to protect only ornamental features, not functionality. None of it is supposed to be for the purpose of killing off newcomers to the market. Is it even Constitutional to use them that way? You tell me.

Remember too that Apple itself reaps benefits from Open Source software. It switched from its own software to OSX, which is BSD code. Why? Because it was better than what it had done itself. So it surely knows what FOSS can do. Now, it wants to make sure no one else can offer what it offers, even in such basic elements as rectangles with rounded corners and rows of brightly colored icons or ways to touch a tablet that are simply intuitive. Intuitive is just another word for obvious.

The reason Apple has gone scorched earth on the litigation front is because it is sorely losing the battle on the technology front and rapidly losing market share in an industry that's currently growing like a weed. Why should Apple even care if the industry is growing like a weed? Well, for starters, once that growth slows, Apple's growth slowdown will be amplified and levered several times. Think of growth using margin or gearing. If the market growth stagnates to near 0% growth, then Apple's growth could drastically reverse and go negative!!! Apple had better knock the upcoming iPhone 5 out of the ballpark, because if they don't Android will have captured nearly the entire smartphone market within a year. There will be no extra-normal profits stemming from network effects for iOS if there is no network! Just think about that. They are already at 64% global market share and growing faster than all of their competitors combined.

 Back the Gartner data...

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Here's one of the reasons why...

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Many people are still totally oblivious to exactly what it is that Google does. Here's a tutorial.

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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.

Unique, Indpendent and Accurate Apple Research

File Icon Apple Margin & Valuation Note

As excerpted: 

It is worth noting that the key assumptions that underline the above valuations – (1) iPhone continuing to witness stupendous growth *******  in 2012 and ****** 2013 over a larger base and (2) iPhone margins continue to remain healthy off stable prices and despite increase in material cost – should be keenly watched over the next couple of quarters. 

Then ask them bout the logical argument behind the concern with Apple and the extremely volatile price action of the last few weeks. As stated many times in the past, The BoomBustBlog argument and analysis is solid.

What else is there to the earnings announcement? Well we were absolutely correct in terms of the oncoming margin compression of the the product lines, something that was actually easy to see coming but many refused to admit. Of course, there will be those select few that say, "But wait, the company reported an INCREASE in margins while you said there will be a decrease!". Yes, that's true and both can exist simultaneously.

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reggie@youcanreachmeatthisemail.com (Reggie Middleton) BoomBustBlog Wed, 29 Aug 2012 09:33:32 -0400
European Bank Run Watch: Swiss Edition http://boombustblog.com/blog/item/6159-european-bank-run-watch-swiss-edition http://boombustblog.com/blog/item/6159-european-bank-run-watch-swiss-edition

 On July 23, 2011 I penned The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs! which detailed for my readers and subscribers the mechanics of the modern day bank run, particular as I see (saw) it occurring in Europe.

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Those that follow me know that I have been warning on Europe and its banking system years before the sell side and mainstream financial media (reference the Pan-European Sovereign Debt Crisis series).

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 A reader has convinced me to consult with him on a specific situation, regarding overseas monies and the (lack of) safety of those funds, which prompted me to dig up the Sovereign Contagion Model that we developed n 2010. In a nutshell, the Swiss banking industry was built upon impenetrable bank privacy for high net worth clients. Once the US decided it needed to boost its tax revenues during hard times, it literally collapse the Swiss hegemony in secret banking and left that banking industry to compete in actual banking versus asset concealment. This left Swiss banks naked, for they don't appear to me to truly be able to compete aggressively and successfully in other areas. 

Add to this mix potential contagion issues for the Swiss banking industry due to the fact that Switzerland has a veritable cornucopia of exposure all over the soon (if not already) serial recession ridden world, and well...

The first chart is raw contagion exposure as a % of GDP. The 2nd chart is the same exposure ran through our “reality” model. Food for thought.

The BoomBustBlog Sovereign Contagion Model

Nearly every MSM analysts roundup attempts to speculate on who may be next in the contagion. We believe we can provide the road map, and to date we have been quite accurate. Most analysis looks at gross claims between countries, which of course can be very illuminating, but also tends to leave out many salient points and important risks/exposures.

Description: foreign claims of PIIGSforeign claims of PIIGSforeign claims of PIIGS

In order to derive more meaningful conclusions about the risk emanating from the cross border exposures, it is essential to closely scrutinize the geographical break down of the total exposure as well as the level of risk surrounding each component. We have therefore developed a Sovereign Contagion model which aims to quantify the amount of risk weighted foreign claims and contingent exposure for major developed countries including major European countries, the US, Japan and Asia major.

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I.          Summary of the methodology

·         We have followed a bottom-up approach wherein we have first identified the countries/regions with high financial risk either owing to rising sovereign risk (ballooning government debt and fiscal deficit) or structural issues including remnants from the asset bubble collapse, declining GDP, rising unemployment, current account deficits, etc. For the purpose of our analysis, we have selected PIIGS, CEE, Middle East (UAE and Kuwait), China and closely related countries (Korea and Malaysia), the US and UK as the trigger points of the financial risk dissemination across the analysed developed countries.

·         In order to quantify the financial risk emanating in the selected regions (trigger points), we looked into the probability of the risk event happening due to three factors - a) government default b) private sector default c) social unrest. The probabilities for each factor were arrived on the basis of a number of variables determining the relative weakness of the country. The aggregate risk event probability for each country (trigger point) is the average of the risk event probability due to the three factors.

·         Foreign claims of the developed countries against the trigger point countries were taken as the relevant exposure. The exposures of each developed country were expressed as % of its respective GDP in order to build a relative scale for inter-country comparison.

·         The risk event probability of the trigger point countries was multiplied by the respective exposure of the developed countries to arrive at the total risk weighted exposure of each developed country.

·         Description: File Icon Sovereign Contagion Model - Retail - contains introduction, methodology summary, and findings

·         Description: File Icon Sovereign Contagion Model - Pro & Institutional - contains all of the above as well as a very detailed methodology map that explains what went into the model across dozens of countries.

The bank run in other European nations:

 

Related Pan-European Sovereign Risk Non-bank Subscription Research Archives

·         Ireland public finances projections_040710

·         Spain public finances projections_033010

·         UK Public Finances March 2010

·         Italy public finances projection

·         Greece Public Finances Projections

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reggie@youcanreachmeatthisemail.com (Reggie Middleton) BoomBustBlog Tue, 28 Aug 2012 09:48:38 -0400
On The Apple Victory Over Samsung http://boombustblog.com/blog/item/6158-on-the-apple-victory-over-samsung http://boombustblog.com/blog/item/6158-on-the-apple-victory-over-samsung

Apple's victory over Samsung appears... extreme. Since I'm not a lawyer, I can only give my layman's opinion which is likely worth about what you paid for it. Nonetheless, it appears as if the the opinion will be under attack by Samsung shortly (reference Legal analysts suggest Apple-Samsung verdict may not be safe). Whether that attack will be successful is unknown.

Potential Grounds For Reversal?

The jury form was apparently inconsistent, and Samsung's lawyers apparently anticipated such, as can be seen by this motion found on Grollaw:

Late in the process yesterday at the Apple v. Samsung trial, when the parties and the judge were reviewing the jury verdict form, Samsung noticed that there were, indeed, inconsistencies in the jury's verdict form, a possibility Samsung anticipated [PDF]. Here's the jury's Amended Verdict Form [PDF], amended to fix the mistakes. Here's the original [PDF]. Here's the note [PDF] the jury sent to the judge when told to fix the inconsistencies. What are they, they asked? "Please let the jury know," they wrote in the only note ever sent in their deliberations, "of the inconsistencies we are supposed to deliberate on."

In two instances, results were crazily contradictory, and the judge had to have the jury go back and fix the goofs. As a result the damages award was reduced to $1,049,343,540, 1 down from $1,051,855,000. For just one example, the jury had said one device didn't infringe, but then they awarded Apple $2 million for inducement. In another they awarded a couple of hundred thousand for a device they'd ruled didn't infringe at all. This all was revealed by The Verge in its live blog coverage:

The jury appears to have awarded damages for the Galaxy Tab 10.1 LTE infringing — $219,694 worth — but didn't find that it had actually infringed anything....A similar inconsistency exists for the Intercept, for which they'd awarded Apple over $2 million

Intercept: "The jury found no direct infringement but did find inducement" for the '915 and '163 utility patents. If a device didn't infringe, it would be rather hard for a company to induce said non-existant infringement.

Also according to The Verict site (by way of Groklaw)

While the nine jurors in the Apple v. Samsung trial are busy working their way through the verdict form [PDF], trying to keep straight all the instructions they were read yesterday, I want to show you something that speaks to the issue of fairness, or lack thereof, in the trial. Reading two recent orders in the case will give you a clue, I think, as to why Samsung's lawyer, John Quinn of Quinn Emanuel, earlier dramatically said what he did to Judge Koh, after Samsung was not allowed, once again, to present evidence because it was allegedly "too late", "Why even have a trial? What's the point?" He was saying in effect that Samsung wasn't being treated fairly.

Was he right? We get a window into the matter, because we have now both the order [PDF] by the magistrate judge denying Samsung's request for an equal adverse inference order against Apple on the purported grounds that it was too late to file it, and the order [PDF] that overruled it by the presiding judge, the Hon. Lucy Koh. She wrote that it was "contrary to law" to hold it was untimely. And besides, there was a question of fairness:

It is only fair that the same standard of analysis be applied in adjudging the merits of Samsung’s motion as was applied to Apple’s.

Finally, she decided that the sanction language he had earlier chosen against Samsung had been too harsh anyhow. So she has, to her credit, righted that wrong. Although Judge Koh appeared annoyed in the moment, I think when Quinn stood up and publicly said what he did, it may have caused her to think more deeply about whether or not this trial *was* being fairly handled by one and all. In at least this issue, the answer is that it was not. And it's a fairly egregious example. So let's take a look. For sure, if Samsung loses, this issue is going to resurface, I would think, in the inevitable appeal. 

It gets worse, more from Groklaw: 

If the jury instructions [PDF] are as long and complex as they were in this case, a quick verdict can indeed mean it shirked its duty. For example, if the jury rushed so much it assigned $2 million dollars to Apple, and then had to subtract it because there was no infringement, it raises a valid question: what was the basis for any of the damages figures the jury came up with? If they had any actual basis, how could they goof like this? Was there a factual basis for any of the damages figures?

Time will tell, but keep in mind that one of the plays you'll see next will likely be a Rule 50(b) motion by Samsung, and that's the one where you ask the judge for various relief on the basis that no reasonable jury could find what it did find on the evidence presented. Here's Google's still pending Rule 50(b) motion for judgment as a matter of law in the Oracle v. Google case, to give you an idea of what they look like. As you can see, you can ask for victory across the board or just on one part of what the jury decided.

This story is far from over, in other words, and while Apple's CEO, Tim Cook, waxed philosophical about the trial, and saying that it was about values, not money, one important US value is that the jury fulfill its responsibilities, one of which is to read and make sure they understand and follow the jury instructions they are given. I believe Cook would agree that trials are supposed to be fair, with everyone doing their part. If this jury thought they knew the right result without instructions, and if they hurried so much they made glaring mistakes, and they did, and all in Apple's favor, something isn't right in this picture. As the legal blog, Above the Lawexpressed it:

Here’s the thing, ladies and gentlemen of the Apple v. Samsung jury: It would take me more than three days to understand all the terms in the verdict! Much less come to a legally binding decision on all of these separate issues. Did you guys just flip a coin?

If it would take a lawyer three days to make sure he understood the terms in the form, how did the jury not need the time to do the same? There were 700 questions, remember, and one thing is plain, that the jury didn't take the time to avoid inconsistencies, one of which resulted in the jury casually throwing numbers around, like $2 million dollars for a nonfringement.

Come on. This is farce.

It literally appears that the Jury glanced over prior art deliberation at the behest of the jury foreman who held a related patent himself. This is getting stick already, as per CNet, who interviewed a juror:

The decision was very one-sided, but Ilagan said it wasn't clear the jurors were largely in agreement until after the first day of deliberations.

"It didn't dawn on us [that we agreed that Samsung had infringed] on the first day," Ilagan said. "We were debating heavily, especially about the patents on bounce back and pinch-to-zoom. Apple said they owned patents, but we were debating about the prior art [about the same technology that Samsung said existed before the iPhone debuted]. [Velvin Hogan] was jury foreman. He had experience. He owned patents himself. In the beginning the debate was heated, but it was still civil. Hogan holds patents, so he took us through his experience. After that it was easier. After we debated that first patent -- what was prior art --because we had a hard time believing there was no prior art, that there wasn't something out there before Apple.

"In fact we skipped that one," Ilagan continued, "so we could go on faster. It was bogging us down." ...

"Once you determine that Samsung violated the patents," Ilagan said, "it's easy to just go down those different [Samsung] products because it was all the same. Like the trade dress, once you determine Samsung violated the trade dress, the flatscreen with the Bezel...then you go down the products to see if it had a bezel. But we took our time. We didn't rush. We had a debate before we made a decision. Sometimes it was getting heated."

From a layman's perspective, a mistrial or a thrown verdict may be in the making. Also from Groklaw (I encourage my readers to visit this site due to its heavy reliance on documented fact and relevant industry links):

Update 2: Dan Levine of Reuters has some words from the foreman:

"We wanted to make sure the message we sent was not just a slap on the wrist," Hogan said. "We wanted to make sure it was sufficiently high to be painful, but not unreasonable."

Hogan said jurors were able to complete their deliberations in less than three days -- much faster than legal experts had predicted -- because a few had engineering and legal experience, which helped with the complex issues in play. Once they determined Apple's patents were valid, jurors evaluated every single device separately, he said.

Now the jurors are contradicting each other. Lordy, the more they talk, the worse it gets. I'm sure Samsung is glad they are talking, though. Had they read the full jury instructions, all 109 pages [as PDF], they would have read that damages are not supposed to punish, merely to compensate for losses. Here's what they would have found in Final Jury Instruction No. 35, in part:

The amount of those damages must be adequate to compensate the patent holder for the infringement. A damages award should put the patent holder in approximately the financial position it would have been in had the infringement not occurred, but in no event may the damages award be less than a reasonable royalty. You should keep in mind that the damages you award are meant to compensate the patent holder and not to punish an infringer.

The same instruction is repeated in Final Jury Instruction No. 53, in case they missed it the first time. Did they obey those instructions? Nay, did they even read them? The evidence, judging by the foreman's reported words, point the wrong way.

How the actual product market will react?

Samsung still has some life left in the product that may be banned in the US, (to a greater extent the S2 phone, and a lesser extent the 10.1 tablet). As quoted from Bloomberg:

Injunction Chances

“We expect there is a two-thirds chance of an injunction against Samsung products,” Peter Misek, an analyst at Jefferies & Co. Inc., wrote in an Aug. 26 report.

Samsung’s schedules for introducing products won’t be affected by the verdict, James Chung, a Seoul-based spokesman for the company, said by phone on Aug. 25.

The global lineup for the rest of this year includes the next version of the Galaxy Note, which sold more than 10 million units in less than a year. The company began selling a tablet edition of the Note this month, following the May release of the Galaxy S III, the newest version in its bestselling smartphone series.

Samsung, which has gotten around other sales bans by modifying some product features, has sought to differentiate its products since the global patent fight with Apple began last year, and the design and feature of the Galaxy S III may be distinctive enough to avoid a ban, Seo said.

More Revenue To Be Gained From The S3 Phone Than To Be Lost From The S2 Ban

While the loss of revenue from the Galaxy S2 will be regrettable since that device has yet to see its nadir in the market, the more uniformly distributed S3 phone should be a revenue geyser. It is being distributed across all major and many minor carriers and even pre-paid (MVNO) carriers with now physical customizations and modifications. It is (finally) seeing marketing muscle that can challenge Apple in awareness, and it is selling very, very fast.

Apple's Symbiotic, Incestuous Relationship With Its Vendors/Competitors Should Yield Interesting Results Should This Verdict Not Be Overturned

Let's not forget what you see if you rip open an Apple iPhone or iPad... You see a bunch of Samsung manufactured parts. Should Samsung truly feel pressure from a revenue perspective from this loss, it will invariably up the prices of the parts it sells to Apple. This is not only a justifiable business move, it invariably raises the prices of iPhone/iPad products and/or decreaes Apple margins (there goes that margin compression theory again). Due to Apple's outstanding success and extreme sell through rate, it has very, very little choice in where it sources its parts from. Samsung, who is also Apple's biggest competitor, is basically the only game in town - save LG. Guess what Samsung and LG have in common?

Apple is Samsung’s largest customer, even as they compete to sell phones that allow users to surf the Web and play games, and as they fight in courts on four continents over patent infringement claims. Apple accounts for about 9 percent of Samsung’s revenue, making it the company’s largest customer, according to data compiled by Bloomberg.

Be aware that the margins on Apple's tablets have already compressed, and expect the same from the upcoming iPhone 5 (Apple deftly managed to sell deprecated hardware passed its competitive tech life cyce, thereby benefiting from inflated margins off of said product). The reason Apple's corporate margins have been increasing is due to the mix of gross sales tilting heavier to the iPhone and to a much lesser extent the iPad as compared to notebooks/desktops/peripherals. Notice during both the earnings misses in the past year, corporate margins dropped as iPhones made up less of the revenue mix. 

This may grant Apple a reprieve to catch up in the tech race, for its mainstay product is drastically and dramatically behind the curve technology and capability-wise.

  • Samsug Galaxy S3 vs iPhone 4s: This is an unfair comparison with the iPhone 5 coming out in a few weeiks, but the iPhone 4S is simply not in the running.
  • Samsug Galaxy S3 vs iPad with Retina Display: I was in the NYC flagship store yesterday, and surprisingly enough, streaming 1080p HD YouTube videos, the Samsung phone literally blew away the brand new iPad with Retina Display (marketing speak for hi res screen).  The comparison was not even close enough to warrant a debate. This brings me pause as to whether Apple will be able to compete with S3 upon the launch of the iPhone 5. Not only is it expected to have only a 4 inch screen, but it will invariably adopt the hi res, iPad screen tech. I invite anyone with an S3 or (Galaxy Note) to stream 1080p HD content onto the top of the line iPad and your devive simultanesouly to see where I'm coming from.
  • Samsug Galaxy S3 feature and performance will need to nearly be matched by Apple - somthing that it never had to do before. Of course, the Apple marketing momentum will ensure mucho sales, but the hyper-growth component is the question. Will Apple be able to pull it off? The iPhone 5 launch is probably the most important and critical product launch in the history of Apple...
  • As for this being a big break for the other players, outside of Motorola (due to Google's acquisition) and HTC, I don't think there's much of a reprieve. Samsung has released a far surperior product and has finally learned how to market it (although it is still not doing as good as job as Apple does). Nokia is still dead in the water until it can show and prove with Windoes (mobile) 8. You all know how I feel about RIM (see Hindsight Is 20/20, And As Luck Has It Our Foresight On Research in ) from way back in 2009.







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reggie@youcanreachmeatthisemail.com (Reggie Middleton) BoomBustBlog Mon, 27 Aug 2012 05:24:14 -0400
Greece Fulfills Its BoomBustBlog Derived Destiny - Shows This Time Really Isn't All That Different After All!!! http://boombustblog.com/blog/item/6155-greece-fulfills-its-boombustblog-derived-destiny-shows-this-time-really-isnt-all-that-different-after-all http://boombustblog.com/blog/item/6155-greece-fulfills-its-boombustblog-derived-destiny-shows-this-time-really-isnt-all-that-different-after-all

I believe I was one of the very few to declare Greece a foregone default in February 2010 (I Think It’s Confirmed, Greece Will Be the First Domino to Fall and then with with more specificity a month later As I Explicitly Forewarned, Greece Is Well On Its Way To Default, and Previously Published Numbers Were Waaaayyy Too Optimistic!). By the 2nd quarter of 2010 I was one of the very few to clearly and articulately detail exactly how Greece would default with specific structures in play- What is the Most Likely Scenario in the Greek Debt Fiasco? Restructuring Via Extension of Maturity Dates. Due to a few institutions who were skeptical, I attempted to make it a bit more real - A Comparison of Our Greek Bond Restructuring Analysis to that of Argentina.

Well, Greece defaulted according to plan, despite all of the "people in the know" saying otherwise - Greek Crisis Is Over, Region Safe”, Prodi Says – I say Liar, Liar, Pants on Fire! - from government officials tothe EC and IMF - Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! Even after the default, I made clear that this wasn't over for Greece, for the default actually left Greece worse off fundamentally, not better. Go wonder... I know I did, reference the warning from 5 months ago:

This will be exacerbated by a re-default of the Greek debt that was designed to bail out the defaulted Greek debt. Why will this happen? Greece has severe, rigid structural problems that simply cannot (and will not) be solved by throwing indebted liquidity at it. As a matter of fact, the additional debt simply exacerbates the problem - significantly! This was detailed in the post Beware The Overly Optimistic Greek Speculators As Icarus Comes Crashing Down To Earth!

..Subscribers can download my full thoughts on Greece's sustainability post bailout here - debt restructuring_maturity extension blog - March 2012. Professional and institutional subscribers should feel free to email me in order to receive a copy of the Greek restructuring model used to create these charts and come to these conclusions.

Despite extensive, self-defeating, harsh and punitive austerity measures that have combined with a lack of true economic stimulus, Greece has (to date) failed to achieve Primary Balance. For the non-economists in the audience, primary balance is the elimination of a primary deficit, yet the absence of a primary surplus, ex. the midpoint between deficit and surplus before taking into consideration interest payments.

Greece_Primary_balanceGreece_Primary_balance

The primary balance looks at the structural issues a country may have.

Government expenditures have outstripped revenues ever since 2007 and have gotten worse nearly every year since, despite 3 bailouts a restructuring, austerity and a default!

Greece_Primary_deficit_copyGreece_Primary_deficit_copy

This situation will simply get worse, considerably worse. I demonstrated in the post The Ugly Truth About The Greek Situation That'sToo Difficult Broadcast Through Mainstream Media that anyone who purchased the last set of bailout bonds from Greece will simply lose their money as well (that's right, just like those who purchased the previous set) since Greece is still running deep in structural problems and can't afford the interest nor the principal on its borrowing. It's really that simple. 

Well, fastforward to Der Speigel as of yesterday, as I highlight some choice excerpts:

Athens has not been having an easy time coming up with the €11.5 billion in cost cutting measures over the next two years it has promised Europe. Indeed, Greek Prime Minister Antonis Samaras is reportedly set to request an additional two years to make those cuts... 

... the financing gap his country faces could be even greater. During its recent fact-finding trip to Athens, the so-called troika -- made up of representatives from the European Central Bank, the European Commission and the International Monetary Fund -- found that Greece will have to come up with as much as €14 billion to meet the terms for international aid.

Methinks the Troika should renew their subscription to BoomBustBlog, for early in 2010 I noted their accuracy on the Greek situation...


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Notice how dramatically off the market the IMF has been, skewered HEAVILY to the optimistic side. Now, notice how aggressively the IMF has downwardly revised their forecasts to still end up wildly optimistic. image018.pngimage018.pngimage018.png

Ever since the beginning of this crisis, IMF estimates of government balance have been just as bad...

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The EU/EC has proven to be no better, and if anything is arguably worse!

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Revisions-R-US!

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and the EU on goverment balance??? Way, way, way off.

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If the IMF was wrong, what in the world does that make the EC/EU?

The EC forecasts have been just as bad, if not much, much worse in nearly all of the forecasting scenarios we presented. Hey, if you think tha's bad, try taking a look at what the government of Greece has done with these fairy tale forecasts...

greek_debt_forecast.png


Alas, I digress. Back to the der Spegiel article...

According to a preliminary troika report, the additional shortfalls are the result of lower than expected tax revenues due to the country's ongoing recession as well as a privatization program which has not lived up to expectations. The troika plans to calculate the exact size of the shortfall when it returns to Athens at the beginning of next month.

I'm sorry, but I simply cannot resist. This article was posted on BoomBustBlog in July of 2011 - Greek Asset Sales Fall Short, As We Virtually Guaranteed They Would In Spring 2010. In it I reviewed how the BoomBustBlog team detailed EXACTLY how bullshit the privatization plan was, in explicit detail - in the spring of 2010. THAT WAS MORE THAN TWO AND A HALF YEARS AGO, PEOPLE!!! If a blog can have this much foresight, with this much specificity, than what does one make of this so-called troika??? As excerpted:

This is a tragic Greek comedy. Professional/institutional subscribers should reference the Greece Public Finances ProjectionsGreece Public Finances Projections 2010-03-15 11:33:27 694.35 Kb in its entirety. For those who chose not to subscribe, I am posting excerpts from pages 5 and 6 from said document, don't read this while eating or drinking for fear of spitting up your lunch!

Any subscribers who would have went heavily bearish into these banks when I first commented on the would have done quite well:


Okay, I digress - yet again... With such excessive bullshit, one does tend to get thrown off track. Back to the der Spiegel excerpts...

The news of the potentially greater financing needs comes at a sensitive time for the country. Many in Europe, particularly in Germany, are losing their patience and there has been increased talk of the country leaving the common currency zone. Over the weekend, German Finance Minister Wolfgang Schäuble reiterated his skepticism of additional aid to Greece. "We can't put together yet another program," he said on Saturday, adding that it was irresponsible to "throw money into a bottomless pit."


Well, my friend, if you had that BoomBustBlog subscription, you would have known before you spent that first euro that Greece was a bottomless pit. Let me reiterated what I pasted up top... This situation will simply get worse, considerably worse. I demonstrated in the post The Ugly Truth About The Greek Situation That's Too Difficult Broadcast Through Mainstream Media that anyone who purchased the last set of bailout bonds from Greece will simply lose their money as well (that's right, just like those who purchased the previous set) since Greece is still running deep in structural problems and can't afford the interest nor the principal on its borrowing. It's really that simple. And guess what? Anyone who dips new money into Greece now will suffer the EXACT same fate!

As excerpted from Greece Sneezes, The Euro Dies of Pneumonia! Yeah, Sounds Bombastic, Yet True!

Wait until a 2nd Greek default (virtually guaranteed as we supplied user downloadable models to see for yourself, the same model used to forecast the 1st default) mirrors history. Of the 181 yrs as a sovereign nation after gaining independence, Greece been in default 58 of them. Don't believe me! Check your history, or just read more BoomBustBlog - Sophisticated Ignorance Or Just A Very, Very Short Term Memory? Foolish Talk of German Bailouts Once Again...

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Greece's default will hit an already bank NPA laden Spain quite hard: The Spain Pain Will Not Wane: Continuing the Contagion Saga and ditto with Italy "As We Assured Clients Two Years Ago, Italy's Riding The Broken Promise Express To Restructuring". Once Italy gets hit, the true bank runs will start as socialist France (the so-called half of the EU anchor) loses control of its bankinsg system. Reference "As The French Bank Runs....": 

Saturday, 23 July 2011 The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!: I detail how I see modern bank runs unfolding

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reggie@youcanreachmeatthisemail.com (Reggie Middleton) BoomBustBlog Tue, 21 Aug 2012 07:25:29 -0400
Here Comes That Contagion... From Greece to Belize to... Spain? Italy? Ireland? Portugal? http://boombustblog.com/blog/item/6153-here-comes-that-contagion-from-greece-to-belize-to-spain?-italy?-ireland?-portugal? http://boombustblog.com/blog/item/6153-here-comes-that-contagion-from-greece-to-belize-to-spain?-italy?-ireland?-portugal?

renege  

Etymology

From Latin renego, from nego (“deny”). Possibly influenced by renegotiate. See also renegade.

The question Du Jour is,,,,, Will reneging be the fiscal management policy of the new millennium? Can you blame those who even try? Are they wrong? Now that Greece has set the precedent of just not paying its bills, the floodgates are open. Don't be fooled if just a few drops of water come out at first!

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My posts from last year...

The Ugly Truth About The Greek Situation That'sToo Difficult Broadcast Through Mainstream Media

My readers and subscribers know that I have been warning that Greece would guaranteedly default as far back as two years ago. As a matter of fact, I stated that the haircut needed would have to be around the 53% mark in order for Greece's economy to truly cash flow again, and that was two years ago when things were much, much better for the country. Now the issue has metastasized into something much worse. How much worse? Well, it's safe to say the situation is at least twice as bad. That being said, twice times 53% means 60, 70, even 75% NPV haircuts just won't cut the mustard. Since this is already a forgone conclusion, I will now release the research and economic models that have been available to BoomBustBlog professional subscribers two years ago (March 2010), take notice how prescient, how crystal balllish it all seems..

Contagion Should Be The MSM Word Du Jour, Not Bailouts and Definitely Not Greece!

In continuing with my rant on the absurdity of even pretending the Greek situation is salvageable or that Greece will somehow be bailed out without a near complete absolution of their debts, I  bring forth from the BoomBustBlog archives the Sovereign Contagion Model. For those who haven't read my most posts on this topic, please review The Ugly Truth About The Greek Situation That's Too Difficult Broadcast Through Mainstream Media and Grecian Tragedy Formula, Bailout Number 3.

It is my contention that Greece's significant default is a forgone conclusion. It is also my contention that media attention should be much more focused on the damage to be done by a Greek default - considerably more so than whether Greece will ultimately default of not or what type of bailout it may or may not recieve. I have been of this mindset for several years which is why I had my analyst team create the Sovereign Contagion Model below.

foreign claims of PIIGS

 

Germany's Sophisticated Ignorance Doesn't Even Look Sophisticated Anymore

Surprise! Spain Makes The Same Ass-Backwards Mistake That The US and UK Made - Banning Shortselling

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reggie@youcanreachmeatthisemail.com (Reggie Middleton) BoomBustBlog Mon, 20 Aug 2012 07:06:32 -0400
Muppets Get MASHED Once Again - Groupon Half Off Share Price Coupons Selling for 20 Cents On The Dollar!!! http://boombustblog.com/blog/item/6146-muppets-get-mashed-once-again-groupon-half-off-share-price-coupons-selling-for-20-cents-on-the-dollar http://boombustblog.com/blog/item/6146-muppets-get-mashed-once-again-groupon-half-off-share-price-coupons-selling-for-20-cents-on-the-dollar

CNBC reports that Groupon [GRPN  5.815 -1.735  (-22.98%)] plunged more than 20 percent after the daily-deals site missed sales expectations and handed in a cautious earnings outlook, due to Europe's weak economy and currency fluctuations. Shares have already plunged nearly 70 percent since the company's IPO last November. At least eight brokerages slashed their price targets on the firm.

You know that you really don't have to follow eight brokerages to make money on Groupon. All you really had to do was subscribe to BoomBustBlog, reference For Those That Want To Take A Peek Inside the Professional BoomBustBlog Paywall, Here's All of My Groupon Research - MUPPETS!!!

I have commented ad nauseum on the percieved need to do business with name brands, those who do God's work, and those who simply cannot trade - muppet masters and all - as I clearly articulated on the Max Keiser show last week.
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... and on previous shows. 

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Now, all of you Goldman, Morgan Stanley, et. al. lovers, don't get your muppetware in a bunch, you know that I know that you know that It Is Now Common Knowledge That Goldman’s Investment Advice Sucks???, as excerpted:

It's official, the mainstream media has turned on those "doing God's work" and come to the side of BoomBustBlog.

............................

Okay, enough the Muppet Manipulating, Money Marauding, Doing Work in God's Name Brand Bank Bashing... Let's get down to the nitty gritty of the report that I said I will give away for free. I am offering the report, earnings advisory addendum and accompanying simplified model to show what we're made of. Of course paying subscribers, and even casual blog readers, cannot say that I didn't thoroughly warn you! Early shorts on this stock as per our research notes valuation matrices would have given pleasant Christmas presents and would have also stuffed one hell of an Easter basket as well!!!

In case you still don't get it, the sell side research departments of these banks did not offer BoomBustBlog research to their clients. Oh no, then how in the hell can they dump their stock??? They issued glowing reports from their own analytical cum soft sales staff.

On that note, let's reminisce.... In June of 2011 I release proprietary research to BoomBustBlog Subscribers. You can now download said report absolutely free, here icon Groupon Forensic Analysis & Valuation (923.04 kB 2011-06-16 10:34:36). After reading said report, prepare for some real comedy, as reported by Dailypolitical.com:

Groupon (NASDAQ: GRPN) was downgraded by equities research analysts at Stifel Nicolaus from a “hold” rating to a “sell” rating in a research note issued to investors on Monday.

Other equities research analysts have also recently issued reports about the stock. Analysts at Bank of America (NYSE: BAC) downgraded shares of Groupon from a “buy” rating to a “neutral” rating in a research note to investors on Monday. They now have a $20.00 price target on the stock, down previously from $30.00. Separately, analysts at Benchmark Co. cut their price target on shares of Groupon from $32.00 to $28.00 in a research note to investors on Monday. They now have a “buy” rating on the stock. Finally, analysts at Goldman Sachs (NYSE: GS) reiterated a “buy” rating on shares of Groupon in a research note to investors on Thursday, February 9th.

Groupon traded down 3.20% on Monday, hitting $14.54. Groupon has a 52-week low of $14.85 and a 52-week high of $31.14. The company’s market cap is $9.376 billion.

Whoa!!! Goldman Sachs reiterated their "buy" recommendation just in time for their damn Muppet Clients to lose ~40% by the close of the market today. Go ahead, stuff those damn Muppets, fellas!

Groupon_Crash_warnings

For the record, in June of 2011, a full ten months ago, I made clear to my subscribers the following (as excerpted from the now free download)...

We value Groupon at $6.6bn using DCF. The current valuation is based on 10 years of revenue projections which are overly optimistic in our view.  We have forecasted revenues of $4.0bn in 2011 and expect revenues to nearly double to $7.5bn in 2012 and reach $35bn by 2020. We have assumed cost of equity of 12% and terminal growth of 3% from 2021 onwards. We have kept gross profit at stable levels and assumed operational gearing to (∆ Operating Profit / ∆ Revenue) to improve considerably. Despite these optimistic projections we were still not able to justify a valuation close to $10bn let alone $20-25bn. We only see downside risks to valuation of $6.6bn and believe that Groupon’s rejection of Google offer of $6.0bn was a mistake in first place. Google’s valuation of $6.0bn most assuredly included a premium for synergies that Google could have achieved with Groupon which would be clearly absent in the standalone entity. We see the fair value of Groupon close to $3.0-4.0bn if we assume a more realistic picture. Given all kinds of questions surrounding Groupon’s business regarding the sustainability of revenue growth, costs control and even the business model itself (i.e., the relationship with merchants) and external competition, we remain deeply concerned even on the sustainability of a successful IPO for Groupon. 

For the record, at about $14 per share, Groupon is market-valued at about $9.1 billion dollars!!!! Here are some key highlights: Groupon restates revenue, EXACTLY as I warned just three months earlier.

  1. Monday, 26 September 2011 What's The Best Way To Profit From Groupon's IPO?
  2. file iconGroupon Revenue Restated 09/26/2011
Groupon starts trading on the Nasdaq via IPO...
  1. Sunday, 13 November 2011 I Hope You Groupon IPO Investors Got Coupons At The IPO!!! Yeah, That's Right I Was The First To Say It
Favorite hits from said documents...
Groupon_revenue_restated_Page_1_copy
Groupon_revenue_restated_Page_2_copy
Groupon_Valuation_redacted_Page_03_copy
Groupon_Valuation_redacted_Page_04_copy
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There's a WHOLE LOT MORE, but this post is long enough as it is. Simply download the links above, and don't forget to reference the valuation section of original forensic report. There's an early Christmas present in there for the stingy muppets!
 

 

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reggie@youcanreachmeatthisemail.com (Reggie Middleton) BoomBustBlog Tue, 14 Aug 2012 10:48:44 -0400
The Mobile Computing Wars Are Progressing Exactly As Anticipated - Google Is Killin' Them!!! http://boombustblog.com/blog/item/6145-the-mobile-computing-wars-are-progressing-exactly-as-anticipated http://boombustblog.com/blog/item/6145-the-mobile-computing-wars-are-progressing-exactly-as-anticipated

My series on the mobile computing wars has been quite prescient do date, as has my forensic analysis of the players (click to access the free opinions and paid reports): Apple - Google - Microsoft and RIM.  I am not just saying that now, the current path was apparent two years ago as well...

  1. There Is Another Paradigm Shift Coming in Technology and Media: Apple, Microsoft and Google Know its Winner Takes All Monday, 21 June 2010
  2. The Mobile Computing and Content Wars: Part 2, the Google Response to the Paradigm Shift Friday, 09 July 2010
  3. An Introduction to How Apple Apple Will Compete With the Google/Android Onslaught Tuesday, 13 July 2010
  4.  Wednesday, 14 July 2010

As Garter corroborates:

  • Android, led by Samsung, is far and away the growth leader in smartphone sales.
  • With nearly 99 million units sold, Android devices captured 64% of the smartphone market for the quarter (compared to 43.4% a year ago, and nearly 0% in 2007).
  • Samsung’s Galaxy line of devices accounted for more than half of all Android sales, reaching 45.6 million devices sold.
  • The new Galaxy S3 sold 10 million units in its first two months of its release. “The Galaxy S3 was the best-selling Android product in the quarter and could have been higher but for product shortages,” Gartner notes.
  • Apple’s iOS-based iPhone devices saw growth as well at almost 29 million units, but this was only in line with overall smartphone market expansion, causing market share to remain static. The platform captured 18.8% of the smartphone market (versus 18.2% the year before). Gartner notes that sales of the iPhone fell.

This is what I had to say on the topic 6 months ago in Risk Factors Threaten Apple Margins: Losing Its Cool, Losing The Tech Race, Losing The Legal Battles, Losing The Price Wars:

 NPD: Android attracting more than half of new smartphone shoppers:

Apple was named the best-selling U.S. handset brand during the fourth quarter, according to a new report from the NPD Group.

However, the findings suggest that while iOS has won this battle, Android is really winning the war.

Take a look at the graph below:

Not only do 48 percent of all smartphone buyers own Android smartphones (versus a close 43 percent on iOS), there is a much bigger disparity for first-time smartphone buyers. Android is attracting more than half of them at 57 percent, while Apple is considerably behind at 34 percent.

The quality of the OS has mythological lore in the pop media as well, as this article jives with my own personal experience with iOS on my iPad (which I ended up giving away) - iPhone iOS Apps Crash More Than Android: Report. App depth, pricing, dversity in offerings and superior tech have led to Samsung, Android continuing its U.S. lead through December, despite the blowout quarter from Apple...

RESTON, VA, February 2, 2012 – comScore, Inc. (NASDAQ: SCOR), a leader in measuring the digital world, today released data from the comScore MobiLens service, reporting key trends in the U.S. mobile phone industry during the three month average period ending December 2011. The study surveyed more than 30,000 U.S. mobile subscribers and found Samsung to be the top handset manufacturer overall with 25.3 percent market share. Google Android strengthened its lead in the smartphone market to reach 47.3 percent market share. Covering the three-month period ending December 31, Samsung remained constant without any changes in its portion of the market share — likely because the anticipated Galaxy Nexus did not make a debut on shelves until nearly the end of the quarter.

The only mobile OEM to post an increase was Apple, which ranked fourth with 12.4 percent of the market share and a 2.2 percent point change. 

Putting this in perspective allows one to see just how far Android has shot ahead in such a short amount of time. Last quarter was Apple's biggest quarter ever for a variety of reasons that are the result of the confluence of a swath of unrepeatable factors. Despite such an outrageous quarter that likely will never be repeated, Apple still has less than than half the market share of Samsung, its largest vendor (we aren't talking Google's Android here, we're talking Apple's own [other] vendor, Samsung). This is relevant for a variety of reasons. For one Samsung's tech is vastly superior to that of Apple's. Marketing and fanboisms aside, practically any objective review agrees with this assertions. We did a head to head comparison of the iPhone 4GS and the Samsung Galaxy 2S during the last BoomBustBlog meet and greet. For those who weren't there, simple peruse YouTube for the many professional comparisons to be found. 

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You see, the cool thing about YouTube is that you can interact with the TV audience. There are nearly a million views of their comparison with nearly 3,300 likes/dislikes and 5,000 comments. I invite one and all to go through them cursorily to determine what the actual populace (not the slanted media or Apple's marketing department) feels about the phones, and more importantly, what their next phone will be. 

As for Android, there’s no stopping it anytime soon. The platform now covers 47.3 percent of the U.S. mobile market share. Again, in the top five only Apple saw a surge in its cut as iOS placed second with 29.6 percent.

Last week I warned of Evidence Of Apple's Margin Compression Crops Up Once Again - Competition is a Bitch

I have warned that Apple will face margin pressure on its core products as the smartphone and tablet competition heats up, ie Apple Gets Sliced and Diced As Google Enjoys Fruits Of Long Range Planning. Well, Macworld, Endgadget and several other sources report Apple reportedly price matching iPhone discounts from carriers and other retailers 

Apple reportedly price matching iPhone discounts from carriers and other retailers 

Apple reportedly price matching iPhone discounts from carriers and other retailers

According to a leaked screengrab hosted up at MacRumors, Apple retail shops now have the authority to price match carrier and rival retail discounts on iPhone. Specifically, the note informs employees that prices from Best Buy, "carriers," Radio Shack and Target can be matched, with $49.01 seeming to be the savings across the board. Curiously, places like Wirefly, Amazon, Negri Electronics and even Walmart aren't mentioned, so we wouldn't recommend trying to work the price down based on ads seen from any of those. 

Price matching big box retailers clearly shows the luxury, premium aura of the iPhone to be at the end of its cycle. 

Yes, I know that Apple is attempting to clear inventory for new product, but to do so by price matching the big box commodity pushers such as Target and BestBuy is simply walking down the path to margin compression. You see discounting, price slashing and fire sales are a slippery slope to manuever. Once a consumer is given a sale, they are programmed to expect a sale and it is very, very difficult to "unprogram" them. Back the Gartner data...

,

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Related reading:

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reggie@youcanreachmeatthisemail.com (Reggie Middleton) BoomBustBlog Tue, 14 Aug 2012 09:33:21 -0400
Evidence Of Apple's Margin Compression Crops Up Once Again - Competition is a Bitch http://boombustblog.com/blog/item/6141-evidence-of-apples-margin-compression-crops-up-once-again-competition-is-a-bitch http://boombustblog.com/blog/item/6141-evidence-of-apples-margin-compression-crops-up-once-again-competition-is-a-bitch

S#I have warned that Apple will face margin pressure on its core products as the smartphone and tablet competition heats up, ie Apple Gets Sliced and Diced As Google Enjoys Fruits Of Long Range Planning. Well, Macworld, Endgadget and several other sources report Apple reportedly price matching iPhone discounts from carriers and other retailers

Apple reportedly price matching iPhone discounts from carriers and other retailers

According to a leaked screengrab hosted up at MacRumors, Apple retail shops now have the authority to price match carrier and rival retail discounts on iPhone. Specifically, the note informs employees that prices from Best Buy, "carriers," Radio Shack and Target can be matched, with $49.01 seeming to be the savings across the board. Curiously, places like Wirefly, Amazon, Negri Electronics and even Walmart aren't mentioned, so we wouldn't recommend trying to work the price down based on ads seen from any of those. 

Price matching big box retailers clearly shows the luxury, premium aura of the iPhone to be at the end of its cycle. That means from this point on, Apple may very well have to compete on tech and capabilities, where it is sorely outclassed by its Android competition. The iPhone 5 launches in about 30 days, and not only will it have to be the Samsung Galaxy S3 and HTC One series, it will have to outrun the revamped Note and whatever new Google is cooking up through its Motorola acquisition (don't beleive Google won't transform Motorola into a new age device manufacturer). Remember, Samsung and LG manufacturer much of the processors, memory chips and screen tech that go into the iPhones. While there are other firms that can produce such, very few can produce 100s of millions of them other than Samsung and LG - two staunch Apple competitors running a common platform -- Android!!! It is nigh impossible to win a competition with your own vendors, so one is best served not to get into such a competition in the first place. 

I explained the tense competition between Apple and Google in a way that many participants fail to recognize on the Max Keiser show - I Illustrate Exactly What Kind Of Battle The Google/Apple Thing Really Is On Max Keiser Show

As explained in Apple Gets Sliced and Diced As Google Enjoys Fruits Of Long Range Planning:

Apple gargin was 42.8 percent compared to 41.7 percent in the year-ago quarter. Wait a minute... Isn't that margin number sliding in the wrong direction? It's because they are selling less iPhones as compared to iPads and the iPads are lower margin products, and the margins are getting even lower as competition ramps up and ASP drop while unit costs rise in relation. Of course, I went through this in detail several times.

For all of those near fanatics who do not subscribe, I suggest you ask a friend who does subscribe to share with you the difference between last month's valuation note target price (page 10 of File Icon Apple Margin & Valuation Note) and the price of Apple today (click here to subscribe). I also urge the same for Google using our latest Google Q1-2012 Valuation Summary.

As excerpted: 

It is worth noting that the key assumptions that underline the above valuations – (1) iPhone continuing to witness stupendous growth *******  in 2012 and ****** 2013 over a larger base and (2) iPhone margins continue to remain healthy off stable prices and despite increase in material cost – should be keenly watched over the next couple of quarters. 

Then ask them bout the logical argument behind the concern with Apple and the extremely volatile price action of the last few weeks. As stated many times in the past, The BoomBustBlog argument and analysis is solid.

What else is there to the earnings announcement? Well we were absolutely correct in terms of the oncoming margin compression of the the product lines, something that was actually easy to see coming but many refused to admit. Of course, there will be those select few that say, "But wait, the company reported an INCREASE in margins while you said there will be a decrease!". Yes, that's true and both can exist simultaneously.

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reggie@youcanreachmeatthisemail.com (Reggie Middleton) BoomBustBlog Thu, 09 Aug 2012 17:53:37 -0400
Much Of The Developed World Prints Today, But Where's The Wealth? Real Value Of Risk Assets Continue To Plunge! http://boombustblog.com/blog/item/6113-much-of-the-developed-world-prints-today-but-wheres-the-wealth?-real-value-of-risk-assets-continue-to-plunge http://boombustblog.com/blog/item/6113-much-of-the-developed-world-prints-today-but-wheres-the-wealth?-real-value-of-risk-assets-continue-to-plunge

Yesterday, I posted The Difference Between Money and Wealth and Why You Can Easily Print One But Must Actually Create The Other, and as if on cue, global inkjet nozzles 'round the world started whizzing - to wit:

Why such rampant printing? The whole world's afraid Europe's impending implosion will engulf global economies. They very well shoud be, this was quite evident 3 years ago (Pan-European sovereign debt crisis) and the can kicking is nearing the end of its useful cycle... ECB's Draghi: We See Now a Weakening of Growth in Whole Euro Area

Here's the secret that BoomBustBlog subscribers know yet seems to be lost on much of the European powers that be: cutting rates and printing will absolutely NOT prevent the nuclear winter in Real Assets. Since loans behind real assets are anywhere between a vast chunk and the majority of bank loans, when this thing goes the European banking system goes with it. This will manifest itself stateside (see sidebox), but the Europeans will get hit harder, at least initially... The reason? Well, it doesn't really matter how low interest rates are - if banks don't lend, borrows will not gain access to capital. Banks are too weak and skittish to lend despite "so-called" record profits, billions in bonuses and compensation, and trillions in bailouts. I repeat, and I repeat again, the only solution is to let the insolvent fail.

The REIT analysis referred to in the chart can be found here forsubscribers (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.

Reference the quite informative post from which the graphics below were excerpted: Watch As Near Free Money To Banks Fails To Prevent Nuclear Winter For European CRE

Slide21Slide21

image035

 So are there any concrete examples of all of this Reggie style pontification? If course there is. Do you see that chart above where the tiny country of the Netherlands is one of the largest per capita contributors to these bailouts? Well, you don't think all of the expenditure (to be) is free do you? Here are some screenshots of a prominent Dutch property company, on its way down the tubes - subscribers reference (click here to subscribe):

image040image040 

 

dddwwnnmmn

 

image045 

Fastforward to today, and NIEUWE STEEN INVESTMENTS N.V. - NSI (one of our shortlisted REIT) suffered the most due to revaluation of their Dutch office portfolio. It therefore witnessed 26% decline in last 4 months.

NSI

NSI is simply a microcosm of what's to come for many larger real asset investors. I have warned that the Dutch, with what many consider to be a strong and relatively stable economy, was not immune to the European contagion, reference Are The Ultra Conservative Dutch Immune To Pan-European Economic Contagion...

 

 

 

 

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reggie@youcanreachmeatthisemail.com (Reggie Middleton) BoomBustBlog Thu, 05 Jul 2012 08:22:14 -0400
BoomBustBlog's Armageddon Puts Become Fashionable At Goldman http://boombustblog.com/blog/item/6105-boombustblogs-armageddon-puts-become-fashionable-at-goldman http://boombustblog.com/blog/item/6105-boombustblogs-armageddon-puts-become-fashionable-at-goldman

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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reggie@youcanreachmeatthisemail.com (Reggie Middleton) BoomBustBlog Thu, 21 Jun 2012 12:35:12 -0400
A Quick Note On China's Rate Cut http://boombustblog.com/blog/item/6092-a-quick-note-on-chinas-rate-cut http://boombustblog.com/blog/item/6092-a-quick-note-on-chinas-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.

{youtube}xUVtzaKtEug{/youtube}

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@youcanreachmeatthisemail.com (Reggie Middleton) BoomBustBlog Thu, 07 Jun 2012 11:20:39 -0400
Greece Gets "Corzined" In Its Fruitless Pursuit of Euro Unity, Sans Its Own Sovereignty As Simple Arithmetic Sets In Again http://boombustblog.com/blog/item/6091-icarus-gets-corzined-as-greece-faces-simple-arithmetic http://boombustblog.com/blog/item/6091-icarus-gets-corzined-as-greece-faces-simple-arithmetic

stock-footage-hands-with-a-golden-euro-sign

Go to 1:45 in this video and listen carefully for at least 5 minutes (you'd probably want to watch more if you have an interest in truth in reporting, competent analysis, or simply the truth). Keep in mind that this interview was done in February, no crystal balls, just spreadsheets and common sense. Independent news has truly come into its own.

{youtube}6VFc5povvMM{/youtube}

Remember, I warned readers to Beware The Overly Optimistic Greek Speculators As Icarus Comes Crashing Down To Earth! I gave subscribers (click here to subscribe) explicit proof that another Greek default was right around the corner. That's right! Direcly after the Greek default in March of this year!!!! Subscribers, see Greek debt restructuring maturity extension blog - March 2012 (Global Macro, Trades & Strategy). And in today's MSM fare: Greece Warns of Going Broke as Tax Proceeds Dry Up

As European leaders grapple with how to preserve their monetary union, Greece is rapidly running out of money

Nikos Lekkas, a government official, said banks had hindered his efforts to collect back taxes. 
Government coffers could be empty as soon as July, shortly after this month’s pivotal elections. In the worst case, Athens might have to temporarily stop paying for salaries and pensions, along with imports of fuel, food and pharmaceuticals.

Officials, scrambling for solutions, have considered dipping into funds that are supposed to be for Greece’s troubled banks. Some are even suggesting doling out i.o.u.’s.

Greek leaders said that despite their latest bailout of 130 billion euros, or $161.7 billion, they face a shortfall of 1.7 billion euros because tax revenue and other sources of potential income are drying up. A wrenching recession and harsh budget cuts have left businesses and individuals with less and less to give for taxes — and growing incentive to avoid paying what they owe.''

But...but... but didn't I warn everybody of this as far back as 2010 and as recently as last February?

Government expenditures have outstripped revenues ever since 2007 and have gotten worse nearly every year since, despite 3 bailouts a restructuring, austerity and a default!

Greece_Primary_deficit_copy



The budget gap is widening as the so-called troika of lenders — the International Monetary Fund, the European Central Bank and the European Commission — withholds 1 billion euros in bailout money earmarked for government financing while it waits to see whether new leaders elected June 17 will honor Greece’s commitments.

Even if the troika delivers that money, Greece will struggle to cover its obligations. It underscored a harsh reality that is playing out in other troubled euro zone economies. Prolonged austerity is making it harder, not easier, for governments like Greece to become self-reliant again.

Go figure! As excerpted from Beware The Overly Optimistic Greek Speculators As Icarus Comes Crashing Down To Earth!

Despite extensive, self-defeating, harsh and punitive austerity measures that have combined with a lack of true economic stimulus, Greece has (to date) failed to achieve Primary Balance. For the non-economists in the audience, primary balance is the elimination of a primary deficit, yet the absence of a primary surplus, ex. the midpoint between deficit and surplus before taking into consideration interest payments.

Greece_Primary_balance

The primary balance looks at the structural issues a country may have. The best analogy I’ve heard for the Grecian situation is the highly indebted family that has binged on credit cards creating huge interest and debt service payments. They then lose the earning power of one of the parents at the same time that a spike in medical bills and household repairs (ex. Murphy’s law) dig deeper into family finances. The family is then forced to continue spending via credit cards to meet these unforeseen expenses.

In short, the main reason for Greece requiring additional funding is its primary deficit but the main reason why this latest (as well as the two rounds before this latest) round of bailout funding won’t work is Greece’s primary deficit.

A top Spanish official acknowledged on Tuesday that Spain could not readily return to the markets to raise money because investors are demanding such high rates, highlighting how the debt crisis is spreading to larger economies in Europe.

Again, BoomBustBlog made this clear early in 2010. Surprise you should be not! Be sure to note the date on the articles below...

  1. The Coming Pan-European Sovereign Debt Crisis – introduces the crisis and identified it as a pan-European problem, not a localized one... As a matter of fact, I directly and explicitly compared the plights of Greece vs Spain 2 years and 4 months ago, yes before anyone even publicly admitted Greece would have to default, not to mention Spain!!!
  2. spain_vs_greece.pngspain_vs_greece.pngspain_vs_gre

  3. The Coming Pan-European Soverign Debt Crisis, Pt 4: The Spread to Western European Countries
  4. The Depression is Already Here for Some Members of Europe, and It Just Might Be Contagious!

Fast forward to years, and as luck will have it - The Economic Bloodstain From Spain's Pain Will Cause European Tears To Rain

Oh, and here comes that Grecian Circular Argument again. What circular argument you query? Well simply read How Greece Killed Its Own Banks! and remember that this article was written in the beginning of 2010, when the bonds were trading for much more then they were right before they defaulted! then reference Greece Reports: "Circular Reasoning Works Because Circular Reasoning Works" - Or - Here Comes That Default!!!

That has left a caretaker government scrambling for a Plan B. One thought is to take billions of euros reserved for recapitalizing Greek banks, which have suffered from a flight of deposits amid political uncertainty and fears that Greece may abandon the euro for its own currency.

But using that money would require the troika’s approval. Other notions, like i.o.u.’s and scrip, so far are only that — ideas.

Next up I will consider releasing my research on what wil probably be the most profitable (US) CRE short of the year - GGP part 2!

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reggie@youcanreachmeatthisemail.com (Reggie Middleton) BoomBustBlog Wed, 06 Jun 2012 08:23:34 -0400
Who Will Be The Next JPM? Simply Review The BoomBustBlog Archives For The Answer http://boombustblog.com/blog/item/6075-who-will-be-the-next-jpm?-simply-review-the-boombustblog-archives-for-the-answer http://boombustblog.com/blog/item/6075-who-will-be-the-next-jpm?-simply-review-the-boombustblog-archives-for-the-answer

So, in today's news we have Greek bank runs (again), remnants of JP Morgan yield grab gone bananas, and European Banks Battered As Reality Sets In. I know there has to be at at least a small contingent of you who truly don't want to hear me say "I told you so". Well, guess what I have to say to that small contingent...

Better yet guess what very popular American bank has their fingers in all three of the fires fanning above? You see, I not only warned of a European bank collapse nearly three years ago, I actually went on a European banking collapse tour throughout, of all places, Europe!

{youtube}LdGdyEQYoe8{/youtube}

 The bank run thingy was actually a foregone conclusion. Greece is only step one, albeit a very obvious step one, but still the first step nonetheless - reference How Greece Killed Its Own Banks!, written exactly TWO years ago - Tuesday, 27 April 2010. The MSM should stop harping on Greece, its done. The real story is what will Greece's bust bring about. Well, there are quite a few banks in much 'allegedly" stronger domiciles primed to do the 'ole accelerated one-two step (that's bank run for those without a sense of humor), reference "How to Prevent Bailouts, Bank Runs and Other Fun Things To Do With Your Hard Earned Dollars". 

Now, the question for the truly big boys is what happens after the inevitable Pan-European bank runs get started. Well, the answer to that is already stored in the BoomBustBlog archives. Come on, y'all, where the strategists, the chess players, those who are able to look more than two moves ahead. I made this post so, now others may start "Hunting the Squid", looking at JPM Morgan as the sovereign entity that it wants to be and DB as the leveraged powder keg that it appears. Then there's BNP, HSBC and BofA. You heard it all here first. Despite that, the MSM has put analysts in the consistent spotlight who I feel (without intending to disrespect them, of course) have been serially incorrect on banks. I have addressed this in my blog posts, namely Question the Quality Of BoomBustBlog Bank Research, Will You? Bove and Fitch Follow "The Blog"! and CNBC Favorite Dick Bove Admits To Being Wrong On Banks, But For The Right Reasons, But Those Reasons Are Still Wrong!!!

You see, with things crumbling so predictably, I don't have to do much along the lines of new content or writing. This entire mess has already been laid out in my archives, and in rather illustrious detail. Let's start archive grabbing with...

Goldman Sachs

The hardest hitting investment banking research available focusing on Goldman Sachs (the Squid), but before you go on, be sure you have read parts 1.2. and 3: 

  1. I'm Hunting Big Game Today:The Squid On A Spear Tip, Part 1 & Introduction
  2. Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To Be Ignored?"
  3. Reggie Middleton Serves Up Fried Calamari From Raw Squid: Market Perceptions of Real Risk in Goldman Sachs

So, what else can go wrong with the Squid? 

Plenty! In Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To Be Ignored?" I included a graphic that illustrated Goldman's raw credit exposure...

So, what is the logical conclusion? More phallic looking charts of blatant, unbridled, and from a realistic perspective, unhedged RISK starring none other than Goldman Sachs...

 image006image006

And to think, many thought that JPM exposure vs World GDP chart was provocative. I query thee, exactly how will GS put a real workable hedge, a counterparty risk mitigating prophylactic if you will, over that big green stalk that is representative of Total Credit Exposure to Risk Based Capital? Short answer, Goldman may very well be to big for a counterparty condom. If that's truly the case, all of you pretty, brand name Goldman counterparties out there (and yes, there are a lot of y'all - GS really gets around), expect to get burned at the culmination of that French banking party
I've been talking about for the last few quarters. Oh yeah, that perpetually printing clinic also known as the Federal Reserve just might be running a little low on that cheap liquidity antibiotic... Just giving y'all a heads up ahead of time...

And for those who may not be sure of the significance, please review my presentation as the Keynote Speaker at the ING Real Estate Valuation Seminar in Amsterdam, below. After all, for all intents and purposes, Dexia has officially collapsed - [CNBC] France, Belgium Pledge Aid for Struggling Dexia... and its a good chance that it's a matter of time before BNP follows suit - exactly as BoomBustBlog predicted for paying subsccribers way back in July.

A step by step tutorial on exactly how it will happen....

 The European banking debacle was predicted at the start of 2010, a full year and a half before this has come to a head. If I could have seen it so clearly, why couldn't the banking industry and its regulators?

Now, back to GS, and considering all of the European falllout coming down the pike, of which Goldman is heavily leveraged into, particulary France (say BNP/Dexia/etc.)...

image009image009

Let's go over exactly how GS is exposed following the logic outlined in the graphic before this series of videos, as excerpted from subscriber document Goldmans Sachs Derivative Exposure: The Squid in the Coal Mine?, pages 3,4 and 5.

GS__Banks_Derivatives_exposure_temp_work_Page_3

And to think, many thought that JPM exposure vs World GDP chart was provocative. I query thee, exactly how will GS put a real workable hedge, a counterparty risk mitigating prophylactic if you will, over that big green stalk that is representative of Total Credit Exposure to Risk Based Capital? Short answer, Goldman may very well be to big for a counterparty condom. If that's truly the case, all of you pretty, brand name Goldman counterparties out there (and yes, there are a lot of y'all - GS really gets around), expect to get burned at the culmination of that French banking party I've been talking about for the last few quarters. Oh yeah, that perpetually printing clinic also known as the Federal Reserve just might be running a little low on that cheap liquidity antibiotic... Just giving y'all a heads up ahead of time...

 

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reggie@youcanreachmeatthisemail.com (Reggie Middleton) BoomBustBlog Tue, 15 May 2012 20:00:00 -0400
Who Caused JP Morgan's Big Derivative Bust? The Shocker - Ben Bernanke!!! http://boombustblog.com/blog/item/6074-who-caused-jp-morgans-big-derivative-bust?-the-shocker-ben-bernanke http://boombustblog.com/blog/item/6074-who-caused-jp-morgans-big-derivative-bust?-the-shocker-ben-bernanke

S&P and Fitch finally downgrade JP Morgan, 3 years after my initial multimedia warnings (see Listen Carefully...  for the details). Unfortunately, despite threats and ruminations, these rating agencies again act in retrospect, failing to do anything but remind stakeholders of the losses they have already taken rather than assisting them in avoiding losses.

So, what are the rating agencies missing?  They're missing the fact that nearly all of the big money center banks are doing exactly what JPM was doing and they have no one to rely upon but themselves when things go awry from a counterparty perspective. Bennie Bernanke has instituted perpetual ZIRP, and as such has basically broken the banking business in his attempt to save it. Through ZIRP, banks simply cannot make money doing things that traditional banks do, ex. profit from lending. As such, they reach for yield, and that's just the conservative ones. The big boys take baseball bats swinging for home runs, either consciously or subconsciously sanguine in the protection of the Bernanke flavored taxpayer put under their respective businesses. With such protection, already historically proven, bank managers are getting progressively more aggressive and increasingly less aware of the term "RISK adjusted reward" as they simply seek rewards. Alas, I'm getting ahead of myself, let me explain...

JPM Public Excerpt of Forensic Analysis Subscription Final 092209 Page 07JPM Public Excerpt of Forensic Analysis Subscription Final 092209 Page 07 copy

The JPM prop desk that held the losses which generated headlines earlier this week was marketed as a hedging operation when we all know it was anything but. What it was was a concerted grasp for yield and profit in a ZIRP environment where JPM (one of the world's largest congregations of interest bearing assets) was bearing effectively no interest.

{youtube}hYIfwOIsJbc{/youtube}

Banks need to make money too, hence when there's no money to be made in traditional FI yields, the banks start reaching, and they tend to start reaching farther as desperation to make the next quarter mounts in the face of BoomBustBlog reading investors who may be able to see past earnings stuffing stemming from less than prudent reserve releases consistent underprovisioning.

JPM_Underprovisioning

 The BoomBustBlog subscriber document JPM Q1 2011 Review & Analysis illustrates the point of JPM's waning ability to make money by making loans and holding debt with perfect clarity, and did so a year in advance....

 JPM Public Excerpt of Forensic Analysis Subscription Final 092209 Page 09

 

So, what do you do if you're a bank but you can't make money lending? You gamble, that's what you do! It's not like JPM hasn't gambled before, and it's not like they haven't lost money gambling...

jpm_ficc1

I put out what I consider to be some of the best predictive research available. I also put an inordinate amount of info out for absolutely free, particularly in the case of those big names as in the employer of Voldemort. For those who have not read my seminal piece on Dimon's house of Morgan, file iconJPM Public Excerpt of Forensic Analysis Subscription published nearly three years ago, allow me to take the liberty to excerpt it for you...

Hmmm... Tell me if you get stuff like this from the rating agencies.... This is a good time to bring up that Interesting Documentary on the Power of Rating Agencies, with Reggie Middleton Excerpts

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

{youtube}hYIfwOIsJbc{/youtube}

The next post on this topic will outline and illustrate several banks whom the agencies need to downgrade NOW, as in RIGHT NOW. These banks are, of course, JPM counterparties. In the meantime and in between time, follow me:

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Here's a subscription dump of our archives for JPM to placate the insatiable thirst of the BoomBustBlog paid subscriber:

 
 

 

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reggie@youcanreachmeatthisemail.com (Reggie Middleton) BoomBustBlog Fri, 11 May 2012 03:43:08 -0400
Listen Carefully and You Can Hear the Crumbling Of The Sovereign Nation Formerly Known As JP Morgan http://boombustblog.com/blog/item/6073-listen-carefully-and-you-can-hear-the-crumbling-of-the-sovereign-nation-formerly-known-as-jp-morgan http://boombustblog.com/blog/item/6073-listen-carefully-and-you-can-hear-the-crumbling-of-the-sovereign-nation-formerly-known-as-jp-morgan

First, pardon my tardy response to this JP Morgan news. I'm currently in Europe and was jet-lagged asleep when this popped. Of course, BoomBustBloggers know that I will be on the case. To begin with, a summary as pulled from ZeroHedge

In Corporate, within the Corporate/Private Equity segment, net income (excluding Private Equity results and litigation expense) for the second quarter is currently estimated to be a loss of approximately $800 million. (Prior guidance for Corporate quarterly net income (excluding Private Equity results, litigation expense and nonrecurring significant items) was approximately $200 million.) Actual second quarter results could be substantially different from the current estimate and will depend on market levels and portfolio actions related to investments held by the Chief Investment Office (CIO), as well as other activities in Corporate during the remainder of the quarter.

Since March 31, 2012, CIO has had significant mark-to-market losses in its synthetic credit portfolio, and this portfolio has proven to be riskier, more volatile and less effective as an economic hedge than the Firm previously believed. The losses in CIO's synthetic credit portfolio have been partially offset by realized gains from sales, predominantly of credit-related positions, in CIO's AFS securities portfolio. As of March 31, 2012, the value of CIO's total AFS securities portfolio exceeded its cost by approximately $8 billion. Since then, this portfolio (inclusive of the realized gains in the second quarter to date) has appreciated in value.

The Firm is currently repositioning CIO's synthetic credit portfolio, which it is doing in conjunction with its assessment of the Firm's overall credit exposure. As this repositioning is being effected in a manner designed to maximize economic value, CIO may hold certain of its current synthetic credit positions for the longer term.

Accordingly, net income in Corporate likely will be more volatile in future periods than it has been in the past.

The Firm faces a variety of exposures resulting from repurchase demands and litigation arising out of its various roles as issuer and/or underwriter of mortgage-backed securities (“MBS”) offerings in private-label securitizations. It is possible that these matters will take a number of years to resolve and their ultimate resolution is currently uncertain. Reserves for such matters may need to be increased in the future; however, with the additional litigation reserves taken in the first quarter of 2012, absent any materially adverse developments that could change management’s current views, JPMorgan Chase does not currently anticipate further material additions to its litigation reserves for mortgage-backed securities-related matters over the remainder of the year. 

All of this is coming form the just filed 10-Q. The full link is here. 

Now, just so those who have not followed me for some time don't get it twisted, I want all to know that I'm a longer term strategist. I'm not a trader! As such, I don't focus on daily stock prices or live my life quarter to quarter. What I do is paint the big picture over time. I'm not magic, I'm not always right, but I am honest. In addition, although I'm not always right, I have been right over 90% of the time since the beginning of the credit bubble in 2000 to date. To wit regarding JP Morgan, on September 18th 2009 I penned the only true Independent Look into JP Morgan that I know of. It went a little something like this:

Click graph to enlarge

image001.png

Cute graphic above, eh? There is plenty of this in the public preview. When considering the staggering level of derivatives employed by JPM, it is frightening to even consider the fact that the quality of JPM's derivative exposure is even worse than Bear Stearns and Lehman‘s derivative portfolio just prior to their fall. Total net derivative exposure rated below BBB and below for JP Morgan currently stands at 35.4% while the same stood at 17.0% for Bear Stearns (February 2008) and 9.2% for Lehman (May 2008). We all know what happened to Bear Stearns and Lehman Brothers, don't we??? I warned all about Bear Stearns (Is this the Breaking of the Bear?: On Sunday, 27 January 2008) and Lehman ("Is Lehman really a lemming in disguise?": On February 20th, 2008) months before their collapse by taking a close, unbiased look at their balance sheet. Both of these companies were rated investment grade at the time, just like "you know who". Now, I am not saying JPM is about to collapse, since it is one of the anointed ones chosen by the government and guaranteed not to fail - unlike Bear Stearns and Lehman Brothers, and it is (after all) investment grade rated. Who would you put your faith in, the big ratings agencies or your favorite blogger? Then again, if it acts like a duck, walks like a duck, and quacks like a duck, is it a chicken??? I'll leave the rest up for my readers to decide. 

This public preview is the culmination of several investigative posts that I have made that have led me to look more closely into the big money center banks. It all started with a hunch that JPM wasn't marking their WaMu portfolio acquisition accurately to market prices (see Is JP Morgan Taking Realistic Marks on its WaMu Portfolio Purchase? Doubtful! ), which would very well have rendered them insolvent - particularly if that was the practice for the balance of their portfolio as well (see Re: JP Morgan, when I say insolvent, I really mean insolvent). I then posted the following series, which eventually led to me finally breaking down and performing a full forensic analysis of JP Morgan, instead of piece-mealing it with anecdotal analysis.

    1. The Fed Believes Secrecy is in Our Best Interests. Here are Some of the Secrets
    2. Why Doesn't the Media Take a Truly Independent, Unbiased Look at the Big Banks in the US?
    3. As the markets climb on top of one big, incestuous pool of concentrated risk...
    4. Any objective review shows that the big banks are simply too big for the safety of this country
    5. Why hasn't anybody questioned those rosy stress test results now that the facts have played out?

You can download the public preview here. If you find it to be of interest or insightful, feel free to distribute it (intact) as you wish.

JPM Public Excerpt of Forensic Analysis Subscription JPM Public Excerpt of Forensic Analysis Subscription 2009-09-18 00:56:22 488.64 Kb

Reggie Middleton on CNBC's Squawk on the Street - 10/19/2010

Mr. Middleton discusses JP Morgan, bank risk and technology and is the only pundit in the financial media that we know of that called Apple's margin compression issues and did so successfully just hours before they reported! Click here or click below to see the video.

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Reggie Middleton with Max Keiser on the Keiser Report and RT Television - Discussing JP Morgan, Derivatives, Fraudclosure and the US Oligarchy

Here I discuss JP Morgan's suffering from ZIRP and bad mortgages (still), hence the losses that JPM's Dimon was just bitching about a year or two later - simply reference the MSM JPMorgan's DimonMortgage Woes Still Hit Earnings.

Look at the video below where I warn of JP Morgan's derivative business, and where I was just about the ONLY one warning that JPM's risk is simply a time bomb waiting to go BANG! Guess what I just heard? That's right! BANG!!!

Also, take note of how I said that JP Morgan WILL NOT be in this significant loss on its own. It's counterparties exist in a very, very small pool, and I doubt if any of them really have the truly economic capital to back these losses. They will simply turn to their counterparties who will in turn turn to their counterparties. The only problem is that this counterparty past the buck daisy chain is only 5 or 6 banks long. What do you think happens when this game of musical chairs comes to an end? Buy the MFD!!!

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Of course, you know I'm going to say "I told you so!" Reference So, When Does 3+5=4? When You Aggregate A Bunch Of Risky Banks & Then Pretend That You Didn't? and then Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To Be Ignored? You see, in said piece, ZeroHedge dutifully reported that Five Banks Account For 96% Of The $250 Trillion In Outstanding US Derivative Exposure- a very interesting refresh of what I called out two years ago through "The Next Step in the Bank Implosion Cycle???":

The amount of bubbliciousness, overvaluation and risk in the market is outrageous, particularly considering the fact that we haven't even come close to deflating the bubble from earlier this year and last year! Even more alarming is some of the largest banks in the world, and some of the most respected (and disrespected) banks are heavily leveraged into this trade one way or the other. The alleged swap hedges that these guys allegedly have will be put to the test, and put to the test relatively soon. As I have alleged in previous posts (As the markets climb on top of one big, incestuous pool of concentrated risk... ), you cannot truly hedge multi-billion risks in a closed circle of only 4 counterparties, all of whom are in the same businesses taking the same risks.

Click to expand!

bank_ficc_derivative_trading.png 

Again, from ZeroHedge

... and just for some clarity on how this occurred. We know the positions that Iksil held were in IG9 (more likely to be tranches) but this $2bn loss comes from a tiny 12bps decompression in the index - which means the DV01 must be huge...(as we already knew given the massive rise in net notional that we warned about)...

This is the Investment Grade credit index series 9 - which is the most active tranche-related index and was the index that Iksil had driven massively rich to its fair-value...

Of course, there's more to this story. After all, there is NEVER just one roach. I will cover that in my next post on the topic, which will entail COUNTERPARTY RISK. That's right, do you really think this will effect just JP Morgan?  In the meantime and in between time, here's a subscription dump of our archives for JPM to placate the insatiable thirst of the BoomBustBlog paid subscriber:

 
 

 

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reggie@youcanreachmeatthisemail.com (Reggie Middleton) BoomBustBlog Fri, 11 May 2012 01:45:49 -0400
Google Found Guilty of Oracle Copyright Infringement, Only Liable For 9 Out of 15 million Lines Of Code! http://boombustblog.com/blog/item/6069-google-found-guilty-of-oracle-copyright-infringement-only-liable-for-9-out-of-15-million-lines-of-code http://boombustblog.com/blog/item/6069-google-found-guilty-of-oracle-copyright-infringement-only-liable-for-9-out-of-15-million-lines-of-code

Bloomberg reports Google’s Android Infringed Oracle’s Java, Jury Says:

Google Inc. (GOOG), the largest Web-search provider, infringed copyrights for Oracle Corp. (ORCL)’s technology in developing Android software running on more than 300 million mobile devices, a federal jury said.

The 12-member panel in San Francisco, however, was unable to come to a unanimous verdict on whether Google had made “fair use” of Oracle’s intellectual property.

The decision prevents Oracle from seeking damages for all but nine lines of computer code on Android, out of 15 million total lines, that the jury found were copied from Oracle, U.S. District Judge William Alsup said today. Oracle is seeking $1 billion in damages.

I'm far from an IP lawyer or anything of the sort, but it appears as if this registers as an epic #FAIL for team Oracle!

There has been zero finding of liability on copyright, the issue of fair use is still in play,” Alsup said after the verdict was read.

Google attorney Robert Van Nest asked Alsup to declare a mistrial, saying the issue of whether it’s liable for infringement is directly linked to the question of whether it was fair use. Alsup said he would consider Google’s request later. He ordered the patent phase of the case to begin.

The decision came in the copyright phase of an eight-week intellectual-property trial that began April 16 and next will shift to Oracle’s claims of patent infringement. A third phase, on damages, will follow the other two.

See also..

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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reggie@youcanreachmeatthisemail.com (Reggie Middleton) BoomBustBlog Mon, 07 May 2012 17:07:40 -0400
How Does Facebook Drum Up So Much Frothy Interest For Its Overpriced Shares? Help From The Media, Goldman, et. al. http://boombustblog.com/blog/item/6068-how-does-facebook-drum-up-so-much-frothy-interest-for-its-overpriced-shares?-help-from-the-media-goldman-et-al http://boombustblog.com/blog/item/6068-how-does-facebook-drum-up-so-much-frothy-interest-for-its-overpriced-shares?-help-from-the-media-goldman-et-al

I've had a few subscribers who, after reviewing the (subscription only) FaceBook IPO & Valuation Note Update and Facebook Valuation Model, have seriously queried how Facebook is managing to drum up so much froth and interest for its obviously overpriced shares? The apparent answer is the marketing machine known as Goldman, et. al. The less recognized answer is assistance from the MSM, as demonstrted by this CNBC article - Facebook’s Premium Ad Prices Still Rising:

Pricing for Facebook’s premium “social” advertisements continues to rise, two recent studies have found—a positive indicator that could offset concerns about a dip in advertising growth and help sentiment towards the Internet company’s initial public offering.

This is a net positive statement, no?

A report to be released on Monday by Marin Software, a digital marketing platform that processes more than $100 million worth of spending on Facebook, found a 26 percent increase over the last year in the cost per click for “premium” ad formats such as Sponsored Stories, which highlight friends’ “likes”, comments and other endorsements of brands’ activity on the site.

Wow! That's pretty good growth and pricing elasticity, no? Bring on those newly public shares and let 'em rip!!!

However, Marin’s report also found the cost per click for Facebook’s standard ads, which make up an estimated three-quarters of the social network’s advertising revenues, fell 26 percent over the last year.

Wait a minute, if 75% of the companies product dropped in price, doesn't that easily swamp the 26% of the companies premium ads that rose in price? An even more direct questions is, why isn't this being reported as the net negative that is is? Let's walk though this step by step for the more arithmetically challenged amongst us...

   % of revenue  Increase/decrease in Average cost Net Change to Gross Revenue
Facebook Premium Ads 25% 26% 6.500%
Facebook Regular Ads 75% -26% -19.500%
      -13.000%

So, according to this MSM article, reporting a net 13% drop iin revenue somehow amounts to - and let me quote this so as to be as accurate as possible - "a positive indicator that could offset concerns about a dip in advertising growth and help sentiment towards the Internet company’s initial public offering". Please excuse me as I wipe the splattered bullshit from my computer screen - it's hard to type accurately with those opaque, stinking brown stains in the way. Even worse, it goes to show what portions of the MSM actually think in terms of the intellectual capacity of its readership.

Facebook will this week begin a roadshow to convince potential investors that its business is worth up to $96 billion in its initial public offering later this month.

So, slower subscriber growth...

Faster cost growth and lower profits - Facebook First-Quarter Profit Drops; Costs Almost Double, and a 13% drop in gross  ad pricing - virtually the sole source or revenue for Facebook, amount to a valuation for this company that at 99 Times Profit Exceeds 99% of S&P 500 Index. Hey, it gets better...

Marin’s report follows data published last month by TBG Digital, a digital advertising firm that buys Facebook ads on behalf of 235 companies in 190 countries, showing a 23 percent increase in cost per click for the first quarter of 2012 compared with the fourth quarter of 2011.

The cost of delivering an ad to 1,000 people increased 41 percent in the first quarter of 2012 compared with the same quarter last year. However, click-through rates on ads—a key measure of effectiveness—fell an average of 6 percent across Facebook’s top five territories.

Advertisers’ desire to grab the attention of the social network’s 900 million users is still running ahead of their ability to measure the returns from that investment, which is seen as a key long-term challenge for the social network.

 Here's where I broke it down on Capital Account

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I also happened to do the same on the Max Kesier show...

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Subscribers who haven't refreshed their viewing of our Facebook research should do so now - (subscription only) FaceBook IPO & Valuation Note Update. Pro and instititional subscribers are welcome to peruse the downloadable Facebook Valuation Model, allowing you to input your own assumptions in the very unlikely event you may not agree 180% with me :-)

And from the archives...

 

Reggie_Middleton_Facebooks_Valuation 

Facebook Finally Faces The Fact Of BoomBustBlog Analsysis 

I discussed Facebook on the Peter Schiff radio show, the Facebook excerpt is below...

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From my previous Facebook analysis public excerpt:

Yeah, I was on a roll last year, wasn't I? That's not the gist of it either, as we reminisce even more...

Here is an excerpt for those who do subscribe to our research and services, YET!

Even with the fund taking 45%+ losses and the LP (limited partners, ex. Goldman's clients) losing every last single dime, Goldman easily pulls a 33% return. God forbid Facebook share actually do well, Goldman's numbers look... Well... Damn near illegal! Almost as if they can pump up a price without any fundamental justification or public disclosure of financials and still sell it retail to the public. Of course, such a thing could and would never occur - not with the every vigilant SEC to take our backs. Excuse me while a cough a up a lung from laughter...

You see, this is the dirty little secret of private equity funds. They are not in the business of investing money for client's maximum risk adjusted return. They are in the business of collecting fees. Those poor innocent (or not so, particularly when they are investing their clients monies, hence are in the same business) souls that actually believe as the commenter above quoted "Wow!!! If Goldman is putting their money in this, it must be serious!"simply the lamb being led to the private equity/IPO slaughterhouse. You see, there is no loss to GS - no matter how high they bid up the valuation nor how hard it comes crashing down. This gives them the incentive to shoot for the sky with the private equity deal, because when the IPO breaks, its bonuses bigger than nearly any have ever seen. Facebook makes and excellent marketing story as well. Boy Wunderkind CEO, a product nearly everyone uses and loves, and a mysterious dearth  of business model to give it a mystical effect. Don't forget the involvement of the "cream of the crop" of Wall Street banks, whose bankers, traders and analysts are all so much smarter than us guys from Brooklyn. Add this up, and you get "Wow!!! If Goldman is putting their money in this, it must be serious!".

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Additional Facebook analysis, valuationa and commentary.

On Max Keiser, go to the 13:55 marker for more on Facebook...

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Last month I released an update to our Facebook IPO analysis (subscribers may download it here FaceBook IPO & Valuation Note Update). In its caveats section, I made pains to make very clear that one of the biggest threats to Facebook investors actually emanates from within, to wit:

FB_Corporate_Governance_issues_pt_1

FB_Corporate_Governance_issues_pt_2

Of course Facebook enthusiasm is burning hot. The coals in the "investor" (and I put this lightly) fire are being stoked by none other than the sell side agents doing God's work, among others...

Professional and institutional BoomBustBlog subscribers have access to a simplified unlocked version of the valuation model used for this report, available for immediate download - Facebook Valuation Model 08Feb2012. The full forensic opinion is available to all subscribers here FaceBook IPO & Valuation Note Update. It is recommended that subscribers (click here to subscribe) also review the original analyses (file iconFB note final 01/11/2011) as well as the following free blog posts on the topic:

  1. Facebook Registers The WHOLE WORLD! Or At Least They Would Have To In Order To Justify Goldman’s Pricing: Here’s What $2 Billion Or So Worth Of Goldman HNW Clients Probably Wish They Read This Time Last Week!
  2. Facebook Becomes One Of The Most Highly Valued Media Companies In The World Thanks To Goldman, & Its Still Private!
  3. Here’s A Look At What The Goldman FaceBook Fund Will Look Like As It Ignores The SEC & Peddles Private Shares To The Public Without Full Disclosure
  4. The Anatomy Of The Record Bonus Pool As The Foregone Conclusion: We Plug The Numbers From Goldman’s Facebook Fund Marketing Brochure Into Our Models
  5. Did Goldman Just Rip Its HNW and Institutional Clients Once Again? Facebook Growth Slows Pre-IPO, Just As We Warned!
  6. The World's First Phenomenally Forensic Facebook Analysis - This Is What You Need Before You Invest, Pt 1
  7. The Final Facebook Forensic IPO Analysis: the Good, the Bad & the Ugly

 

 

 

 

 

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reggie@youcanreachmeatthisemail.com (Reggie Middleton) BoomBustBlog Mon, 07 May 2012 10:26:19 -0400
The UK Can't Be In A Double Dip Recession If It Never Truly Left The First Recession, Can It? http://boombustblog.com/blog/item/6056-the-uk-cant-be-in-a-double-dip-recession-if-it-never-truly-left-the-first-recession-can-it? http://boombustblog.com/blog/item/6056-the-uk-cant-be-in-a-double-dip-recession-if-it-never-truly-left-the-first-recession-can-it?

Bloomberg reports U.K. Plunges Into Double-Dip Recession, as does CNBC, UK Back Into Recession in First 'Double Dip' Since 1970s:

Britain's economy slid into its second recession since the financial crisis after official data unexpectedly showed a fall in output in the first three months of 2012, piling pressure on the embattled coalition government.

My contention is that the UK has not fallen back into recession, but has never truly risen out of the last one. Accounting parlour tricks, financial engineering machinations and outright verbal sleight of hand (what some may call not telling the truth) has given the illusion of organic growth, but in reality and at best, it was simply buying $1.00 worth of growth with $1.20 worth of stimulus - or should I reference this in pounds.

As we clearly articulated two years ago, when it was alleged that recession was over, in the subscriber (click here to subscribe) document  UK Public Finances March 2010:

 UK_Public_Finance_Analysis_2.0_Page_01_copy

UK_Public_Finance_Analysis_2.0_Page_02

UK_Public_Finance_Analysis_2.0_Page_03

 


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reggie@youcanreachmeatthisemail.com (Reggie Middleton) BoomBustBlog Wed, 25 Apr 2012 07:40:14 -0400