As some may know, I'm launching a wearable computing venture. I need financing. Should I go straight to the source, my base, to get said funds. This is Spike Lee's take...
Some of my projects...
I will open these up to seed funding as well as crowdfunding. I also have a top secret project that I believe will be even more of a game changer.
On Thursday, 12 August 2010 I penned How Google is Looking to Cut Apple’s Margin and How the Sell Side of Wall Street Will Enable This Without Sheeple Investor’s Having a Clue. In said piece I unequivocally detailed the process and mechanism with which Google would systematically slash the profitability of the fat-margined OEM hardware and software vendors. I was the ultimate contrarian at this time for there was not a single well known analyst, investor or media personality that espoused a similar viewpoint. Apple was the "the next big thing" at that time.
This time last year I took time to go into detail in regards to how Google is able to go about this...
Eariler this year, I delved even deeper into the details of how Google will cut the fat-margined companies (read as Apple, et. al.) off at the knees!
As coincidence would have it, Google management has now come out in public with affirmation of the business model that I have attributed to them these last few years, as reported today by the Financial Times on their front page.
Google is preparing an attack on Apple’s iPhone with a device that is more aware of its surroundings and smart enough to anticipate how it will be used next, according to the head of the internet company’s Motorola subsidiary.
The gadget, called the Moto X, will be made in the US and will be part of a campaign to drive down the cost of smartphones and end the high profit margins companies such as Apple have enjoyed, said Dennis Woodside, the Google executive installed to run Motorola after it was acquired in late 2011.
Mr Woodside’s comments, made at the D11 conference in southern California, marked the first official confirmation by Google that it would launch a “hero” phone, or flagship handset capable of competing with devices such as the iPhone and Samsung’s S4.
I have also said on several occasions that the current market sweetheart, Samsung, is not immune to the hardware margin compression woes. As a matter of fact, no hardware vendor in this segment is. It's quite evident now that Google's plans for Motorola is precisely to drive down the margins of all OEM vendors - even their Android partners who are also competitors. A complex relationship, eh? Let's face it, Smartphone Hardware Manufacturers Are Dead, Long Live The Google-like Solution Providers (and Computer Hardware Vendors Are Dead, Part Deux!). I commented on the predicament that Samsung is in now as it reaps increasingly large profits, just like Apple did - Samsung Will Be Ready To Do That Fruit Thing, Just Like Blackberry & Apple - Courtesy Of Google, #MarginCompression!
Mr Woodside hinted that the new handset would go on sale later this year and be priced well below the iPhone 5, adding that the sort of steep price declines seen in consumer electronics from personal computers to televisions were overdue in the smartphone market.
Without naming the iPhone directly, he said: “Those products earn 50 per cent margins. We don’t necessarily have those constraints. Those [margins] will not persist.”
... He added that Google was confident that the device, which will be “broadly distributed”, would be a big seller because “the experiences are unlike other experiences out there.”
For those who actually think that Apple's share price can afford such a battlle, I bring you this graphic from "Is It Time To Buy Apple As A Valuation Play? The Contrarian That Called The Top In Apple Weighs In"
Click the graphic once to view, twice to enlarge to printer quality...
Putting stock market performances aside, the question du jour is, "Is this negative margin attack working?". Quick answer, hell yeah! I opined on margins by means of the market share vs profit share debate over the last two days, reference"
- Blackberries, Apples & Fruit Borne Successitis - The Problem With Excess Profits Is Hubristic Management Tends To Take Eyes Off The Prize!!! and
- Is Tim Cook Cooked? Market Share vs Profit Margin, part 2 - Follow What I Do, Not What I Say!
This strategem employed by Google was visible at its onset and could have been mitigated had Apple been less greedy in terms of short term profits (it was one of the, if not the most profitable companies in the world) and gunned for ubiquitous distribution. You see, over time, every company's margins get cut. The pertinent question and the inflection point into the next paradigm centers around the next logical questions, "Will you be the one to cut your own margins or will you allow your competitors do it for you?"
As long as the market leader actively and religiously cuts its own margins it essentially trades incremental profit margin for incremental market share growth. From a long term cash flow perspective, it actually averages out to about the same. The problem is if you fail to cut margins often and early, you reap large cash flows in the beginning of the cycle to forgo them through margin compression towards the middle and end of the cycle, characterized by market share loss at the onst.
I've been using Blackberry as an example of this...
All of the former tech titans and market leaders have fallen the same way - Nokia, HTC, DEC, Polariod, etc.
For paying subscribers only:
Recent Apple Valuation Reports
Subscribers, download the Q3 2013 valuation reports (click here to subscribe).
- Apple 3Q2013 Valuation Update - Retail
- Apple 3Q2013 Valuation Update - Pro & Institutional
The update from two months ago is also of value for those who haven't read it. It turns out that it was quite prescienct!
Recent Google Valuation Reports
Two and a half years ago I declared in my mobile computing wars series that Google would commoditize the mobile computing space. Four months ago, I reiterated that assertion in Smartphone Hardware Manufacturers Are Dead and did so yet again the following month in Computer Hardware Vendors Are Dead, Part Deux! These premonitions cover not only the obvious also rans and marginal companies who's management complained about losing the forest due to tree bark obstruction, but the very darlings of the industry as well. This includes the "used to be" market darling Apple (What Sell Side Wall Street Doesn't Understand About Apple - It's Not The Leader Of The Post PC World!!!) and even the current reigning champion, Samsung. That's right, I said it! Samsung! Hey, I'll say it again just to drive the point home, Samsung! How and why is that, you ask? Well, the same Google Android generated, creative destruction pathogen that brings us such great technology at such a rapid pace at such quickly diminishing prices that has wiped out those companies that I have warned of so extravagantly doesn't just disappear when your current market darling get's knocked off its perch. Let's recap & excerpt the link above so we can clearly isolate the common thread...
So, you ask, "How is it that hardware is dead?" Well....
- 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.
- After years of outsourcing manufacturing tech and IP integration 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...
Research in Motion in early 2010: Many More Black Eyes for the Blackberry? A Complete Forensic Analysis of Research in Motion
Apple from 2010 till the ultimate short call in October just past: Deconstructing The Most Accurate Apple Analysis Ever Made - Share Price, Market Share, Strategy and All
I also laid clear the path to Google's prominence as far back as 2010, when there was not a peep from the sell side, see Google's Q4, 2012: This Looks To Be The Leader Of The New Distributed Information Paradigm .
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.
What's the purpose of going through said lengthy exercise?
My regular readers should know an "I told 'ya so" is coming, in the form of an analysis of Samsung's latest quarter results. I was simply going to link to this Business Insider article by Jay Yarrow, but to be honest (and with all due respect, I think these guys work hard) the assumptions and conclusions drawn in it are erroneous and faulty. Thus let's recreate the argument from scratch the BoomBustBlog way.
The article starts off well, by stating that Samsung will fall the way Apple has through margin compression, but the accuracy ends there. The analyst quoted assumes Apple's problems stemmed from the market for high end handsets being saturated, thus the demand bulge moving downstream. This was the justification given for the relatively weak uptake and acceptance of the iPhone 5. This actually the OPPOSITE of the truth. The demand for high end handsets has actually never been higher, which is why so many OEMs are pushing out flagship after flagship. Samsung's best selling device, by far, is its GS3 device (not withstanding the true flagship is the Note 2, but that is more of a specialty device, whose uptake is actually increasing as well). The author of the article and the analyst from which he quotes have succumbed to the Apple RDF (Reality Distortion Field) again.
Apple's iPhone 5 failed in resuming rapid adoption not because high end devices are nearing saturation, but because it's not a high end device yet tried to compete with said devices!!! It may be marketed as a high end device, but it can do relatively little that the Android high end devices can, ex. NFC, Full HD screen, >430 ppi screen density, 5 inch screen, quad core processing (yes, this makes a difference, the new androids smoke the iPhone 5), LTE high speed connectivity, etc. That's a pretty long list off of the top of my head. I saw this feature disparity coming in 2010 as Apple relied more on marketing and less on tech to sell its technology products more as life style fads instead of telecomm/computing/media consumption devices. Reference BoomBustBlog paid research Deconstructing The Most Accurate Apple Analysis Ever Made - Share Price, Market Share, Strategy and All. The result of Apple continuing along these lines is simply more of the same. Reference Most Accurate Apple Analysis Ever Pt 2. So what will be the cause of Samsung's margin compression if they are doing "high end" it right? See the two videos above. Samsung will be forced to put more tech in each device at ever lowering price points because that is the business model of the Open Sourced OS that they have succeeded in using - Android. It's the cost of admission into this high growth club. Now, Samsung has two big advantages that Apple doesn't and one advantage that Apple did. To wit:
- Samsung makes many of its own critical parts (screens, processors, memory chips). Apple actually has to buy these from its Android competitors (Samsung, Sony, LG), thus exposing it further to margin compression.
- Samsung has a much more diversified product mix. Apple was overexposed, big time. It garnered 72% of its operating profit from one single, product that had more than half the mobile tech space gunning for it. What do you think was going to happen?
- Apple, more so than Samsung, has enough brand cache to take the onus off of the underlying tech and move it to the brand, per se. People are buying (or were buying) iPhones, not iOS products. People are now starting to recognize the Samsung & Galaxy brand, giving Samsung some leverage over Android.
Expect an Android fork, or the Tizen OS to play a greater role in Samsung's love/hate relationship with Google.
Despite these advantages, as Google pushes hardware and data access prices to near zero, margins in these spaces will collapse along with it. You can't stop this collapse without slowing the progression in the tech space (for that's what the consumer has been trained to expect) or successfully cost shifting - as Google has.
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!
Earlier this week I interviewed with Benzinga radio discussing my views on the Economic Circle of Life, and the global cartel of central bankers who have conspired to manipulate said cycle, to the detriment of fundamental investors, tax payers and market pricing worldwide! See an excerpt below and click the link to here the full audio of the interview.
Reggie Middleton: Economic Cycle Frozen at Top of the Bubble
Benzinga Radio recently had a chance to speak with Reggie Middleton, the founder of boombustblog.com. Mr. Middleton is an investor who guides a small team of independent analysts. His research is widely circulated among banks, hedge funds, and institutional and individual investors. Reggie has appeared on Bloomberg Television, CNBC, BBC World News, and CNN among others, and his prescient investment calls have been detailed in publications such as Fortune and Crain's New York.
The primary topic of Benzinga's discussion with Mr. Middleton centered on the unfolding Eurozone sovereign debt crisis, which continues to hold financial markets hostage. According to Middleton, the term "contagion" or "virus" when describing what is taking place in Europe is misleading. It is less a matter of market distrust and rising sovereign yields in one country spreading to another, and more a problem of a faulty foundation with regard to the entire EU and euro currency.
He said, "the problems were inherent from the beginning - from the inception of the Eurozone and the euro in general." He added, "a building was built upon a faulty foundation." Middleton noted that one of the core problems that is taking place in the EU is the fact that countries such as Greece lack true sovereignty due to the structure of the monetary union.
Follow this link for the full article and the full audio of the interview: http://www.benzinga.com/content/2138614/reggie-middleton-economic-cycle-frozen-at-top-of-the-bubble#ixzz1e4KdG349
The reasoning behind my comments in this interview stemmed from the posts Do Black Swans Really Matter? Not As Much as the Circle of Life and What Happens When That Juggler Gets Clumsy?: As excerpted...
Actually, it is not the Black Swan events themselves that do the damage but said event do serve as the catalyst that either bust a bubble that was waiting to pop anyway, or break a structure that was hobbling along on one leg as it was - where we happen to be now in many places of the developed world - sans rampant propaganda, misinformation and disinformation from less than disinterested sources.
I have always been of the contention that the 2008 market crash was cut short by the global machinations of a cadre of central bankers intent on somehow rewriting the rules of economics, investment physics and global finance. They became the buyers of last resort, then consequently the buyers of only resort while at the same time flooding the world with liquidity and guarantees. These central bankers and the countries they allegedly strive to serve took on the debt and nigh worthless assets of the private sector who threw prudence through the window during the "Peak" phase of the circle of economic life, and engaged in rampant speculation. Click to enlarge to print quality...
The result of this "Great Global Macro Experiment" is a market crash that never completed. BoomBustBlog subscribers should reference The Inevitability of Another Bank Crisis while non-subscribers should see Is Another Banking Crisis Inevitable? as well as The True Cause Of The 2008 Market Crash Looks Like Its About To Rear Its Ugly Head Again, With A Vengeance.
All four corners of the globe are currently "hobbling along on one leg", under the pretense of a "global recovery".
Simply sit back and look at the (supposed, none of these should truly be considered surprises) Black Swan Catalysts that we now face:
- US Housing, you know, the the thing that kicked this all of to begin with - The True Cause Of The 2008 Market Crash Looks Like Its About To Rear Its Ugly Head Again, With A Vengeance Friday, March 11th, 2011
- US and/or European Commercial Real Estate - Reggie Middleton ON CNBC’s Fast Money Discussing Hopium in Real Estate Friday, February 25th, 2011
- MENA, the Middle East & North Africa - Egypt’s Social Unrest As A Pan-European Economic and Financial Contagion? It Can Happen!!! Friday, January 28th, 2011 or First Tunisia, Then Egypt, Now Yemen: Will This Reach The Powder Keg That Is The EU & What Will Happen If It Does? Wednesday, February 2nd, 2011
- Japan - Can Contagion Be Avoided Considering The Magnitude Of Japan’s Woes? Tuesday, March 15th, 201
The list can go on. The most likely catalyst is described as follows...
The advice coming from both the government agents (ex. central bankers) and those whom these government agents have pledged to rescue at the absolute cost to the average tax payer (the FIRE sector, particularly the banking cartel) has been absolutely horrendous. First let's take a look at the most respected of these agency protected players - Goldman Sachs. From my missive, Is Another Banking Crisis Inevitable? posted last month, I excerpt the following:
Today, Bloomberg reports that Goldman Sachs Turns Bullish on Europe Banks as Debt Risk Eases.The report goes on to state:
The U.S. bank that makes the most revenue from trading advised investors to take an “overweight” position on banks, raising its previous “neutral” recommendation, according to a group of equity strategists led Peter Oppenheimer. Investors should pay for the trade by lowering holdings of consumer shares, he wrote.
“For financials the narrowing of sovereign spreads in peripheral eurozone, which our economists expect to continue, is a clear positive,” London-based Oppenheimer wrote in the report dated Feb. 3. “Banks are one of the least expensive sectors in the market and the trade-off between their growth prospects and earnings in the next few years looks especially attractive.”
Unfortunately, the risks of this particular trade were not articulated, and I feel that the risks are material. Far be it for me to disagree with the “U.S. bank that makes the most revenue from trading”, but they have been wrong before – many times before. Reference Is It Now Common Knowledge That Goldman’s Investment Advice Sucks??? or Did Reggie Middleton, a Blogger at BoomBustBlog, Best Wall Streets Best of the Best?for more on this topic.
|Attention subscribers: A new subscription document is ready for download The Inevitability of Another Bank Crisis|
So where is the risk?
The impact of the Asset Securitization cum Sovereign Debt Crisis to bank balance sheets should become the market and media focus. The full cost of cleaning up the balance sheets of financial institutions particularly against the backdrop of adverse macro shocks emulating from sovereign defaults is not fully known. Structural weaknesses in sovereign balance sheets could easily spill over to the financial system due to the fact that most banks are stuffed to the gills with sovereign debt – highly leveraged, and marked as risk free assets at par. This can have broad, adverse consequences for growth in the medium term.
BoomBustBlog has taken the opposite stance: The Inevitable Has Finally Been Admitted In Europe: The Macro Experiment Has Ignited Inflation Without Commensurate Growth & Rates Will Spike. I have queried many times in the past, Is It Now Common Knowledge That Goldman’s Investment Advice Sucks???. Those who follow me regularly know that I have no problem running up against these big investment houses in terms of analytical accuracy and veracity. See Did Reggie Middleton Best Wall Streets Best of the Best? to ascertain who has been most accurate throughout this entire fiasco since 2007. I am not that smart, and I don't have a crystal ball. I simply understand and respect the Circle of Life and I do not need to screw my clients in order to make my profits. Let's see where the news of today puts those Goldman proclamations in reference to my perspective...
BoomBustBlog subscribers, I call you to attention. I have found a bank that literally has more derivatives risk than Citibank, Goldman, Morgan and JP Morgan - COMBINED! That's right, and on top of that if you peek under the covers (and not just follow the fodder in the annual reports) it apparently has the greatest mortgage risk in the industry. In addition to that... Okay, I'm getting ahead of myself. Let's start from the beginning or skip down to the RT Capital Account video if you're the impatient type.
Here are some quick updates before I move on to the latest subscription research (and boy, is this one a doozy!, subscribers download it here - Haircuts, Derivative Risks and Valuation). If you thought that Goldman, Bear, Lehman, BNP & Apple were good contrarian calls, you're going to wet your pants over this one - and thus far I haven't heard a peep about this company from ANYONE. I'm sure that will change forthwith as it shows signs of blowing up on both sides of the Atlantic - opps, I gave a hint. Well, here's some more...
ZeroHedge reports Italian Bonds Plunging: ECB Intervention Imminent: But if Italian bonds are tanking again, doesn't that put France at risk? See French Banks Can Set Off Contagion That'll Make Central Bankers Long For The Good 'Ole Lehman Collapse Days. Hold on, if France is suspect what does that portend for its largest bank? "BoomBust BNP Paribas?" (it is strongly recommended that you review this article if you haven't read it already) I started releasing snippets and tidbits of the proprietary research that led to the BNP short, namely Bank Run Liquidity Candidate Forensic Opinion - A full forensic note for professional and institutional subscribers. Even if we were to disregard BNP's most serious liquidity and ALM mismatch issues, we still need to address the topic of sovereign debt. Now, if you were to employ the free BNP bank run models that I made available in the post "The BoomBustBlog BNP Paribas "Run On The Bank" Model Available for Download"" (click the link to download your own copy of the bank run model, whether your a simple BoomBustBlog follower or a paid subscriber) you would know that the odds are that BNP's bond portfolio would probably take a much bigger hit than that conservatively quoted in the media. Here I demonstrated what numbers would look like in said model...
Okay, so if Italy and Greece cause France to go BOOM and the French banks will get caught in the blast (or vice versa, who can keep up these days), then doesn't that mean that those US banks leveraged into France and Italy will get hit? Oh yeah!!! Just As I Predicted Last Quarter, The World's First FDIC Insured Hedge Fund Takes A Fat Trading Loss
So, let's get to this big derivatives thing going around the web where Bloomberg blew the Bank of Lynch America Countrywide and JP Morgan spot by reporting they moved over $50 trillion notion of derivative exposure to their FDIC ensured banking arm to placate investors. What does this portend?
If Bank of America did it, and JP Morgan did, you can be rest assured most other big banks did it as well. What you ask? Hide the hot sausage, in a place that will burn... Really bad! As has been reported throughout the MSM and the blogosphere, the US banks have been caught playing hide the hot sausage, the problem is they're hiding it in mom and pop's bank accounts. Needless to say, this is going to burn the average tax payer and savings account holder where the sun don't shine...
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!
This concept was further illustrated in An Independent Look into JP Morgan...
Click graph to enlarge (there is a typo in the graphic - billion should trillion)
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.
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.
- The Fed Believes Secrecy is in Our Best Interests. Here are Some of the Secrets
- Why Doesn't the Media Take a Truly Independent, Unbiased Look at the Big Banks in the US?
- As the markets climb on top of one big, incestuous pool of concentrated risk...
- Any objective review shows that the big banks are simply too big for the safety of this country
- 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.
Reggie Middleton on CNBC's Squawk on the Street - 10/19/2010, discusses JP Morgan and concentrated derivative bank risk.
If you think that's scary (and you really should) check out Is Goldmans Sachs Derivative Exposure the Squid in the Coal Mine?
The notional amount of derivatives held by insured U.S. commercial banks have increased at a CAGR of 22% since 2005, which naturally begs the question “Has the value or the economic quantity of the underlying increased at a similar pace, and if not does this indicate that everyone on the street has doubled and tripled up their ‘bets’ on the SAME HORSE?”
Think about what happens if (or more aptly put, "when") that horse loses! Would there be anybody around to pay up?
Sequentially, the derivatives have increased every quarter since Q1-05 except for Q4-07, Q3-08 (Lehman crisis) and Q4-10 while on a YoY basis the growth has been positive throughout recorded history. In Q2-2011, the notional value of derivative contracts increased 2% sequentially to $249 trillion. The notional value of derivatives was 12% higher than a year ago. The notional amount of a derivative contract is a reference amount from which contractual payments will be derived, but it is generally not an amount at risk. However, the changes in notional volumes can provide insight into potential revenue, and operational issues and potentially the contagion risk that banks and financial institutions poses to the wider economy – particularly in the form of counterparty risk delta. The top four banks with the most derivatives activity hold 94% of all derivatives, while the largest 25 banks account for nearly 100% of all contracts. Overall, the US banks derivative exposure is $249 trillion and is more than four folds of World’s GDP at $58 trillion.
In absolute terms, JPM leads this list with total notional value of derivative contracts at $78 trillion, or 1.3x times the Wolds GDP. However, in relative terms, Goldman Sachs leads the list with total value of notional derivatives at 537 times is total assets compared with 44x for JPM, 46x for Citi and 23x for US Banks (average).
So, what does this mean? Well, it should be assumed that Goldman is well hedged for its exposure, at least on academic basis. The problem is its academic. AIG has taught as that bilateral netting is tantamount to bullshit at this level without government bailout intervention. If there is any entity at risk of counterparty default or who is at the behest of a government bailout if the proverbial feces hits the fan blades… Ladies and gentlemen, that entity would be known as Goldman Sachs.
As excerpted from Goldmans Sachs Derivative Exposure: The Squid in the Coal Mine?, pages 2 and 3...
Goldman is much more highly leveraged into the derivatives trade than ANY and ALL of its peers as to actually be difficult to chart. That stalk representing Goldman's risk relative to EVERY OTHER banks is damn near phallic in stature!
As opined earlier through the links "The Next Step in the Bank Implosion Cycle???"and As the markets climb on top of one big, incestuous pool of concentrated risk... , this is not a new phenomenon. Quite to the contrary, it has been a constant trend through the bubble, and amazingly enough even through the crash as banks have actually ratcheted up risk and assets in a blind race to become TBTF (to big to fail), under the auspices of the regulatory capture (see Lehman Dies While Getting Away With Murder: Introducing Regulatory Capture). 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...
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...
As you read exactly how precarios the situation is in France (and Belgium, through Dexia, et. al.) keep in mind that although this is definitely not good news for Goldman's numbers, historically since the beginning of this crisis, GS has actually correlated more with coke laced, red bull juice powered mo-mo trader patterns than actual book value - reference The Squid Is A Federally (Tax Payer) Insured Hedge Fund Paying Fat Bonuses That Can't Trade In Volatile Markets? Who's Gonna Tell The Shareholders and Tax Payer??? from just last reporting period...
... I'd like to announce to the release of a blockbuster document describing the true nature of Goldman Sachs, a description that you will find no where else. It's chocked full of many interesting tidbits, and for those who found "The French Government Creates A Bank Run? Here I Prove A Run On A French Bank Is Justified And Likely" to be an iteresting read, you're gonna just love this! Subscribers can access the document here:
As is customary, I am including free samples for those who don't subscribe, so you can get a taste of the forensic flavor.
Interested parties should click here to subscribe, cause next up we walk through several other American banks to see who's up for re-enacting 2008-9 put parade - and historically we have usually if not always been ahead of the curve, particularly when compared to Wall Street and the sells side - see Did Reggie Middleton, a Blogger at BoomBustBlog, Best Wall Streets Best of the Best?
So, in case you have yet to hear anything new (which could be the case if you're a BoomBustblog regular), try this on for size - taken off of the very first page of today's BoomBustBlog subscriber update - Banks Haircuts, Derivative Risks and Valuation.
Colossal Derivative exposure
According to the latest quarterly report from the Office Of the Currency Comptroller the top 4 banks in the US now account for a massively disproportionate amount of the derivative risk in the financial system. Although the [subject bank] with the xth largest derivative exposure stands a significant distance behind JPM, Citi, Bank of America and Goldman Sachs (the four largest players); the exposure quoted in OCC report is only for the US entity. Overall, [subject bank]’s group derivative exposure in its balance sheet is 220% of its tangible equity, far higher in both absolute and relative terms when compared to its peers. [Subject bank]’s on balance sheet derivative exposure is higher than the combined share of Goldman Sachs ($74bn, or 115% of TEC), JP Morgan ($78bn, or 62% of TEC) and Morgan Stanley ($46bn, or 114% of TEC). What is more worrying is the quality of these derivative assets. Of the total notional value of credit derivatives (over half trillion $US bn), nearly 60% are non-investment grade. [Subject bank] has the highest proportion of non-investment grade credit derivatives followed by Citi Group (55%), GS (52%), Bank of America (37%) and JP Morgan (32%). The tables below as well as on the following page compare [subject bank]’s on-balance sheet derivative exposure...
Well, there you go. If things were to kick off and the bovine excrement hits the fan blades, look for [subject bank] to stink worse than most! This is exactly how we isolated Bear and Lehman back in 2008! More importantly, just imagine [subject bank] stuffing all of those high quality, leveraged, about to implode liabilities into your Aunt Gertrude's CD and retirement savings! Yep, if Bank of American and JP Morgan did it, is anybody truly naive enough to believe that nobody else is doing it as well? As my Aunt Eva used to tell me, there is never just one roach!
I can be reached via the following channels, or directly via email:
I have received SO MUCH flack over the last year for pointing out the obvious FACT that Apple's phenomenal growth will be hit by Android's extra-phenomenal growth, it has been borderline disheartening. Well, the time is hear folks, and as is usual, logic. common sense and rational thinking rule the day once again. The results should be interesting, if not immediate, for many Apple investors and consumers are beyond loyal and ede to borderline fanatic. This portends much more irrational emotion in decision making and potentially unnecessarily drastic actions in the end. What do I mean? Well, Apple is purportedly just under 7% of the NASDAQ. If the Apple religion falls out of fad... Well, look out below! This may not happen immediately, for the love affair is truly torrid, and all sorts of excuses will be made. At the end of the day (or fiscal year, to be more accurate) the reality is bound to hit that Apple is a C corporation like everyone else and is subject to market pressures and competition, and truly does not fart fairy dust.
Of course, logic would dictate that the (literally) hundreds of hate mails I received should be replaced with hundreds of "Hey, Reg, you were right" mails, but it won't happen due to the fact that the nature of those that generated the hate mails forbids them from examining fact and instead allows them to be guided by a bisection of corporate marketing, brand loyalty and emotion. It should be quite interesting to see what the responses to this article will be in the comments section. This is a long post, but more than worth you time. I urge you to read in its entirety, or at least up until the part that reminisces:
"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..."
Early last year, I started tracking the rapid ascent of ultra mobile computing in my Mobile Computing Wars series. At that time, I didn't have a favored winner, but as I researched more and dug deeper, clear patterns started to emerge. These patterns simply got clearer and stronger as time progressed, and it ended in my putting out highly contrarian research on Google in public - Google’s Q1 2011 Review: Part 2 Of My Comments On The Gross Misvaluation of Google and in substantially more detail in private -the subscriber forensic analysis (63 pg Google Forensic Valuation, to plug in your own assumptions see Google Valuation Model (pro and institutional).
I also issued similarly contrarian research on Apple: Apple – Competition and Cost Structure).
Of course, the mainstream media and the Sell Side of Wall Street took the opposite sides of these bets, to wit: “Goldman’s $430 Target, Screaming Buy On Apple At Its All Time High Is In Direct Contravention To Reggie Middleton’s Logic – Who’s Right? Well, Who Has Been More Right In The Past?“ and “Reggie Middleton Takes The Challenge To Goldman Sach’s Apple Proclamation One Step Farther, Apple’s Closed System Risks Failure!”. Realize that It Should Now Be Common Knowledge That Goldman’s Investment Advice Sucks. Of course, that doesn't necessarily mean that there is any credibility in said proclamations, though. Reference this priceless nugget in light of the links above... Goldman Sells Nearly Half $Billion Of Apple Stock Directly Into Their Client’s Conviction Buy Recommendation: Guess Who Really Agrees With Reggie Now!I'd also like to reiterate, I've Told You Before, And I'll Tell You Again - Goldman Sachs Investment Advice Sucks!!!
Well, as luck would have it, the Street was wrong on Google, see Did A Blog Best Wall Street's Best of the Best In Guaging The True Value of Google? We Have To Think More Like An Entrepeneur & Less Like A Wall Street Analyst July 19th, 2011.
There were wrong on Apple, and to be absolutely honest, they are wrong in general - reference Did Reggie Middleton, a Blogger at BoomBustBlog, Best Wall Streets Best of the Best? Not that this tidbit of fact and simple math will stop the sheeple from shoveling over billions upon billions of dollars to this industry to be recycled back into the bonus pool, versus supporting truly independent research such as BoomBustBlog, no matter HOW many times I'm right and they are proven wrong - and it has been a lot, trust me.
We also had pundits in private equity who I would have normally assumed should have know better jump on the Apple wagon, as excerpted from My Thoughts on Roger McNamee's View of Google and Mobile Computing...
Of note, pundit recommended long Apple and short Google for guaranteed profits. Google blew out numbers this quarter (Our Uber Growth Thesis For Google Is Intact and Performing Well) and Apple missed, all the while Google is strategically positioned to do much, much more damage. As for the comment about nobody makes money from Android, well those entities that make money from Android disagree. I have outlined this in the first quarter, reference Apple Gears Up To Combat The Margin Compression That Apparently Only It, Google & Reggie Middleton Sees Coming Monday, February 14th, 2011.
On this point, I must give props to Herb Greenberg for allowing me to espouse my contrarian, yet highly accurate mantra concerning Apple as well as US banks' derivative exposure through the mainstream, namely CNBC. The derivate issues have recently reported by Bloomberg and ZeroHedge, reinforcing my many warnings, ex. So, When Does 3+5=4? When You Aggregate A Bunch Of Risky Banks & Then Pretend That You Didn't?
Of course, as timing would have it, I predicted that Apple would miss 4 to 6 quarters after the pronouncement I made on international TV exactly 1 year ago via CNBC on the eve of Apple's earnings (3:40 into the video). Exactly 4 quarters later.... Hmmm!
Simple math, simple business logic, simply common sense, yet the Apple hordes attacked relentlessly. Listen, what Google has created to compete with Apple, RIM, MSFT and Nokia, was not a new technology - but a new way of doing business. Less than free was their new business model and it proved to be pretty damn effective.
Margin compression follows a slip in sales due to competition. You see, in order for Apple to maintain its unit growth, it wiill have invest more into the product, cut costs, or both. Any scenario leads to margin compression. Since I have written so much on this topic, I will not rehash, but simply point to the prophetic post I made two weeks ago in calling for what I considered to be the obvious: Sliced Apple Margins For Dinner?
In the meantime, let's parse today's news event: Apple Misses Big on Earnings, Revenue; Shares Tumble
Apple posted a rare miss on both earnings and revenue as far fewer iPhones were sold during the quarter than expected. Shares tumbled after-hours.
Again, it's Apple's expectations that will be the eventual undoing of this company as an investment. They are simply unrealistic, as I will get to in a moment, but first I'd like to point out the extreme favoritism that is still given to this company by the MSM.
Apple Inc. (AAPL) fell in German trading after profit missed analysts’ predictions for the first time in at least six years, evidence that customers delayed iPhone purchases before the release of the latest model.
This statement is bullshit. Customers delay purchases right before the release of every new model, yet that somehow didn't cause a miss for the iPhone 3G, the iPhone 3GS and the iPhone 4, did it? iPhone's sales dissappointed for one reason, and one reason only!!! Empirical Evidence of Android Eating Apple!
Profit was $6.62 billion, or $7.05 a share in the fiscal fourth quarter, compared with $4.31 billion, or $4.64 a share, a year earlier, Cupertino, California-based Apple said yesterday in a statement. That missed analysts’ predicted profit of $7.31 a share, the first disappointment from Apple in at least 26 quarters.
Apple sold 17.07 million iPhones, less than the 20 million projected by analysts surveyed by Bloomberg, as consumers held out for the iPhone 4S, released after the close of the period that ended Sept. 24. The shortfall underscores the growing importance to Apple for the iPhone, which was introduced in 2007 and accounted for 39 percent of revenue last quarter.
“The market was expecting very strong iPhone sales going into the product launch,” said Giri Cherukuri, head trader at Oakbrook Investments LLC, which holds Apple shares. “It stands to reason that a lot of people were waiting for the new iPhone to come out.”
Again, Bullshit! Why didn't this phenomena occur during the last three product launches? Oh yeah, that's right, because Android wasn't up to speed by then.
Apple shares dropped as much as 7.3 percent to the equivalent of $391.75 in German trading and were down 6.4 percent as of 9:03 a.m. in Frankfurt. Yesterday, the stock fell 6.3 percent to $395.50 in extended U.S. trading. The stock had closed at $422.24 in New York.
Sales of the smartphone are rebounding this quarter, and the decline in Apple shares represents a “buying opportunity,” said Cherukuri, whose firm is based in Lisle, Illinois.
Yeah, and thereing lies the problem, shares of Apple are always a buying opporutunity, no matter what the facts or circumstances are, right?
As excerpted from Apple on the Margin:
Writing about Apple is like writing about gold, despite the fact that there is a strong fundamental argument for or against it, the emotional response and lack of empirical outlook clouds the fundamentals, ex. Apple and the iPhone vs Android or Gold and fiat currencies/inflation. I am not a Apple hater, and I am probably one of the most advanced iPad users you know of. Apple has its pluses and minuses, but people (including many professionals) are failing to look at the facts and instead are joining their respective "fanboi" clubs. Thus, in continuing with my attempt to educate my readers on the folly of believing Apple's position to be unassailable, I am illustrating exactly how vulnerable Apple is to either a compression of margin on the iPhone or a slow down in sales. Apple is just penetrating the market and has a fertile field to conquer, it is just that it will not be able to pursue that field devoid of competition as it has over the past 3 years. This should dictate an adjustment to the highly optimistic aura attached to the multiples used in forecasting economic results.
The graph below illustrates the importance the iPhone represents to Apple's franchise. Believe it or not, this graph actually understates the importance of the iPhone to Apple for while it brings in 45% of the revenues, it is responsible for about 70% of the profits. Apple has become too reliant on one product, although that reliance was borne from the fabulous success of said product. While Apple will probably derive some much needed revenue diversification from iPad sales, the iPad will face the same hurdles that the iPhone is coming up against - and that is competition from Android-based devices and potentially even Windows Mobile 7 8 (albeit this is an admittedly much more speculative statement).
Breaking the argument down even further, you see how the iPod and the iPhone have literally transformed this company. While I am sure it will continue to be fantastic company with cool products, I doubt very seriously that it will be able to grow in the future as it has in during the last 7 years.
The saving grace is that the smart phone and portable computing market will grow quite quickly, allowing companies with dwindling market share to still capture increasing revenues. The ugly reality is that those revenues will have to be burdened with increasing R&D, marketing and distribution costs since the amount of competition will probably scale faster than the market itself. That, my friends, is a very good thing for you and I, the consumer!
All paying subscribers are welcome to download the mini-model which shows Apple's earnings sensitivity to margin compression through competition. This is the very crux of determining the extent of Apple's success or lack thereof, in the near to medium term. Click here to download ( Apple iPhone Profit Margin Scenario Analysis Model), and click here to subscribe.
... Apple said that while iPhone sales fell off last quarter, the holiday quarter will be its best yet. First-quarter per- share earnings will be about $9.30 on sales of about $37 billion, Apple said in the statement.
That surpassed analysts’ projections, suggesting that iPhone sales are bouncing back with the release of the iPhone 4S, which set a record with debut-weekend sales of 4 million.
“In our wildest dreams, we couldn’t have gotten off to as great a start as we did with the iPhone 4S,” Cook said on the call. The drop in demand for iPhones in the second half of last quarter was “substantial,” said Cook.
This may very well be the case. I don't doubt it, but it also doesn't negate the generally stagnating growth trend - see Google's Android Now Leads In Market Share, Growth Rate and Potential Buyer Preference. Apple released a new product on two new carriers, which at best matches (and that's at best, I believe it falls far short) the Android flaghip device from 6 months ago! This much wider distribution network coupled with the iPhone popularity is bound to boost sales, but the popularity of Android (now the number 1 OS, globally and domestically, with the highest growth rate, to boot) make it unliekly Apple can regain the growth crown through marketing alone. It is now quickly becoming common knowledge that high end Android phones such as the Samsumg Galaxy S II series handily outperform anything from Apple thus far. As a result, the sales are becoming more fad generated and less technology/usability driven. We all know what happens to very fad, don't we? Apple will have to invest heavily into the tech, and that ain't free nor is it a guarantee for success. Hence the margin compression thesis. Look to my writings from last summer to determine the common sense reasons why Apple is at risk despite the lovefest that the media, the sell side of Wall Street and the equity markets have for it: How Google is Looking to Cut Apple’s Margin and How the Sell Side of Wall Street Will Enable This Without Sheeple Investor’s Having a Clue. After nearly a year of showing nearly incontrovertible evidence that Apple has seen its heyday, the mainstream media is catching on. First a quick overview of my thoughts...
- Look & Listen Closely As The Solitary Margin Compression Theory Slowly Bears Fruit: Apple to Drop Flagship iPad Prices?
- Steve Jobs Calls End Of the PC, We Call The End Of The Fat Margin Tablet – Including The Pretty iPad, With Proof!
- Is The Evidence For An Apple Margin Collapse Now Incontrovertible?
- I Absolutely Dare Anyone To Read This And Still Not Consider The Probability (Not Possibility) Of Apple Suffering From Margin Compression
The new touchscreen handset is vying with new smartphones from companies including Samsung Electronics Co. and HTC Corp. (2498), which use Google Inc.’s Android operating system.
As excerpted from "Is The Evidence For An Apple Margin Collapse Now Incontrovertible?" 5/19/11:
This is going to be a much tougher fight for Apple than even that of the smartphone market, and you see how well Android did in that category as the current market leader in both footprint and growth rate. Literally98% more competition is coming down the pike this year, and products are already widely reviewed as at parity or superior in Apple's chief diversification segment (remember, derives ~70% of its profits from the iPhone). With that, even the iPhone is supremely challenged by Apple's own parts vendors, Reference Looking at the Results of Google’s “Negative Cost” Business Model Employed Through Android:
Apple's biggest suppliers (the most important parts vendors for the products that contributes about 75% of Apple's profits) and the companies that Apples is currently embroiled in global litigation with (no wonder why) also produce similar products, ex. the LG Optimus 3D and the Samsung Galaxy S II.
Speaking of the Samsung Galaxy, this newest refresh is nearly universally thought of to be the best smartphone available, including the Apple iPhone. I haven't found a single review yet that has said otherwise. This is an impressive feat considering how "Apple-centric" the media currently is. Reference this snippet from Endgadget:
For a handset with such a broad range of standout features and specs, the Galaxy S II is remarkably easy to summarize. It's the best Android smartphone yet, but more importantly, it might well be the best smartphone, period. Of course, a 4.3-inch screen size won't suit everyone, no matter how stupendously thin the device that carries it may be, and we also can't say for sure that the Galaxy S II would justify a long-term iOS user foresaking his investment into one ecosystem and making the leap to another. Nonetheless, if you're asking us what smartphone to buy today, unconstrained by such externalities, the Galaxy S II would be the clear choice. Sometimes it's just as simple as that.
Endgadget is not the only reviewer to go head over heals over Android super-powered phones. Check it out, courtesy of onlinesocialmedia.net:
- Dan Sung of Pocket-Lint rates the phone with 4.5 out of 5 stars and calls it a “cracking experience” and like Engadget, “better than any other Android smartphone.” Very minor complaints included the 1080p DLNA streaming, which was noted could be better, plus minor quibbles with the camera lens but overall the conclusion is that “no one buying this superphone will have anything to complain about.”
- Chris Davies over on Slash Gear. Guess what, Davies also says, “this could well be the best Android smartphone on the market today” and noted that iPhone users that were shown the Galaxy S II said they could have their heads turned by it. There were minor criticisms, such as the keyboard, but these were said to “pale in comparison to the Samsung’s strengths.” In conclusion Davies says “we’re running out of reasons not to buy the Galaxy S II.”
- Electric Pig by Ben Sillis, who gave the phone a staggering 5 out of 5 star rating and says “Samsung has triumphed again with theSamsung Galaxy S 2.” There are some quibbles about software in this review but not enough to get in the way of it being a “surefire contender for phone of the year,” and again the superb display gets a special mention.
... Apple’s fourth-quarter revenue was $28.3 billion, below the $29.6 billion predicted by analysts. Missing expectations caught investors by surprise since the company has so consistently beaten predictions. During the previous 19 quarters, Apple had exceeded profit estimates by an average 28 percent, according to Piper Jaffray Cos.
“Shame on me and other investors who got lulled into complacency based on how much they’ve beaten estimates in the past,” said David Rolfe, chief investment officer at Apple investor at Wedgewood Partners Inc.
Apple had said in July that it expected sales and profit to fall because of changes to its product lineup.
“It’s not the company that missed, it’s the people who follow Apple that are clueless,” said Trip Chowdhry, an analyst at Global Equities Research in San Francisco.
Analysts may revisit projections that Apple will continue to grow at a record rate and exceed estimates, said Michael Obuchowski, chief investment officer at First Empire Asset Management.
“That the company can maintain the growth rate that some of the analysts envision is not very realistic,” he said. “There will be a reevaluation of the analysts’ expectations.”
"Clueless"! “Shame on me and other investors who got lulled into complacency"!
Taken right out of the Reggie Middleton playbook! Refereince Apple Once Again Surprises The Unsurprisingly Inept Analyst Estimates: When Will Investors Catch On To The Earnings Management Game?: I will repost (for the 6th time) the earnings guidance snippet and challenge readers to possibility that we may have a very valid point.
In the meantime, sheeple-like investors are being hoodwinked by quarter after quarter of Apple blow out earnings. Don't get me wrong. I feel and fully acknowledge that Apple is executing on all 8 cylinders of a 6 cylinder engine, but it still has its real world limitations. Apple will start to bump up against these limitation over the next 4 quarters, and the signs of this bump are already apparent. Of course, the signs are being handily masked by the games that Apple management and the sell side analysts of Wall Street play, with the "Sheeple" retail and the lazier component of the institutional investors being put out to take the eventual bullet.
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? After all, it is no longer a surprise after the 11th consecutive occurrence, is it? I would be surprised if my readers were surprised by an Apple surprise. Seriously! 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. Of course, I do not blame Apple management for this, of they are charged with maximizing shareholder return. The analytical community and the (sheeple) investors which they serve is another matter though. 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...
In the meantime, more inaccurate and uncalled for Apple bias in the media that will do naught but cause losses for investors that bother to pay it any attention... Bloomberg reports Google, Samsung Announce Updated Android Phone:
“Ice Cream Sandwich could provide the critical push in the race to catch Apple,” said Mark Newman, an analyst at Sanford C. Bernstein & Co., who is based in Hong Kong. “Apple’s software is still on the cutting edge.”
This is outright nonsense! Apple's most recent OS5 release simply brings iOS up to par with what Androids are currently running since the beginning of this year. As a matter of fact, as of today, Apple's tech is still behind since Google just released an OS update (Ice Cream Sandwich) that again puts it leaps and bounds above the Apple OS.
Apple’s new iPhone was unveiled earlier this month with Siri technology, which lets users ask for weather updates, make calendar appointments or send messages without tapping on the keyboard. The iPhone is the company’s best-selling product.
The article fails to mention that this feature was available in Android from the beginning of the year, at least. Again Apple is playing catch up, but it has not yet caught up!
The latest Android incarnation also offers easier multitasking and a new People app, which helps check status updates from Google+ and other social networks.... Android controlled 43.4 percent of the global smartphone market in the second quarter, while Apple’s iOS had an 18.2 percent share, according to researcher Gartner Inc.
This is up from zero hust three or so years ago, reference:
- Empirical Evidence of Android Eating Apple!
- More of the Android Onslaught: Increasing Handset Revenues and Growth
- The Complete, 63 pg Google Forensic Valuation is Available for Download
For tablets, Apple’s iOS dominated with 61.3 percent market share in the second quarter, according to research company Strategy Analytics. Android accounted for 30.1 percent of the tablet market.
Take note that the the tablet market is taking a very similar path to the phone market where Apple started with ~90% share and dropped very, very quickly with no explicit recognition of such from the media or the sell side. Reference:
- Is The Evidence For An Apple Margin Collapse Now Incontrovertible?
- I Absolutely Dare Anyone To Read This And Still Not Consider The Probability (Not Possibility) Of Apple Suffering From Margin Compression
- New Taiwanese Tablets Show What So Few Have Suspected: Apple's iPad 2 Is An Expensive Toy!
- Competition Heats Up In The Mobile Computing Space On Many Fronts – Prices Driven Down Once Again By The Big Players and more importantly Steve Jobs Calls End Of the PC, We Call The End Of The Fat Margin Tablet – Including The Pretty iPad, With Proof! and The Tablet Pricing Wars Have Commenced, Targeting Apple’s iPad 2 Which Is Not Even For Sale Yet…
Archived 2010 posts on the Creatively Destructive Pace of Technology Innovation and the Paradigm Shift known as the Mobile Computing Wars!
- There Is Another Paradigm Shift Coming in Technology and Media: Apple, Microsoft and Google Know its Winner Takes All
- The Mobile Computing and Content Wars: Part 2, the Google Response to the Paradigm Shift
- An Introduction to How Apple Apple Will Compete With the Google/Android Onslaught
- Don’t Count Microsoft Out of the Ultra-Mobile Computing Wars Just Yet
- This article should drive the point home: An iPhone 4 Recall Will Hurt Apple More By Opening Additional Opportunity for Android Devices Than Increased Expenses
- A First in the Mainstream Media: Apple’s Flagship Product Loses In a Comparison Review to HTC’s Google-Powered Phone
- After Getting a Glimpse of the New Windows Phone 7 Functionality, RIMM is Looking More Like a Short Play
- RIM Smart Phone Market Share, RIP?
- Android is gaining preference as the long-term choice of application developers
- A Glimpse of the BoomBustBlog Internal Discussion Concerning the Fate of Apple
- Math and the Pace of Smart Phone Innovation May Take a Byte Out of Apple’s (Short-lived?) Dominance
- Apple on the Margin
- RIM Smart Phone Market Share, RIP?
- Motorola, the Company That INVENTED the Cellphone is Trying to Uninvent the iPad With Android
- Android Now Outselling iOS? Explaining the Game of Chess That Google Plays in the Smart Phone Space
- There Goes Those Fancy eBook Aspirations from Apple, Barnes and Noble, and Amazon: 100,000’s of FREE eBooks from the Public Library
- How Google is Looking to Cut Apple’s Margin and How the Sell Side of Wall Street Will Enable This Without Sheeple Investor’s Having a Clue
- Empirical Evidence of Android Eating Apple!
- More of the Android Onslaught: Increasing Handset Revenues and Growth
- Many More Black Eyes for the Blackberry? A Complete Forensic Analysis of Research in Motion
- The BoomBustBlog Multivariate Research in Motion Valuation Model: Ready for Download
- The Complete, 63 pg Google Forensic Valuation is Available for Download
- iSuppli Continues to Validate BoomBustBlog’s Original Thesis: Android as the Viral Game Changer!
- BoomBustBlog Research Hits Another One Out the Park! Google up nearly 10% after hours, true blowout earnings unlike JPM
- As I Warned in June, DO NOT DISCOUNT Microsoft in This Mobile Computing War! Their Marketing Campaign is PURE GENIUS! and it Appears as if the Phone Ain’t Bad Either
- Reggie Middleton Wasn’t the ONLY Openly Apple Bear in the Blogoshpere, Was He?
The graphic below pretty much sums up Goldman's most recent quarter...
An unmitigated disaster, and worse than practically everybody on the Street anticipated, save that brash-ass blogging dude brandishing those old fashioned analytical weapons of choice... Two months or so ago (Monday, 22 August 2011), I penned the public blog post that also relased my most recent research on Goldman Sachs - The Squid Is A Federally (Tax Payer) Insured Hedge Fund Paying Fat Bonuses That Can't Trade In Volatile Markets? Who's Gonna Tell The Shareholders and Tax Payer??? - as excerpted:
The chart below demonstrates how the volatility of the revenues from the trading and principal investments trickles down into volatility of the total revenues and profits of Goldman Sachs. I don’t call Goldman the world’s most expensive federally insured hedge fund for nothing!
And for those who haven't been following my Squid Hunting series, there's a lot more to come from those boys at 200 West Street. If you want to know what will happen next, just look at the first few pages of the lastest Goldman subscription docs (click here to subscribe):
After all, eventually someone must query, So, When Does 3+5=4? When You Aggregate A Bunch Of Risky Banks & Then Pretend That You Didn't?
Summary: This is the first in a series of articles to be released this weekend concerning Goldman Sachs, the Squid! In this introduction (for those who do not regularly follow me) I demonstrate how the market, the sell side, and most investors are missing one of the biggest bastions of risk in the US investment banking industry. I will also...
Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To Be Ignored?
Welcome to part two of my series on Hunting the Squid, the overvaluation and under-appreciation of the risks that is Goldman Sachs. Since this highly analytical, but poignant diatribe covers a lot of material, it's imperative that those who have not done so review part 1 of this series, I'm Hunting Big Game Today:The Squid On The Spear Tip, Part...
Yes, this more of 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: I'm Hunting Big Game Today:The Squid On A Spear Tip, Part 1 & Introduction Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To...
My next post should also include research on the next bank that we have found that has been (again) overlooked by the market, the media and the sell side. Can we expect the same that we saw in BNP, Bear, Lehman, etc.? Well, paying subscribers shall find out forthwith.
I can be reached via the following channels, or directly via email:
I took the weekend off and all types of nonsense occurs in my wake. Well, I'm back with some fresh research. Subscribers, we have found another bank at risk (and you know how well the other banks that we targeted fared in the past - Bear, Lehman, the entire French banking system, etc.) and will be releasing the research in the next 24 hours. In the meantime, I would like to address the massive bear market rally/short squeeze that probably created many a draw down. First, a little misdirection and disinformation as reported by CNBC: Greek 'Haircut' No Threat to French Banks: Noyer
French banks could cope with a significant Greek "haircut"—a private sector writedown of Greek bonds—but it is still possible that the country's financial institutions may have to be recapitalized, Christian Noyer, governor of the Bank of France, told CNBC.
"Greece is not a problem for the French banks," Noyer said. "The total (exposure) of the French banks to Greek sovereign debt is significantly smaller than the first half of profits for the French banking system."
That exposure amounts to roughly 8 billion euros, while French banks' first-half profits totaled about 11 billion euros.
Still, Noyer would not rule out recapitalization for banks in France, given that all of Europe's banks' could face mandatory increases to their required capital base, depending on a decision by the European Bank Authority (EBA), the European Union's banking regulator.
Where shall I begin? Well, Reuters reports German Finance Minister Insists Greek Debt Haircut Should Be At Least 50-60%, as excerpted:
Greece's debt crisis cannot be solved without larger write downs on Greek debt and governments are trying to persuade banks to accept this, German Finance Minister Wolfgang Schaeuble said on Sunday, just days ahead of a key EU summit.
Asked in the interview with ARD whether there could be a Greek debt write-down of as much as 50-60 percent, Schaeuble said: "A lasting solution for Greece is not possible without a debt write-down, and this will likely have to be higher than that considered in the summer."
In July, private creditors agreed to a voluntary write-down of 21 percent on their Greek debt, a figure which now looks insufficient. Euro zone officials said last week losses are now likely to be between 30 and 50 percent.
"Of course we would like, if possible, to agree together with the banks. That is why we will be discussing things with them. But it is clear, there must be a level of participation which is enough to bring about a lasting solution for Greece. That is enormously difficult," Schaeuble said.
The market has an even higher implied actual haircut! Analysis - Greek debt enters Argentina-style twilight zone
Of course, a little useless financial engineering can make things all good right? Yeah, right! You see, what looked like a bad deal just a week ago... EU Officials: Private Sector Bondholders Could Expect 30-50% Haircut Business Insider - Eurozone officials told Reuters today that the private sector will likely see a 30-50% haircut on holdings of Greek bonds if they participate in a debt swap deal. That's far more than the 21% that had been expected under the initial terms of the July ...
Looks like a hell of a bargain today... Greek Bond Deal: Too Good to Last
Online Spreadsheets (professional and institutional subscribers only) showed that haircuts were to be multiples of the originally proposed 21% if Greece were to even have a chance of digging itself out of the hole!!!
I also explained the situation in public, and for free, early in 2010: Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! The situation with the Greek banks is the same situation with the French, German, etc. banks. Leverage piled upon depreciating assets simply wipes out equity. Period! How Greece Killed Its Own Banks!
...These downgrades are going to cause people to increase their risk weightings,” Yelvington said.
Well, the answer is.... Insolvency! The gorging on quickly to be devalued debt was the absolutely last thing the Greek banks needed as they were suffering from a classic run on the bank due to deposits being pulled out at a record pace. So assuming the aforementioned drain on liquidity from a bank run (mitigated in part or in full by support from the ECB), imagine what happens when a very significant portion of your bond portfolio performs as follows (please note that these numbers were drawn before the bond market route of the 27th)...
The same hypothetical leveraged positions expressed as a percentage gain or loss...
I even went so far as to compare Greece to Argentina, complete with online models. No matter which way you slice it, a 50% haircut would be akin to a snowy Christmas in the summer of a devout Muslim country - highly unlikely! A Comparison of Our Greek Bond Restructuring Analysis to that of Argentina
Now, referencing the bond price charts below as well as the spreadsheet data containing sovereign debt restructuring in Argentina, we get...
Price of the bond that went under restructuring and was exchanged for the Par bond in 2005
Price of the bond that went under restructuring and was exchanged for the Discount bond
On that note, ZeroHedge has come out with a blockbuster explanatory article: Credit Suisse Buries European Banks, Sees Deutsche Bank And 65 Other Bank Failing Latest Stress Test, €400 Billion Capital Shortfall
A day after Credit Suisse killed the Chinese bank sector saying that the equity of virtually the entire space may be worthless if NPLs double, as they expect they will to about 10%, the Swiss bank proceeds to kill European banks next. Based on the latest farce out of Europe in the form of the third stress test, which is supposed to restore some confidence, it appears that what it will do is simply accelerate the flight out of everything bank related, but certainly out of anything RBS, Deutsche Bank, BNP, SocGen and Barclays related.
I'd like to add that I've ridiculed all of these stress tests, US and European, although the European stress tests were by far the biggest joke. Dexia passed with a grade of A (or so), and will be nationalized momentarily. 'Nuff said!
To wit: "In our estimation of what could be the “new EBA stress test” there would be 66 failures, with RBS, Deutsche Bank, and BNP needing the most capital – at €19bn, €14bn and €14bn respectively. Among the banks with the highest capital shortfalls, SocGen and Barclays would need roughly €13bn with Unicredit and Commerzbank respectively at €12bn and €11bn. In the figure below we present the stated results. We note RBS appears to be the most vulnerable although the company has said that the methodology, especially the calculation of trading income, is especially harsh for them, negatively impacting the results by c.80bps." Oops. Perhaps it is not too late for the EBA to back out of this latest process and say they were only kidding. And it gets even worse: "We present in this section an overview of the analysis which we published in our report ‘The lost decade’ – 15-Sep 2011. One of our conclusions was that the overall European banking sector is facing a €400bn capital shortfall which compares to a current market cap of €541bn." Said otherwise, we can now see why the FT reported yesterday that banks will be forced to go ahead and proceed with asset firesales: the mere thought of European banks raising new cash amounting to 75% of the entire industry's market cap, is beyond ridiculous. So good luck with those sales: just remember - he who sells first, sells best.
And the scary charts:
1. Capital Shortfalls under Stress Test part Trois (9% min. CET1 ratio)
If anyone over there has two synapses to spark together, I would fully expect them to take my research over much of the anecdotal drivel passed around the Street as research. For instance, from the outside looking in, the Greek writedowns (yes, even the mark to myth Greek writedowns) will most likely wipe RBS profit for the year. Now, try applying what the real losses will be... Okay, after you do that, try realizing that no Greek default will occur in a vacuum and all peripheral assets will suffer in solidarity, not to mention their own solvency issues. Then add to that that RBS is an insolvent ward of the state to begin with, after passing stress tests itself then being nationalized. Okay, now that we've dispensed with the most of the optimism and good news (I'm going to skip over DB, since much of the market appears to be doing in assuming that Germany cannot be touched despite the fact that it is already very much "touched") and head on to the bank that I warned my paying subscribers about in late August - in time to see its share price halved despite not a damn peep of a warning from the sell side of the pop media. May I please be allowed reminisce, as excerpted from Small Independent, Bombastic Financial News Show Dramatically Scoops the Financial Times On French Bank Run Story :
Post Note: BNP management is now shopping around for capital investment.
On that note, let's review my post last week, "BoomBust BNP Paribas?" (it is strongly recommended that you review this article if you haven't read it already) I started releasing snippets and tidbits of the proprietary research that led to the BNP short, namely Bank Run Liquidity Candidate Forensic Opinion - A full forensic note for professional and institutional subscribers. It outlined some very telling reasons why BNP's share price appears to be spillunking, namely:
- Management is lying being less than forthcoming with the valuation of toxic assets on its books.
- The sheer amount of these assets on the books and the leverage employed to attain them are devastating
- BNP has employed the proven self destructive financing methodology of borrow short, invest in depreciating assets long!
- BNP management lying being less than forthcoming about reliance on said funding maturity mismatch, despite the fact it handily dispatched Bear Stearns and Lehman Brothers in less than a weekend!
Another BIG Reason Why BNP Paribas Is Still Ripe For Implosion!
As excerpted from our professional series Bank Run Liquidity Candidate Forensic Opinion:
This is how that document started off. Even if we were to disregard BNP's most serious liquidity and ALM mismatch issues, we still need to address the topic above. Now, if you were to employ the free BNP bank run models that I made available in the post "The BoomBustBlog BNP Paribas "Run On The Bank" Model Available for Download"" (click the link to download your own copy of the bank run model, whether your a simple BoomBustBlog follower or a paid subscriber) you would know that the odds are that BNP's bond portfolio would probably take a much bigger hit than that conservatively quoted above. Here I demonstrated what more realistic numbers would look like in said model... image008
To note page 9 of that very same document addresses how this train of thought can not only be accelerated, but taken much further...
So, how bad could this faux accounting thing be? You know, there were two American banks that abused this FAS 157 cum Topic 820 loophole as well. There names were Bear Stearns and Lehman Brothers. I warned my readers well ahead of time with them as well - well before anybody else apparently had a clue (Is this the Breaking of the Bear? and Is Lehman really a lemming in disguise?). Well, at least in the case of BNP, it's a potential tangible equity wipe out, or is it? On to page 10 of said subscription document...
Yo, watch those level 2s! Of course there is more to BNP besides overpriced, over leveraged sovereign debt, liquidity issues and ALM mismatch, and lying about stretching Topic 820 rules, but I think that's enough for right now. Is all of this already priced into the free falling stock? Are these the ingredients for a European bank run? I'll let you decide, but BoomBustBloggers Saw this coming midsummer when this stock was at $50. Those who wish to subscribe to my research and services should click here. Those who don't subscribe can still benefit from the chronology that led up to the BIG BNP short (at least those who have come across my research for the first time)...
Thursday, 28 July 2011 The Mechanics Behind Setting Up A Potential European Bank Run Trastde and European Bank Run Trading Supplement
I identify specific bank run candidates and offer illustrative trade setups to capture alpha from such an event. The options quoted were unfortunately unavailable to American investors, and enjoyed a literal explosion in gamma and implied volatility. Not to fear, fruits of those juicy premiums were able to be tasted elsewhere as plain vanilla shorts and even single stock futures threw off insane profits.
Wednesday, 03 August 2011 France, As Most Susceptble To Contagion, Will See Its Banks Suffer
In case the hint was strong enough, I explicitly state that although the sell side and the media are looking at Greece sparking Italy, it is France and french banks in particular that risk bringing the Franco-Italia make-believe capitalism session, aka the French leveraged Italian sector of the Euro ponzi scheme down, on its head.
I then provide a deep dive of the French bank we feel is most at risk. Let it be known that every banked remotely referenced by this research has been halved (at a mininal) in share price! Most are down ~10% of more today, alone!
- French Bank Run Forensic Thoughts - Retail Valuation Note - For retail subscribers
- Bank Run Liquidity Candidate Forensic Opinion - A full forensic note for professional and institutional subscribers
So, What's the Next Shoe To Drop? Read on...
For those who claim I may be Euro bashing, rest assured - I am not. Just a week or two later, I released research on a big US bank that will quite possibly catch Franco-Italiano Ponzi Collapse fever, with the pro document containing all types of juicy details. This is the next big thing, for when (not if, but when) European banks blow up, it WILL affect us stateside! Subscribers, be sure to be prepared. Puts are already quite costly, but there are other methods if you haven't taken your positions when the research was first released. For those who wish to subscribe, click here.
Now, let's refresh the output from And The European Bank Run Continues...and more importantly BoomBustBlog BNP Paribas "Run On The Bank" Models (they range from free up to institutional, I strongly urge those who haven't to click upon said link and download your intellectual weapon of choice!) where I modeled Greek losses on BNP. Below is sample output from the professional level model (BNP Exposures - Professional Subscriber Download Version) that simulates the bank run that the news clippings below appear to be describing in detail...(Click to enlarge to printer quality)This scenario was run BEFORE the Greek bonds dropped even further in price...
Using more recent market inputs (you know, assuming this stuff was Level 1), we get the following...
Notice here the base case TEC impairment is now approaching the adverse case from just a few weeks ago - and this is using market pricing, not some pie in the sky model!
I have not recalculated the adverse scenario in this example, but you can simply use your imagination, or download the model and run it for yourself.
A Greek default with haircuts somewhat inline with market prices will wipe out 13% of BNP TEC, with a more severe cut (quite likely) taking out nearly 20%. This is not even glancing upon the many problems we discussed in our forensice reports ( French Bank Run Forensic Thoughts - Retail Valuation Note - For retail subscribers, Bank Run Liquidity Candidate Forensic Opinion - A full forensic note for professional and institutional subscribers).
Now, if the ZH referenced report above is accurate (and I believe it is) the banks are going to try to delever by selling assets in the open markets (all at the same time, selling the same assets to the same pool of potential buyers at the same bad times). This means that the prices used to populate this model are probably still too optmistic. Even if they weren't, look at the capital short fall the Greek default will leave BNP with assuming our institutional bank run thesis holds true and they see a slight withdrawal of liquidity of 10% this year and 15% next (knowing full well the numbers for Lehmand and Bear were much, much higher than that before they collapsed). First, a refesher on our European bank run theory expoused 5 months ago...
- Let's Walk The Path Of A Potential Pan-European Bank Run, Then Construct Trades To Profit From Such
- Greece Is Fulfilling Our Predictions Of Default Precisely As Predicted This Time Last Year
- The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!
- The Fuel Behind Institutional “Runs on the Bank” Burns Through Europe, Lehman-Style!
And the BNP results????
Half trillion euros here, half trillion euros there... Sooner or later, we'll be talking about some real money! Since the problems have not been cured, they're literally guaranteed to come back and bite ass. Guaranteed! So, as suggested earlier on, download your appropriate BoomBustBlog BNP Paribas "Run On The Bank" Models (they range from free up to institutional).
My next post should also include research on the next bank that we have found that has been (again) overlooked by the market, the media and the sell side. Can we expect the same that we saw in BNP, Bear, Lehman, etc.? Well, paying subscribers shall find out forthwith.
I can be reached via the following channels, or directly via email:
I recieved this in the mail from a connected media editor regarding Goldman's very recent investment advisories...
Buy calls for a likely relief rally on earnings (Oct 20th)
We see the potential for a rebound in MS shares on earnings, but the event is not without risk. We believe concerns regarding its European swap and loan exposures appear overdone, as the firm signaled its net exposures to France and the periphery are modest if not immaterial. Uncertainty generated by press reports, as well as difficult markets have driven shares below levels reached when the market was at its March 2009 lows.
Balance sheet strengthened; sell short-dated CDS as fear falls
We believe the recent widening in MS CDS spreads does not reflect actual credit fundamentals. MS appears to have enough capital and liquidity
($182 bn in global liquidity pool + its bank status) to withstand significant market duress. Its 14.6% Tier 1 common ratio is at the high end of the industry. We expect the market focus to remain on European sovereign exposures and liquidity levels, and expect management to discuss this, highlighting the strength of its cash position, hedging and collateral, and progress in reaching its strategic goals, somewhat calming fears.
I responded with the rant below...
A) Goldman’s investment advice sucks, big time – see Is It Now Common Knowledge That Goldman's Investment Advice Sucks?
B) The term “net” exposures is misleading and in many cases, make believe. The offsetting hedges used to “alledgedly” hedge the gross exposure were written off of counterparties in the same businesses, trading the same products in the same markets as Morgan. When the feces hits the cooling machine blades, everyone’s liquidity will move in the same direction – downward. There is no true diversity, hence there is no true hedge – only academic hedges written, and traded, in paper form.
a. I have addressed this ad nauseum on the blog, but the answer to that questions has been put best by Tyler Durden, at ZeroHedge put it best: ...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.
C) There is evidence that corroborates bullet point “B” in Goldman’s own missive, and I quote “Balance sheet strengthened; sell short-dated CDS as fear falls.” Are we to believe that Goldman is only giving this advice to those clients large enough, liquid enough, solvent enough and adequately diversified from the financial services, asset management and investment industry (this can be read as absolutely no hedge funds, HNW, pension funds and family offices – Yeah, right!) so as to ensure the ability to pay out these CDS in a fat tailed event? Or is Goldman peddling this advice that is not paid for to incentivize clients act in a fashion that Goldman is paid for, ex. Market maker/broker/principal/agent in the CDS market? As Goldman pushes CDS sales onto any willy nilly who’s willing to wright them, Goldman compounds the risks already inherent in a much less than perfect system. Isn’t that why AIG had to be bailed out to the tune of over a fifth a TRILLION US dollars?
D) As for the last comment “MS appears to have enough capital and liquidity ($182 bn in global liquidity pool + its bank status) to withstand significant market duress. Its 14.6% Tier 1 common ratio is at the high end of the industry. We expect the market focus to remain on European sovereign exposures and liquidity levels, and expect management to discuss this, highlighting the strength of its cash position, hedging and collateral, and progress in reaching its strategic goals, somewhat calming fears.” I direct you to my latest post on what Superheroes may look like in real life – Hunting the Squid, Part 5: Sometimes You…