As stimulus induced economic indicators drove financial markets higher through the end of 2009 and into the middle of 2010, many financial advisors and researchers believed the Great Recession was taking its final breath and believed they bore witness to a forceful yet successful example of a proper response to a endemic crisis by policymakers around the globe. Fast forward to the present and you find that the Eurozone solvency crisis, the US economic slowdown and the Chinese real estate/lending bubble forces general economic consensus to move from that of recovery and prosperity to a gloomier picture of a return to output contraction or more realistically, realization that we never really left the period of economic contraction sans hefty government stimulus. Although it was a while ride, much of what BoomBustBlog has alleged has come to pass in terms of the condition of global banks, global economic output, and the prospects of the companies and countries that we cover. Most sell-side economists have lowered their GDP growth outlooks to near 1% for the next quarter, and more attention is being focused on central bank officials and the idea of new stimulus measures – all pretty much in line with our prognostications throughout 2008 and 2009. The problems has been that regardless of monetary policy, new stimulus and the growing need for them markets have moved with incredible correlation and very low dispersion among stocks over the past few quarters making it very difficult to monetize the fact that we have been right all along. These recent events beg the question, “Is this the end of the Stock Picker?” and if so, then “What does this portend for the future of the investment markets when casino style gambling has returned better results than adhering to fundamentals, math and basic common sense?” “Has the Fed destroyed the fundamental investor?” Let’s peruse the topic as illustrated in the mainstream financial media:
Back in September of 2007 when I was preparing to launch a hedge fund, I came up with this interesting name for a blog. It was BoomBustBlog. What made it interesting is that I can literally blog ad infinitum on the synthetically crafted booms and busts of the global economy, for the method of shepherding the economy in this day and age is actually predicated on the existence and/or creation of Booms and Busts. Of course, from my common sense perspective, one would think that the job of a central banker would be to ameliorate the effects of, and in time eliminate booms and busts... Apparently, that doesn't appear to be the flavor du jour. As a matter of fact, it appears as if central bankers are doing the exact opposite. Of course, attempting to cure a bust with a boom, or worse yet attempting to prevent a boom from busting with another boom is a recipe for disaster, and worse yet the probability of success is close to nil, yet central bankers try anyway. This leads to overt and explicit policy errors, which leads to outsized profit opportunities to those who pay attention. Enter "The Great Global Macro Experiment, Revisited", from which I will excerpt below. Please keep in mind that this article was written in October of 2008, and turned out to be quite prescient, I will annotate in bold parentheticals the portions of particularly prescient relevance. The original macro experiment piece was posted on my blog in September of 2007... For those that are interested, I plan on discussing this topic live on Bloomberg TV today: “Street Smart” with Matt Miller & Carol Massar at 3:30 pm.
With the blaring success of Apple's iPhone and Google's Android devices, we have seen a marked degradation in the performance of newtwork providers (ex. AT&T) who are straining to keep up with the pace of innovation and broadband data usage. The company that can provide the most high quality bandwidth, profitably at competitive prices will be the telecomm leader of the next generation. As we move from 3G services to 4G,and from mere smartphones to full blown mobile computers, the landscape will create a sharper distinction between the winners and the losers.
Many have labeled me a Permabear, particularly my detractors and those in the media (who are decidedly not detractors but still paint a pessimistic bent on my outlooks, see sidebar below). I am nothing of the such. I am what will be soon be known as a realist, as opposed to being a pessimist or optimist. No, I am no Permabear. My proprietary investment style (see "The Great Global Macro Experiment, Revisited")
“His work is so detailed, so accurate, it’s among the best in the world,” says Eric Sprott, CEO of Sprott Asset Management, a Toronto firm that manages about $5 billion and subscribes to Mr. Middleton’s research.
Middleton’s site combines self-promotion with meticulous financial analysis that is often delivered with a whiff of bathroom humor
dictates that I switch between extremes of bullishness and bearishness contingent upon the extreme policy errors of central bankers. As a matter of fact, I was as bullish as can be in residential real estate in NYC form 2000 to early 2004. I leveraged up on all the "in the money" distressed real estate I could find in areas of heavy gentrification, literally extracting 4 digit returns. That doesn't mean I disobeyed the laws of math though. As 2004 progressed, the writing on the wall became larger and more pronounced... Enter 2005 and math said turn bearish, common sense said turn bearish, and not to be one to look arithmetic in the face and argue, I grew bear claws and donned a ruffled brown grizzly coat! After liquidating my real estate, I took a year off and started shorting every industry that was even tangential to real assets. That was 2007. By the first quarter of 2009, I had a cumulative return in my portfolio of about 452% averaging roughly 50% cash (see Updated 2008 performance). I sensed the market was oversold, but the fundamental and macro outlooks was still quite negative, hence I pulled my profits one weekend in March (but let a few underwater positions ride). This weekend, coincidentally, happened to be the beginning of the rally that shouldn't have been, and I fought the faux bull to my detriment I got hurt in the artificially engineered, central banker and government synthesized rally of 2009, and my cumulative return was almost halved.
I try to maintain a culture of constant debate at BoomBustBlog. I insist that my analysts challenge my precepts, concepts and conclusions at every change they get, that is if they can produce a valid challenge. Well, with the Apple fever taking over the world, you can bet your left nipple hairs that there was plenty of challenge to go around this time... Let's take a sneak peak at some email excerpts.
This tidbit came from a discussion of the history of competition in personal computing devices at the cusp of a paradigm shift...
BoomBustBlog analyst #4:
(In response to your contention in your mail below) Though, I agree that Microsoft windows has the largest application library in the PC World, the key advantage that Windows has is “the first mover advantage” and very limited competition that also came in when Windows was already a very established player.
In case of Android the same thing does not hold, as Android already has established competitors including Apple OS, Blackberry and Symbian. Moreover, mobile phone software needs more compatibility with third party applications, which does not hold as a very important consideration for the PC market. Additionally, I do agree that developers will go where the money is, there is no concrete evidence (though I will check the same in detail) that there is more money in developing applications for Android.
A quote by gaming legend John Carmack to CNBC stated, “I have mixed feelings about Android. I’ve got a warm feeling about the open source model, but a lot of the things that make Linux not-so-wonderful seem to be there in Android. On the iPhone, you know everyone on that device [has the same functionality and hardware], while on Android, you’re across the board on a number of different things.”
Carmack added, “the [Android] marketplace is also apparently not well handled. And from what I hear, nobody’s making a lot of money on these [Android titles].”
The extraordinarily handsome Reggie Middleton, in reply:
About two weeks ago I warned my readers and subscribers not to count Microsoft out of the smart phone fray (Don’t Count Microsoft Out of the Ultra-Mobile Computing Wars Just Yet). They succumbed to big company-itis like many other monopolies, but you don't survive two technology paradigm shifts by being a slouch. Now upon the eve of the third major paradigm shift in as many decades (an unprecedented pace of popularly accepted technological advance of which relatively few grasp the potential and staggering consequences), we finally have Microsoft taking things seriously as Google and Apple continue to eat MSFT's lunch.
The ability to fully and functionally integrate with Office 2010 (as well as legacy versions), X-Box Live, and Zune Marketplace are levers that Microsoft should have used to take over the smart phone space years ago. They didn't, they fumbled the ball like a butter-laden fair maiden with extra greasy finger tips. They also, apparently, have learned their lesson. Take a gander at the capabilities illustrated in the videos below...
Apple is quickly losing its grip on what is, by far, its most profitable franchise...
And the next comparison (and probably the next three after that) will be between two Android phones because Apple will not have anything new for at least one year (except the iOS 4.1 SDK that is already out - that was fast) and RIM, and Nokia will probably be forced to adopt Android as well.