My series on the battle for mobile computing dominance is now over 21 articles long. It was started less than a month ago, yet so many things have changed since then. Google's strategic initiatives are blooming and it is showing that Google's management is capable of executing at a very high level with a very distant level of foresight. Their investment in broadband services, mobile OSs, and cloud services have virtually guaranteed them a very viable path outside of their current core reliance on search ad revenue. The issues on the plate for interested parties are a) quantifying the monetizaton to be had from such efforts (it is not necessarily bullish for the equity in this particular environment), b) gauging the progress and potential of Google's biggest and most capable competitors in this race (although Google looks to be successful in diversifying, that doesn't necessarily mean it will win the mobile computing wars, and c) as always, get the timing right.

I have went into this in detail in the first four installments of my mobile war seriers:

  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

The second article listed, "Google's response" had a very interesting graphic in it that many may have missed...

Notice how Google has directly funded all of the technologies that have converged to threaten to topple Apple’s smartphone hegemony? Sprint’s 4G Wimax tech, HTC’s collaborative use of the Android OS and the customization of the interface through HTC Sense! Google is, and has been for the last two years, Apples bigges

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As I have warned ad nauseum, the problems in Europe are being signicantly underestimated. From CNBC: Spain Jobless Rate up to 20.09 Percent

Spain's unemployment rate rose to a 13-year high of 20.09 percent in the second quarter, the government said Friday, as the job market lagged behind an economy that has barely managed to break out of recession. Though the rate increased from 20.05 percent in the first three months of the year, the  National Statistics Institute (external link) said the number of people working actually increased. Still, the overall unemployment rate rose to its highest level since 1997 because of a large increase in the work force. Spain crawled out of recession in the first quarter of this year after nearly two years of economic contraction and has been a focus of concern in recent months, as investors fretted that its bloated deficit and  troubled banking sector could necessitate a Greek-style bailout. The statistics institute said in Friday's report that there are now 4.645 million unemployed people in Spain, more than half a million higher than a year ago.

Proposed austerity measures on top of a collapsed bubble in the real estate market and banks that are playing hide the sausage with NPAs are not going to help the unemployment rate any. From our proprietary report on Spain's public finances, Spain public finances projections_033010  (click here to subscribe):


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Last week, I made clear to my readers and subscribers that the bank malaise is not over, despite what may appear to be encouraging moves by the executive staff. Housing prices are still on their way down, save temporary blips from government bubble blowing and the outright concealment of non-performing assets by banks, see Anecdotal Evidence That Banks Are Hiding Depressed High End Real Estate. Now, many may see this as consipiracty theory, which is why I always included hard analysis behind my posts. After a Careful Review of JP Morgan’s Earnings Release, I Must Ask – “What the Hell Are Those Boys Over at JP Morgan Thinking????”

The boys over there at the "Morgan' appear to be partying like it was 1999, releasing all types of reserves and provisions (which coincidentally padded a very weak earnings quarter) as if I didn't make it "Very Clear In March, US Housing Has a Way to Fall":

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Much of the mainstream media has carried articles that were at least somewhat skeptical of the European bank stress tests. I think being "somewhat skeptical" is about 5 leagues below where they should be, but its a start. After all, the EU actually passed a bank that is literally insolvent. I don't want to pound on the actual insolvency of this German bank, since I already went into detail on this topic earlier, but it is imperative that my readers understand the depth and extent of the travesty (or lies) that are being promulgated in the name of "transparency". I ridiculed the basis of these stress tests last week (European Bank Investors, Don’t Look Now – You’ve Been Hoodwinked, BamBoozled…), but now it is time to show you that these tests which assume the biggest threat to the European banking system (sovereign default or restructuring) will not occur and capriciously passes banks that not only will be hampered in the future, but are actually quite insolvent (by nearly any realistic means measurable) now, have actually proven that the risks of restructuring and/or haircuts are virtually guaranteed. This leaves the results of the stress tests a farce, at best and an insult to capitalism and common sense.

The tests assumed that there would not be a sovereign default. The tests also refused to mark "hold to maturity" inventory to market, despite the fact that said inventory may be permanently impaired. The logic? Europe will not allow a default. But how about a restructuring? And how will Europe handle more than one sovereign coming to the restructuring trough? I've already demonstrated the damage that can be done in A Comparison of Our Greek Bond Restructuring Analysis to that of Argentina.

Price of the bond that went under restructuring and was exchanged for the Par bond in 2005

image001

Price of the bond that went under restructuring and was exchanged for the Discount bond

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To continue on the topic of deflation, inflation, depression and stagflation (what joyous times we live in:-)) I bring you..

Deflation of the Great Depression vs. Stagnation of Now: Casey Mulligan

  • Current price levels have not dropped significantly, and most consumer items are still more expensive in nominal terms than they were ten years ago
  • In 1929, consumer prices fell every month for four years, compared to a few deflationary months in 2008 followed by light increases in consumer costs throughout 2009
  • While the author is a PhD (and therefore according to a Federal Reserve researcher, BoomBustBlog is not mighty enough to question him), his statement that deflation has not been as bad is based on 20/20 hindsight logic, and he should be more concerned with, “Whether or not deflation is about to take root and stay for a while.”

Where is the consumer demand to keep prices from falling?  As credit continues to contract and consumer discretionary spending is still weak, growth in consumer prices looks unlikely at best.  It would be wise not to confuse deleveraging with deflation, as consumers continue to surrender their credit cards and approach living within their means.

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Why are Banks Hiding High End Residential Real Estate? Courtesy of the Real Estate Channel:

  • Without the FTB tax credit, the housing market is receiving artificial demand and price support from the FHA loan guarantees and banks sitting on mortgages of homes once valued at $300,000
  • Banks in areas that were severely damaged by the downturn in domestic real estate (Cook County, Illinois, Miami-Dade County, Florida, Orange County, California) have significant inventories of homes worth more than $300,000 that they will not put on the market, even after foreclosures lasting more than 2 years

According to Bruce Krasting over at Zero Hedge, the FHA is "Officially Broke" anyway: FHA – “We are Officially Broke” After perusing the data above, one would wonder why... (Link to FHA/FR)

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This post will outline the second bank stress test joke of the day with the first one detailed in "". According to the MSM news outlets, Germany's PostBank, along with practically every other German bank except clearly insolvent and near defunct HyPo have passed the stress tests. So have French top banks, Portuguese, Italian, Finnish and Swedish banks. What? You're not laughing yet? You  know how we feel about the Spanish banks, so I will not go there right now (but will leave a trail of links at the bottom of this post for the uninitiated). What we are going to do now is focus on the farce that is passing Germany's Post Bank, a clearly insolvent (1.4x over insolvent) institution whose only potential (and that's just a potential) saving grace is the possibility of a forced takeover by a larger bank.

Let's revisit a few pages from the professional subscriber document, file icon Deutsche Bank vs Postbank Review & Summary Analysis - Pro & Institutional (subscribers can follow along on pages 3, 4, and 5):

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Personally, I consider the European bank stress tests to be a farce; an attempt to Bamboozle, Hoodwink and Dis-inform any who would be naive enough to drink the Kool-Aid - not to dissimilar from the US bank stress tests (see You’ve Been Bamboozled, Hoodwinked and Lied To! Here’s the Proof). CNBC reports that "NO" default scenarios will be played out, which I find to be rather unrealistic since the reasons why the banks are enjoying restricted access to the capital markets is the fear of default! Think long and hard about this...

You are showing signs of HIV, and nobody wants to come near you, make love to you or lend long term to you due to the symptoms of this most unpleasant and deadly disease despite the many proclamations you have made to the contrary. You decide to set the record straight by visiting a prominent doctor to diagnose your issues and placate your associates. The doctor comes up with a prognosis, but simultaneously declares that:

  • AIDS (the syndrome), and death have not and will not be considered because the doctor will not let any of his patients catch AIDS or die! Whaaatt!!!??? Does the doctor really have that much control over who catches diseases and who dies? [Analogous to refusing to even consider the potential for default on sovereign debt, as if no European country has ever defaulted before - many have, and many probably will in the future as well). This analogy actually serves us quite well for the ECB has very limited control over who gets sick and how the contagions (both financial and economic) are transmitted (see below).
  • The patient will be assumed to operate between 96% and 57.8% efficiency. This is, of course, a problem if the patient truly is terminally ill, for his health should receive significantly more of a.... Well, a haircut.
  • Only the patient's mucous membranes and other very short-lived tissue will be considered for examination, for the patience plans on keeping other body parts for the long term, hence they should not be affected by fluctuations by any potential illness. Yes, I know this statement doesn't make any damn sense, but then again neither does the ECB excluding hold to maturity and portfolio inventory from the stress tests either. It really doesn't matter how long you plan on holding said items, if they are permanently impaired in value, then they are permanently impaired, Right???!!! I know, we won't even consider a default scenario, but since countries do default.. If a default occurs, or more realistically a restructuring, then wouldn't longer term inventory be impaired - Permanently???!!! In the post A Comparison of Our Greek Bond Restructuring Analysis to that of Argentina I demonstrated how much damage was done to the Argentinian bond holders after their restructuring. Too bad the Argentinian investors didn't have the all-powerful ECB there to declare that restructuring and default are not part of the rules, hence not allowed. The following is the price of the bond that went under restructuring and was exchanged for the Par
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About a week and a half ago I released a refresh of the HSBC Foensnic Analysis along with a macro rant on why China will not pull the world out of an economic slump in "Will the Emerging Markets Lead the World to New Growth?". HSBC is an interesting bank to cover since it has its hands in so many emerging markets as well as developed nations. In a nutshell, I truly don't believe a net export nation can lead a highly indebted developed world to economic nirvana when that indebted world is in the process of buying less (in terms of imports, and practically everything else) as well as paring down reliance on leverage as they wrestle with depreciating assets.

Well, this week, reality hit and the MSM news headlines say: China Says Exports Outlook 'Grim' on Europe Demand

China sounded a gloomy note on Tuesday about its export prospects, warning in particular that belt-tightening by deeply indebted European Union governments would dampen demand for the country's goods.

Calling the trade picture "still complicated and grim", the Ministry of Commerce said high growth in exports in the first half would give way to slow growth in the second half.

"The sovereign debt crisis has made many EU countries shift to fiscal austerity from fiscal expansion, which will greatly restrict consumption and investment growth in the EU," the ministry's spokesman, Yao Jian, told a news conference.

There is a great, big, 50+ article, "I told ya so!" to be had here. Reference "the Coming Pan-European Sovereign Debt Crisis" - and be aware that this malaise is guaranteed to spread. See the Sovereign Contagion model below for more on this...

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What more can be said? See the Cnet review and if you haven't done so already, review my opinions on the same:

  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
  4. This article should drive the point home:

Apple  is quickly losing its grip on what is, by far, its most profitable franchise...

And the next comparison (and probably the next three after that) will be between two Android phones because Apple will not have anything new for at least one year (except the iOS 4.1 SDK that is already out - that was fast) and RIM, and Nokia will probably be forced to adopt Android as well.

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