Research in Motion has been one of the most successful tech shorts of this blog's history (thus far). We first recommended a short last year and reiterated it in the fist quarter of this year. Reference:

  1. BoomBustBlog Research Performs a RIM Job!

  2. BoomBustBlog's Fundamental/Forensic Analysis of Research in Motion Has Returned 2x-3x Original Investment This Year!!


This is a snapshot of RIMM as of the writing of this article...


As you can see, the results have been spectacular, particular if well timed puts have been put to use. In January I posted:

I personally see a clear leader in mobile computing becoming visible in 2012. Using options, a minimum of 2012 expiration OTM and ATM contracts can be purchase at the most optimistic break points demarcated by the model above after being populated with assumptions you feel most valid. I will have a proprietary BoomBustBlog option model available for download to paying subscribers by the end of next week, at which time we will revisit the analysis above.

A 50% drop in price later... On that note, Bloomberg reports: RIM to Cut 2,000 Jobs as BlackBerry Loses Share to IPhone

Research In Motion Ltd., maker of the BlackBerry smartphone, plans to cut 2,000 jobs, or about a tenth of its workforce, as sales slow amid market share losses to Apple Inc.’s iPhone.

The reductions, across all functions, are part of a plan to “focus on areas that offer the highest growth opportunities,” RIM said today in a statement. The job cuts will leave the Waterloo, Ontario-based company with about 17,000 employees.

RIM predicted last month that sales this quarter may drop for the first time in nine years. The company is losing market share in the U.S. to the iPhone and handsets running Google Inc.’s Android software, in part because it hasn’t introduced a major new BlackBerry model since August. Cheaper Google phones are also making inroads in Latin America, Asia and Europe, threatening the popularity of less expensive BlackBerry models like the Curve.

... RIM fell 85 cents, or 3.1 percent, to $27.06 at 10:26 a.m. New York time in Nasdaq Stock Market trading. The stock had dropped 52 percent this year before today.

The headline grossly mischaracterizes RIM's problems. Google's Android has, by far, inflicted much more damage to RIM than Apple ever has. This was easily seen over 13 months ago, at least by BoomBust Bloggers, referencing BoomBustBlog Research Performs a RIM Job!...

Page 5 of our Research in Motion forensic analysis (released in the summer of 2010 - File Icon RIMM Forensic Analysis and Valuation – Professional & Institutional or File Icon RIMM Forensic Analysis and Valuation – Retail) clearly stated that while we expected RIMM’s handset shipments to rise as a result of a rapidly expanding smartphone market, it will lose considerable market share....

As it turns out, it appears that we were erred slightly to the optimistic side with an 18% market share estimate for 2010. By the end of the 3rd quarter, RIM has fallen to 15.3% according to information calculated from IDC, and its decent has accelerated far faster than even we (the bears) have anticipated – a full 350 basis points for the quarter. This is 6x the decent of last quarter and 7 x the decent of the quarter before that. It is quite safe to assume that they will be materially below this point at year end (the data that we crunch is lagged by a quarter). This market share loss is most assuredly caused by the outsized growth of Android, which I will demonstrate in a minute. Below are charts generated from an updated version of the subscriber document File Icon Smartphone Market Model – Blog Download Version:

As you can see above, for the full year of 2010 RIM has trailed smartphone market penetration growth and that trail has increased each and every quarter with the rate of decent rapidly increasing.

RIM’s share price has benefited from an increasing equity market as well as the announcement of new products. The Torch, although possessive of redeeming new qualities, is essentially still a generation behind Apple and 1.5 generations behind Android. See RIM Smart Phone Market Share, RIP?

Research in Motion is following the EXACT path we at BoomBustBlog had laid out for it since the 3rd quarter of 2010.

This story is far from over, primarily because we are just entering the chapter in which Android does what it does best, and that is compress margins. Due to the unique open source component of the Androd business model, it actually slashes prices and spikes the technology bar both simultaneously and quite rapidly. So rapidly that not only is it without precedent, but literally tramples all over Moore's law.

Moore's law describes a long-term trend in the history of computing hardware. The number of transistors that can be placed inexpensively on an integrated circuit doubles approximately every two years.[1] This trend has continued for more than half a century and is expected to continue until 2015 or 2020 or later.[2]

The capabilities of many digital electronic devices are strongly linked to Moore's law: processing speed, memory capacity, sensors and even the number and size of pixels in digital cameras.[3] All of these are improving at (roughly) exponential rates as well (see Other formulations and similar laws). This exponential improvement has dramatically enhanced the impact of digital electronics in nearly every segment of the world economy.[4] Moore's law describes a driving force of technological and social change in the late 20th and early 21st centuries.[5][6]

The law is named after Intel co-founder Gordon E. Moore, who described the trend in his 1965 paper.[7][8][9] The paper noted that the number of components in integrated circuits had doubled every year from the invention of the integrated circuit in 1958 until 1965 and predicted that the trend would continue "for at least ten years".[10] His prediction has proved to be uncannily accurate, in part because the law is now used in the semiconductor industry to guide long-term planning and to set targets for research and development.[11]

It is safe to say that Android chops the half-time to obselence implied by Moore's law by at least 50%, with a doubling of capabilities happening annually, and arguably even every two quarters. This has not gone unnoticed by those who are paying attention. The truly remarkable feat is that prices are simultaneously dropping towards zero out of pocket cost to the consumer. How does RIMM compete with that? Well, the same way all of Android's other competitos will if Android isn't significantly slowed down - again from Bloomberg's article:

‘Margin Pressure’

“Thorsten, with his Siemens background, is known as somebody who is exceptionally operationally efficient,” Shah said. “That’s a positive for the upcoming margin pressure that is likely.

You see, Bloomberg didn't go into detail regarding this phenomena, but luckily BoomBustBlog did more than just a little detail on the margin compression thesis, and for good reason. This will be the theme that will drive this industry to produce unprecendented functionality for the retail consumer and entperprise alike while simultanesouly putting those who can't compete at light speed with decreasing margins out back to the wood shed, metaphorically speaking, of course:

Those that chose to follow this short recommendation had plenty of tools to assist in the decision making:

RIM Model Assumptions

RIM Model Factors Driving Growth

After populating the assumptions tab, jump to the “Factors Driving Growth” tab and choose the player whose market share and penetration data you want to populate the valuation model for the sake of comparison. The choices are “Nokia”, “RIMM”, “Apple”, “HTC” and “Others”. This tab is annual data only.

RIM Model Quarterly Factors (driving growth)

On the next tab, you can do the same as the previous (this tab is quarterly growth). Each of the growth tabs has charts that are print and presentation quality. Just be sure to tell everyone where you got thesis, data and analysis from :-) .

Other tabs in the model…

RIM Model Income Statement

RIM Model Device Market Analysis

RIM Model Revenue Analysis

RIM Model Device Revenues

Valuation and Multivariate Scenario Output

Final output is RIMM’s valuation using our analytics and your assumptions as input in the assumption tab above, as well as a multivariate scenario analysis showing changes in quite a number of variables (assuming all others remain the same) and their effects on your base valuation, as well as the percentage upside/downside from the current price.

Published in BoomBustBlog

In continuing the discussion of trade setups and related strategies started with As Requested By Our Constituency: Trade Setups Based on BoomBustBlog Research, and continued in …

I bring you the next installation in the discussion of trading the Pan-European Sovereign Debt Crisis. The annotated email chain is actually quite long so it will be continuously broken up. I will also include the comments of the European equity trader in later posts. Any accomplished tradeer who wishes to join the crowdsourced debate is more than welcome to throw their hat into the ring.

Eurocalypse, the European CDS trader

At this stage i have a remark/question in your « the inevitability of a banking crisis »(dated when ?) you were waaay too optimistic (!!) seeing 172bn of losses related to PIIGS. We may be over that only on Greece exposure!

Reggie Middleton, the American Realist

For those that don't read me regularly, Eurocalypse is referring to my work below...

Is Another Banking Crisis Inevitable?

Attention subscribers: A new subscription document is ready for download File Icon The Inevitability of Another Bank Crisis

Banks NPAs to total loans

Source: IMF, Boombust research and analytics

Impact of bank’s banking books on haircuts

EU banking book sovereign exposures are about five times larger than trading book. The table below gives sovereign exposure of major European countries for both trading and banking book. The EU trading book has €335bn of exposure while banking book has €1.7t exposure towards sovereign defaults. EU stress test estimated total write-down’s of €26bn as it only considered banks trading portfolio. This equated to implied haircut of 7.9% on trading portfolio with losses equating to 2.4% of Tier 1 capital. However, if the same haircuts (7.9% weighted average haircut) are applied to banking book then the loss would amount to €153bn equating to 13.8% of Tier 1 capital.

We have also presented an alternative scenario since we believe that EU stress test had failed not only to include banks HTM books but also the loss estimates were highly optimistic, as has much of the economic and financial forecasting that has come from the EU. It is highly recommended that readers review Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! for a detailed view of a long pattern of unrealistically optimistic forecasting. Here's and example...




In an alternative scenario, we have assumed weighted average haircut of 10% (exposure, haircut assumptions and writedowns for individual countries are presented in detail in the tables below) and have applied writedowns on both banking and trading books with the results available in the subscription document File Icon The Inevitability of Another Bank Crisis? Individual and more explicit haircut calculations are available for the following nations for professional and institutional subscribers:

Eurocalypse, the European CDS trader

Certainly, if we compare the fiscal trajectory of the Eurozone as a whole with the US, the US is not really on a better path. Austerity has started in Europe. US seems still in full spending spree.

Reggie Middleton, the American Realist

I disagree, in a way. The US situation is truly FUBAR, indeed, but it is a slightly differently  FUBAR'd than the EU. The US still:

  1. is the world's reserve currency,
  2. has the world's pre-eminent military and technological forces (which go hand-in-hand with number 1, hence is essentially the same thing if history is any indicator),
  3. has a much more contiguos economy than the EU,
  4. although is prone to lie about its book keeping situation, is definitely not as detached from reality as the EU states. Reference:
  5. Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!,
  6. Once You Catch a Few EU Countries "Stretching the Truth", Why Should You Believe Any Others

  7. LGD 100+: What's the Possibility of Certain European Banks Having a Loss Given Default Approaching 100%?

Then there is the commercial real estate issue looming in the EU. The two strongest economies in the EU are being looked to pull the rest of the EU out of the fire through bailouts, but the ugly truth is that they are tied to the proflicate (and not so profligate, but still hampered) states by the waist. Outside of the (borderline recessionary) EU being their major trading partner(s), they have pretty much bankrolled CRE lending throughout the entire trading block. Those loans are due to be rolled over, and they are due to be rolled over on property that has materially declined in value - leaving a significant equity gap. We're talking close to 70% to 80% of CRE loans coming due in the next year and a half on properties that have significant oversupply, weakening rents, recesionary economies, sovereign debt issues and staunch austerity plans, and generally devalued properties leaving many a loan underwater. Haircuts, anyone? Inflation Misconceptions Hide A Downright U-G-L-Y Real Estate Landscape! - Part 1

You see, there is a highly reflexive relationship between overvalued sovereign debt held on a higly leveraged basis on EU bank balance sheets and CRE loans coming due on devalued and underwater real estate. The sovereign debt crisis is straining lending capacity at the same time that excess lending capacity is needed to fund underwater property loans that need to be rolled over. No one is discussing the real estate portion of the EU banking crisis to be, but it is very real!

I have delved deeply into this topic during my lectures in Amsterdam. Reference my featured article in Property EU, one of Europes leading real estate publicatios

Those who wish to download the full article in PDF format can do so here: Reggie Middleton on Stagflation, Sovereign Debt and the Potential for bank Failure at the ING ACADEMY-v2.

Now, the US is in a similar situation, but we have managed to fudge the books to such an extent that some of our CRE investors have actually risen in price. See The Conundrum of Commercial Real Estate Stocks: In a CRE "Near Depression", Why Are REIT Shares Still So High and Which Ones to Short?

With the dearth of synthetic profit streams to support accounting earnings (as banks did in their supposed recover of 2009/10), Weakening Revenue Streams in US Banks Will Make Them More Susceptible To Contingent Risks. I believe, due to major policy errors in dealing with our crash, that we will see our own lost decade(s) in the US...

There are those who believe US CRE is on a bullish trend, but I believe they have been mislead by accounting and regulatory shenanigans. Commercial real estate rarely thrives in high unemployment, increasing interest rates, stagflationary, sluggish economic times. Then again, maybe I'm wrong... Reggie Middleton ON CNBC's Fast Money Discussing Hopium in Real Estate


The US CRE situation is overshadowed (and possibly rightfully so) by the popular realization that Reggie was accurate in his 2007 assertions that we are in a residential real estate depression, further complicating any truly organica economic recovery - at least until true price discovery is allowed by the financial markets central planning cartel of government and central bankers. Reference:

  1. Reggie Middleton's Real Estate Recap: As I Have Clearly Illustrated, It's a Real Estate Depression!!!

  2. The "American Realist" Says: Past as Prologue - Re-blown Bubble to Pop Before the Previous Bubble Finishes Popping!!!!

  3. The Residential Real Estate Week in Review, or I Told You We're In A Real Estate Depression! The MSM is Just Catching Up

  4. There's Stinky Gas Inside Of This Mini-Housing Bubble, You Don't Want To Be Around When It Pops!

  5. Bubble, Bubble, Real Estate Toil and Trouble: Macro Climate for Real Estate Still Sucks, Despite New Bubbles

As this discussion/debate is getting rather lengthy, it will be continued in a later post. In the meantime, interested readers can follow me on twitter or subscribe to BoomBustBlog directly.

Published in BoomBustBlog

I have received several requests for trading recommendations and advanced setups. Since I am not a trader (or at least not one of the best traders) I have refrained from offering such. Well, now we have several members of the community that are stepping up to offer their expertise and opinion. I will be posting their combined contributions as Eurocalypse. Here is some information on the credit trader below.

...As I said I have traded mostly on the fixed income markets. What I mean by that is:

  • government bonds, euro-area, (or before it existed, peseta, lira, french franc,...), Sweden, Denmark, UK, US, Japan
  • short term interest futures in those markets  Euribor, Euro$ etc...
  • bond futures & options in those markets (tnotes, gilts, bunds, btps, jgb.
  • swaptions & caps & floors
  • inflation linked securities (US TIPS, Euro-CPI linked, etc.
  • G7 FX & options

I did not trade credit, or mortgages. I did trade on CDS on sovereign names (the stuff which is blowing up as you predicted :-) )

In my best years, i managed more than 10 billion euros equivalent of bonds (and the corresponding derivatives)

I was doing 'proprietary' trading, in contrast with 'flow trading" - flow trading is quoting to clients (pension funds, banks, insurers, hedge funds...), and basically stuffing and frontrunning them - or in contrast with exotic derivatives book where you stuff the client selling complex products he doesn't understand and he cannot price by himself ;-)

On average, I made for the firm more than 30M euros a year. Return on asset not that big! Those were the years where you had to be leveraged to make money due to low vol!  I was doing mostly "relative value", picking pennies with "hedged" strategies. So not a big trader like Brevan Howard and co, but I was not in the minor league either. I must say im quite proud of having stuffed a few times the likes of GS, JPM, DB and co....

And I'm proud of you to, my friend! Cool

I also ran the asset-liability department of a French bank so I saw also the other side of the business with all the accounting shenanigans, and I know how banking CEOs run their company...

I have to say the curious thing seen from far away from the screens, is that banks seem tight to sovereigns, but in the end, they should share the same fate and I tend to believe if we have big failures, we will have a domino effect, even affecting the strongest banks. The whole system is f$cked up!

I actually disagree slightly here. The banks are literally quite leveraged into the sovereigns (the European banks even more so, but they're all leveraged enough to blow up 3x over if a serious credit event occurs). Thus, the banks will not share the same fate as the sovereigns, but a fate much worse!!! The reason why anyone was even able to be convinced to buy the banks was because Bernanke and his minions funneled trillions of dollars of rescue efforts into the banks, gouged from public coffers. This is the reason why the sovereigns are in the state that they are now - reference Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe:

Sovereign Risk Alpha: The Banks Are Bigger Than Many of the Sovereigns


This is just a sampling of individual banks whose assets dwarf the GDP of the nations in which they're domiciled. To make matters even worse, leverage is rampant in Europe, even after the debacle which we are trying to get through has shown the risks of such an approach. A sudden deleveraging can wreak havoc upon these economies. Keep in mind that on an aggregate basis, these banks are even more of a force to be reckoned with. I have identified Greek banks with adjusted leverage of nearly 90x whose assets are nearly 30% of the Greek GDP, and that is without factoring the inevitable run on the bank that they are probably experiencing. Throw in the hidden NPAs that I cannot discern from my desk in NY, and you have a bank that has problems, levered into a country that has even more problems.


There are no additional trillions to give to the banks,thus its relatively safe to say that some of these banks may have to actually trade on fundamentals some day - and that could get very ugly.

The trade which should make the most sense, is to short financials vs the indexes, but even if there should be much more to come, (in real crisis, all banking shares should converge towards 0) it must have moved so much, I guess technicals are key, if not, risk of being short squeezed...

If/when short selling of financials becomes forbidden [like in 2008 as this blog was racking up deep triple digit gains], you can still do it by buying... 

Yes, we will be having some very interesting stuff coming up this summer. I have responded to the requests to dig deeper into the US and European banks and I will try to deliver the first of the refreshes by the end of the week.


I will be adding additional commentary throughout the day as well as a look at at European bank from an equity trader's perspectve.


Published in BoomBustBlog

As you can see from the chart below, it appears as if the gravity of fundamentals is slowly returning to the markets. Linkedin is trading at nearly half of its IPO high, reference "LinkedIn Shares Debut With A Near 100% Pop In Price, Annualized PE Over 1,000!!! Next Question, Whose Gonna Write Me Those Bubble Puts???" Many believed this to be too high, but BoomBustBlog attempted to meticulously demonstrate how high is too high.

Although the puts written on LNKD were ridiculously overpriced, 24 to 72 hours worth of patience would have seen the IV shrink, bringing them within a profitable price range. So far on the puts we see 20 to 30% ROI, unlevered. You would have done better with a straight short, provided you could have gained access to the shares to borrow without getting ripped off on the borrow!

In the post "A Realistic Forensic Valuation of LinkedIn – There Ain’t No Surprises Here…" of Monday, May 23rd, 2011 we offered a full valuation of LNKD, and as you can see we were right on the money - as excerpted:

Published in BoomBustBlog

You see, fundamental analysis still works - and it works well. Double to triple your money simply buy counting the numbers... Click  the graphic below to enlarge. This is at least the 2nd time my subscribers have dipped into this well to pull out bearish honey instead of water!

As excerpted from Research in Motion Drops 10% After Hours, Precisely As We Warned Two Months Ago – MARGIN COMPRESSION!!! Thursday, March 24th, 2011 (I also warned again in April - Blackberries Getting Blacked Out, Imitate Amateur Base Jumpers Sans Parachute! Friday, April 29th, 2011):

On January 20th, I posted "Blackberries Lost More Market Share Than We Bearishly Anticipated While RIMM’s Share Price Spikes: Is It Time To Revisit the Bear Thesis?". I turned bearish on RIM last summer and made some money on its dip back then. Shortly afterward, its shares did the QE thing, despite the fact Android started sucking up market share everywhere while simultaneously squeezing margins like orange juice. As excerpted from the aforementioned post:

We have updated our mobile OS and handset manufacturer market share model and will make it available to subscribers as an online app by next week. In the meantime, let’s review some of the findings – vendor by vendor. First up is Research in Motion. This was a profitable short in 2010, with the share price hitting our targets within 100 pennies. Since then, the stock has risen appreciably. Let’s take a look to see if the rise was justified.

Page 5 of our Research in Motion forensic analysis (released in the summer of 2010 -  File Icon RIMM Forensic Analysis and Valuation – Professional & Institutional or File Icon RIMM Forensic Analysis and Valuation – Retail) clearly stated that while we expected RIMM’s handset shipments to rise as a result of a rapidly expanding smartphone market, it will lose considerable market share....

Published in BoomBustBlog

Last week I posed the question, "Is The Evidence For An Apple Margin Collapse Now Incontrovertible?". I received some interesting, albeit rather passionate answers, many of which failed to address the core core issue, which is can Apple compete with the rapidly rising technological bar that is simultaneously facing rapidly dropping prices without suffering a hit to margins. Phrased differently, can Apple's brand allow it to charge materially more for less product in the face of over 400 competing devices connected by the fastest growing and most diverse ecosystem in the business? Sounds like a tough sell, doesn't it? This is not about who is better, who is worse, who will win, and who will lose. It is about margins. Apple may not eve be in the race if it doesn't run, and to run may very well mean margin compression.

Well, if margin compression wasn't "Incontrovertible" last week, it certainly should be this week. Let's walk through margin compression as a result of excessive competition step-by-step, starting by solidifying the thesis behind the recommended updates to the Apple Margin Compression Thesis & Google's valuation model. Subscribers, adjust your BoomBustBlog Valuation Models Accordingly:

  1. File Icon Apple – Competition and Cost Structure Forensic Analysis and accompanying Apple iPhone Profit Margin Scenario Analysis Model - suggested use with Apple Earnings Guidance Analysis
  2. Google Final Report and the accompanying Google Valuation Model (pro/institutional subscribers)

Apple's iPhone launch on Verizon did a lot to boost market share, reference Apple chews away at Nokia, posts best smartphone share growth in Q1 and Android increases smart phone market leadership with 35% share. It's success was enough to push it to 2nd place in terms of US handset vendors and 3rd place globally. Despite this success, it is still losing considerable ground to Google's Android, reference Even With Apple’s Successful Launch On Verizon, Google Continues To Increase It’s Lead In The Smarthphone Space Friday, May 6th, 2011, and Google’s Android Market Share Explodes As It Expands Its Reach To Cars, Toys, Home Automation, Music & Movies – All In The Cloud Wednesday, May 11th, 2011 Verizon’s Earnings Confirm The Economic Impact of Android vs iPhone In Regards To Carrier Profitability Thursday, April 21st, 2011.

Many don't realize why the amassing of significant dominance in market share makes such a difference. Basically, its the reason why Apple has historically been able to charge a premium (although not currently due to Android - high end Android phones are either at par or slightly more expensive than the iPhone yet Android's market share increases at en ever more rapid pace). Apple's key advantage lies in the network effect stemming from majority market share (embedded in its iTunes and app store ecosystems). Wikipedia on the Network Effect:

Published in BoomBustBlog

Summary: I called it the coming RE Depression in 2007! I put MY money where my mouth was and sold off all of my investment real estate. I put YOUR money where my mouth was and shorted all that had to do with real estate (REITs, banks, builders, insurers). I called almost every major bank collapse months in advance. I warned the .gov bubble blowing does not = organic economic recovery. Now I'm saying we need to, and will, continue what's left of the crash of 2009, with ample global company. There will be no RE recovery this year, and there will be a crash. OK, you heard it here!

First, let's go through the headlines for the day then proceed to breadcrumb trail that clearly led us to where we are now and where we will ultimately end (oh yeah, In Case You Didn’t Get The Memo, The US Is In a Real Estate Depression That Is About To Get Much Worse Wednesday, February 23rd, 2011)


Commercial Real Estate

US Commercial Real Estate Prices Decline to Post-Crash Low ...‎ - Bloomberg

U.S. commercial property prices fell to a post-recession low in March as sales of financially distressed assets weighed on the market, according to Moody’s Investors Service.


The Moody’s/REAL Commercial Property Price Index dropped 4.2 percent from February and is now 47 percent below the peak of October 2007, Moody’s said in a statement today.


The national index has fallen for four straight months as sales of distressed properties hurt real estate values. Investor demand is strongest for well-leased buildings in such major markets as New York and Washington as vacancy rates decline and the economy grows.


The index “continues to bounce along the bottom as a large share of distressed transactions preclude a meaningful recovery of overall market prices,” Tad Philipp, Moody’s director of commercial real estate research, said in the statement. “Indeed, the post-peak low in price has been reached in the same period as a post-peak high in distressed transactions has been recorded.”


So-called trophy properties in New York, Washington, Boston, Chicago, Los Angeles and San Francisco are helping those markets avoid the drag caused by distressed asset sales nationwide, Moody’s reported. Prices of properties of $10 million or more have risen 23 percent since their July 2009 low, according to a separate report issued today.


No Recovery Signals


The overall index shows “no sign of recovery,” Moody’s said.


Almost a third of all March transactions measured by Moody’s were considered distressed, meaning the properties’ owners faced foreclosure, had difficulty covering their mortgage payments or experienced other financial problems. It was the largest proportion of distressed property sales in the history of the index, Moody’s said.

For all of those wondering how CRE can be doing so bad while REITs are doing so well, well I explained it in explicit detail several times in the past. Once we eliminate rampant fraud and bring back mark to market, all will be good again...

  1. The Conundrum of Commercial Real Estate Stocks: In a CRE “Near Depression”, Why Are REIT Shares Still So High and Which Ones to Short?

Published in BoomBustBlog

Technology Bubbliciousness Is Back With A Vengeance!

LinkedIn (LNKD) went public with an absolutely unrealistic valuation that illustrates the dangers of ZIRP policy that has carried on for too long. The marketing machinations of investment banks combined with a total lack of respect for risk and the cost of capital has allowed such to happen – and we all know how this is going to end!

In 2010 LinkedIn generated $15m of PAT (profit after taxes) as quoted by the popular financial media. But that’s PAT. What the media and pop media readers are forgetting is what’s available to common share holders, you know the guys holding that stuff trading on the exchanges. LinkedIn has total redeemable convertible preferred stock of 10.8m (4m Series C and 6.8m series D, Convertible preferred stock of 38m (17.2m series A and 17.5m Series B). After accounting $11m for undistributed earnings allocated to preferred stockholders the PAT attributable to common share holders was $3.4m. For those perpetual pessimists who are not well versed in calculating 5 digit PEs… The math already denotes LinkedIn trading at a PE of… well... I’m actually damn near embarrassed to print this… 29,000x.

Published in BoomBustBlog

Several BoomBustBloggers inquired as to my opinion of what apparently was an overpriced acquisition of Skype by Microsoft. At first blush, it appears as if the management of Microsoft has lost their mind. A second look (as well as access to our proprietary research) reveals a more interesting perspective. To make a long story short, Microsoft is trying to replicate Google's cloud services.

If you reference pages 29 to 36 in our the Google valuation report from 8 months back (63 pg Google Forensic Valuation - tutorial, [Google Final Report 10/08/2010 to download] to plug in your own assumptions see Google Valuation Model (pro and institutional), you will find the answer to why Microsoft is willing to pay $8.5B to buy Skype. Skype, like Google Voice which is tightly integrated into Android,  will be folded into the mobile operating system to give full mobile VOIP capabilities that will most likely tie in with Microsoft’s server products ex. Exchange server for storing voicemail along email, voice recognition, transcription services, etc.) , just as Google purchased Grand Central (page 55 on, in the report) to turn it into Google Voice to move vast amount of profitable mobile telephony services out of the reach of telcos and totally to Google’s cloud – leaving only data services to the telcos. This is happening now, reference Sprint’s wholesale adoption of Google Voice by offering users to switch transform their Sprint numbers into GV numbers without breaking their contract. As excerpted from the afore-linked source:

Google was already a competitor

Communications services, especially voice services, are rightly seen as the last bastion of clear telecoms operator advantage over alternative means of offering such services, with the telephone number itself being the key enabler.

In many other areas, such as applications and content, telecoms providers are already losing out in terms of service usage and brand loyalty to aggressive, software-driven players such as Google and Apple. Verizon may previously have partnered with Skype for similar-looking services, but Skype is not Google; as an Internet voice specialist, Skype’s ability to impact the telecoms value system is nowhere near as profound as Google’s.

As such, Sprint’s inviting of Google into the telecoms inner sanctum, through this formal partnership to offer Google Voice, might therefore look something like throwing the baby out with the bath water.

But may prove a better friend than foe

So, what does this really mean?

Published in BoomBustBlog

My many warnings on the impending dethroning of Apple by Google has produced more flak and negative response since any proclamation since my warning about Goldman Sachs in the spring of 2008. Of course, fast foward to the spring of 2011 an you will find Reggie was right on point. I am just as confident, or more, about Apple vs Google, and for the same reasons as I was confident about Goldman Sachs. You see, its not about the quality of the company. Both are strong American companies with strong management, but both are (or at least in the case of one of them, "were") also seen as iconic to such a degree that investors and customers failed to look at the actual numbers, outlook and underlying trends beneath said iconic, "spit-shined-to-perfection-through-marketing" patina. Remember, don't look to BoomBustBlog for what you want to hear, look to us for what you need to hear. With that being said, we have released our valuation numbers for Apple to Subscribers (Pro/institutional level subscribers may contact me directly about the analysis) and the reviews of the latest credible competition to Apple's fastest selling products are now out - the Samsung Galaxy Tab 10.1 (Samsung's reworked answer to the iPad) is now taking pre-orders, and the reviews are very positive.

  • Engadget's Darren MurphIt's quick, nimble, and easy to hold, and it's both thinner and lighter than the heralded iPad 2. There's no question that we prefer the handling of the Tab 10.1 over Apple's alternative, and with the improvements coming with Android 3.1 (and in time, Ice Cream Sandwich), it's going to be mighty hard to overlook this device come June 8th. The 16GB WiFi model will hit for $499 -- exactly in line with the iPad... There's just no other way to say it: the iPad 2 finally has a real competitor. If Samsung could somehow undercut Apple by even $25 here, the choice would be obvious, but it's going to have a whale of a time convincing the masses that a Samsung device is superior to one Designed in California when prices are equal. That said, we'd still recommend the Tab 10.1 over the iPad 2 for heavy Gmail users and all-around fans of Android."

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There are several other reviews around, but Endgadget is, by far, one of the most objective, least unbiased reviewers popularly available. Examples of bias were evident when the reviewer would list how the Samsung pre-release product was faster, shot better pictures, had a better screen, was slimmer, lighter etc., yet in the conclusion states that they prefer the iPad 2 over the Samsung because it is "sexiest", but considers the Samsung the "iPad 2" of Android world. At least from our perspective, this strays from a straightforward comparison, but does exemplify the results of Apple's superior marketing capabilities which should serve it quite well as competition is rapidly ramping up.

As a refresher, here are reviews for the Asus Transformer priced at 80% of the cheapest iPad:

Published in BoomBustBlog