Don't Count Microsoft Out of the Ultra-Mobile Computing Wars Just Yet
In anticipation of its renewed push into the ultra-mobile computing fray (what most other sites call the smarth phone market), Microsoft has decided to "prime the pump" to regenerate developer interest in its platform. I have started covering this in detail, see:
- 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
I recommend that my readers NOT underestimate Microsoft's ability to come from behind on this one. Out of the three competitors that I feel have the most potential - Apple, Google/Android, and Microsoft - Microsoft is the only company to have:
- A fully established and pedigreed cloud ecosystem for the enterprise (Google's Docs and Gmail apps are relatively new in comparison, and Apple has only burgeoning consumer offerings that have been recently launched).
- The most advanced audio/video client side interface with both streaming and subscription services, to be offered through the Zune interface of Windows Mobile 7. For those who haven't used it, the new Zune software/hardware combo puts iTunes to shame. Google doesn't have a comparable offering of note.
- The de facto standard Office productivity platform, which also happens to be very, very difficult to replicate and/or reverse engineer. It also happens to be, by far the most feature rich. One should expect enhanced compatibility between Windows Phone 7 devices and Office apps.
- A rich version of Office productivity apps that can run from the cloud (Office 2010, currently available for download).
- A steady stream of revenue derived from practically every smartphone sold. Just like MSFT makes money on every PC sold, it also gets a license fee for every smartphone that needs to interactive with Exchange server, which is practically every phone that needs to interact with a Fortune 500 mail server. This is a legacy benefit from being the de facto standard in the enterprise. Whose product do you thing works best with Exchange? Secret APIs?
- The only major mobile OS vendor who also owns one of the top top gaming platforms - the X-Box system. Expect rich, 3D/HD, cloud-based X-box gaming to come to a Windows Mobile 7 phone/table near you. Imagine X-Box Live (a killer app in its own right) with comparable graphics on a Windows Phone with a 4 or 5 inch super AMOLED screen.
For these reasons and more, Microsoft will be a force to reckon with. I'm not saying they will win the ultra-mobile computing wars, but it will be most unwise to count them out due to their bumbling and stumbling - all to be expected from a big company that has been on top for so long, getting fat and losing touch with its true customers due to an unfettered monopoly revenue and profit stream from its cash cow products.
An Introduction to How Apple Apple Will Compete With the Google/Android Onslaught
This is the 3rd part of my overview of the Mobile Computing wars currently being fought between those companies that I see as the front runners: Apple, Google and Microsoft. Please reference the first two in the series - “There Is Another Paradigm Shift Coming in Technology and Media: Apple, Microsoft and Google Know its Winner Takes All” and "The Mobile Computing and Content Wars: Part 2, the Google Response to the Paradigm Shift” - before moving on. This piece is more of a backgrounder on what Apple actually is, for many do not realize it is one of the first, if not the first technology companies to actual transcend being a vendor of computing devices and services. If you are well versed in Apple's offerings (or at least you think you are), you may want to move on to the next part of the series. For all others, please read on...
Apple literally defines the story of the comeback kid. Returning from the brink of literal collapse, Steve Jobs after being ousted by upper management and the board, returned to guide Apple into becoming a literal powerhouse of consumer computing and lifestyle. Make no mistake about it; Apple is currently as much a lifestyle company as it is a computing company. Apple products are a statement to be seen with, as much as device to be used. The strong emphasis on the high end minimalist, yet highly prolific design is endemic not just in their computing and media products but their storefronts as well. The Apple retail outlets are proof positive of such...
The Apple store on Fifth Avenue in NYC, across from Central Park and FAO Scwhartz – arguably the most prestigious retail real estate in the world – not to mention one of the most prestigious minimalist designs for a technology storefront!
BoomBustBlog Contrarian Global Macro Analysis: The Overt Optimism in UK Financial Predictions Comes Back to Bite Them, Just As We Forecasted
From Reuters, by way of CNBC:UK Economic Slump Deeper than Thought
Britain's record recession was just as deep as we conservatively estimated it using realistic metrics even deeper than previously thought, and the economy could still have contracted in the first quarter of this year were it not for hefty government spending, official data showed on Monday.
The Office for National Statistics left its earlier estimate of first-quarter growth unrevised at 0.3 percent, giving an unchanged annual decline of 0.2 percent.
Britain faces mixed prospects for the second quarter, after data released at the same time showed that services output contracted 0.3 percent in April, the biggest fall since January.
During the first quarter, the biggest rise in government spending since the fourth quarter 2008 added 0.4 percent to GDP growth, alongside a 0.9 percent contribution from gross capital formation, which helped offset a drag of 0.9 percent from net trade. Imports rose and exports fell in roughly equal measure.
The figures suggest a major rebound in British exports will be needed to maintain growth when planned government spending cuts take effect from later this year.
...
A Quick History of Google
Here is a quick 3 minute video to put the information that I posted yesterday on Google into perspective. I strongly suggest all take the time to watch it and post comments afterward the section below the video.
03:15
I will be posting the Apple analysis, or at least portions of it followed by Microsoft. Subscribers should expect a strategic forensic report to makes sense of the investment opportunities shortly thereafter. For those that need to get up to speed:
Greece Starts to Restructure in Real Time, Exactly As We Predicted - Rendering EU Stress Tests As Credible As Platinum Laced Frog Farts
On Wednesday, May 26th, 2010 I released "A Comparison of Our Greek Bond Restructuring Analysis to that of Argentina" in which I explicitly outlined the restructuring of Greek debt using the Argentina experience as a template (I suggested that mixture of zero coupon bonds and explicit haircuts would be utilized to re-wrap debt). During that time, many analysts and government officials at the time (and even now) said that I was totally unrealistic in expecting a Greek default or explicit restructuring (reference Greek Crisis Is Over, Region Safe”, Prodi Says – I say Liar, Liar, Pants on Fire!). Well, fast forward about 60 days, and voila, guess what the hell is going on??? Zero coupon bonds! Haircuts! Where have we heard this before??? Thanks and hat tip to BoomBustBlogger Shaunsnoll, "It’s no secret: Greece is restructuring debt" (via FT.com)
...consider the cost of sending lawyers and consultants – you could call them spies – to hang around Brussels and Frankfurt to assess the risk of a Greek default.
Yet simply by looking “on internet”, you could find out that Greece has already started to restructure its state debts. Look at the site for the Hellenic Association of Pharmaceutical Companies (www.sfee.gr), and you will find a link to a joint press release by the Greek Ministry of Health and Social Welfare and the Ministry of Finance. On June 9, unnoticed by most in the financial world, they stated: “The [Greek state hospital system] debts of 2007, 2008, 2009 amounting to €5.36bn [£4.4bn, $6.7bn] will be settled with zero coupon bonds.” The hospital debts lingering from 2007 will be paid with two-year zeros, 2008 with three-year zeros, and 2009 with four-year zeros.
There is some, actually a lot, of detail missing from the one page release, which presumably will be filled in by the legislation that will be introduced, and probably passed, to implement the restructuring. The release does say: “It is certain that the banks co-operating with the suppliers will show interest in prepaying these bonds, transforming the corporate risk undertaken on behalf of their customers – hospital suppliers – in credit risk against the Greek state, in the form of a bond which can be financed through ECB.” And, according to the release: “In case suppliers settle these bonds by January 2, 2011 . . . the above ‘discounts’ corresponds to a total percentage of about 19 per cent.”
Will the Emerging Markets Lead the World to New Growth?
Just after the HSBC Emerging Markets Index was released showing a marked slowdown in growth, HSBC Chief Economist Stephen King told CNBC news that Emerging Markets Hit a Bump in the Road. The is to be expected, with monetary tightening occurring in China (see BoomBustBlog China Focus: Interest Rates and BoomBustBlog China Focus: Inflation?), austerity measures being applied en masse in developed Europe (see The Pan-European Sovereign Debt Crisis) and the potential for a double dip in the US and UK. He also says that there is promise for the future, and I might even be inclined to agree with him, it's just that we need to get past the present first.
HSBC has a proprietary interest in the success of the emerging markets for they are highly geared into their growth and well being. With the developed nations of the west and Europe choking on debt overhang, the emerging markets are HSBC's key to growth, so it is very much the case that Mr. King is talking his book - which is not necessarily a bad thing, we just need to know all of the facts as they are laid before us.
I have just released our HSBC forensic analysis for the second quarter, and it is easily one of the most meaty reports that we have accomplished this year with 26 pages (Pro/Institutional versions) of fundamental, economic and macro analysis that truly picks apart both the inner workings and the future prospects of this bank. Below are some excerpts as applies to the topic of the emerging markets...
Negative News Flow In the Investment Banking and Asset Management Space: Profitably Forewarned by BoomBustBlog Research
I wanted to share a series of negative news flow relating to the weakness in the core businesses of the investment banks owing to increased volatility in the capital markets over the last few months. This ebb from the sell side trails the opinion of BoomBustBlog research which forwarned of the same very early in the first quarter as well as last quarter of 2009l The news flow points out that the upcoming results of GS, MS and JPM might be disappointing or below expectations - as if we already didn't know this.
- According to some of the recent MSM articles, the recent surge in volatility has led to record low activity in the underwriting and M&A activity.
Global M&A value for the first half of 2010 grew 3% to $1.18 trillion, compared with $1.15 trillion a year earlier, according to Dealogic's figures. But while values were up against the year-earlier period, the $552.7 billion in value generated in the second quarter was down almost 7% compared with the first quarter of the year - WSJ.com.
Wall Street investment banks sold $1.36 trillion of stocks and bonds in the second quarter, down 33% from the second quarter of 2009 and the lowest quarterly total since the fourth quarter of 2008, according to Dealogic.
- Also, the capital markets volatility will have severe implications for the trading revenues of investment banks like GS and MS which derive substantial portions of their revenues from trading activities. Analysts have been downgrading earnings estimates for these banks and GS’s earnings have been particularly slashed since it generates nearly 60-70% of total revenues from trading.
Barclays Capital analyst, Roger Freeman, cut earnings estimates for Goldman Sachs Group (GS) and Morgan Stanley (MS) on June 23, 2010. Freeman slashed his second-quarter profit forecast for Goldman by nearly 64% to $1.95 a share from $5.35 a share. Freeman is expecting 40% lower trading revenues in FICC and equity segments in 2Q10 against 1Q10. His estimate for Morgan Stanley dropped 29% to 55 cents a share from 77 cents a share - WSJ.com.
Bank of America analyst, Guy Moszkowski, also slashed earnings estimates for GS and MS. He revised GS’ 2Q10 earnings estimates to $1.76 per share, 51% lower than the previous estimate of $3.57. The new estimates reflect a 45% decline in equity trading revenue and 40% drop in fixed-income trading revenue compared with the first quarter. MS’s 2Q10 EPS estimate was cut 35%, to 58 cents a share from 89 cents. The estimate on JPMorgan Chase & Co. was trimmed to 70 cents a share from 77 cents, and Citigroup Inc. was lowered to 2 cents a share from 4 cents - Businessweek.
I would also like to add that the recent volatility and market decline has also impacted the AUM of asset managers and there has been downward price revision by analysts. The assets under management of BEN declined 5% (m-o-m) in May, 2010 and the June figures are not yet out. Consequently, the target price estimates have been lowered by many analysts. In June, FBR Capital lowered its target for BEN to $105 from $118 and Barclays capital lowered its target for BEN to $125 from $133. Analyst at Goldman Sachs have also made significant downward revisions in this sector.
Now, the news flow in light of applied BoomBustBlog research:
The Asset Manager Trade is Printing Money Almost as Fast as Ben Bernanke
In the News This 29th Day of June, 2010: A Whole Bunch of "This Ain't No Surprises" from Europe
From CNBC.com: Europe Double-Dip May Bring Correction: Roubini
Economic woes in Europe could spread to the U.S. and lead to a further correction in stock prices, Nouriel Roubini, chairman of Roubini Global Economics, told CNBC on Monday.
Hey, but wasn't I saying that since January of this year??!! Remember back February when the media and the sell side analysts said the Greek problems were soon to be solved and this definitely was not a "European" problem but rather a localized one?
BoomBustBlog, February 7, 2010: The Coming Pan-European Sovereign Debt Crisis – introduces the crisis and identified it as a pan-European problem, not a in localized one.
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.
Bloomberg has as a headline today: Stress Tests on European Banks Must Assess Sovereign Risks, EU Draft Shows. Duhhh! As if we should really ignore the biggest threat to the solvency of the the European banking system in a so-called "stress test". What is this, Geithner "lite"? Reference How Greece Killed Its Banks! to see exactly how much damage those who wish to ignore sovereign risks are trying to hide...
The Shortlist of the Shortlisted “Stocks to Short for 2010″: What We See as the Most Profitable Bear Postions for 2010
Here is a the final list of companies culled from a group of nearly 1,800 that we feel have the most profit potential for the year going forward.
This is a professional/institutional level document, but annual Retail subscribers and any subscribers who have been with me for a year ore more can email customer support for a copy as we show our gratitude for your continued patronage. Professional and Institutional subscribers should download this document in its entirety here:  Financial and Non-Financial Short Scan Review & Analysis - Pro (392.88 kB 2010-06-28 05:33:44) |
This is the culmination of four blog posts:
- 1. Non-Financial Companies to Short in 2010: methodology and short listing results;
- 2. BoomBustBlog Bankruptcy Search: Focus on British Petroleum and Collateral Damage: an objective look at the prospects of BP’s potential insolvency;
- 3. The BoomBustBlog Pan-European Sovereign Debt Crisis Bankruptcy Search: a review the financial and bank holding companies whose economic and financial outlook do not support their current valuations;
- 4. and On Shorting Stocks, Double Dips and the UAL/CAL Merger: a drill down of suspect airlines stocks.
Note: The embedded spreadsheets contained in the posts above should be used to access the extensive fundamental data used in calculating the results below.
After two separate and rigorous short exercises, one each for financial and non-financial companies, we have narrowed down the list of potential candidates from nearly 1,800 companies to just 10 (with 13 runner-ups) – all of which we are confident are materially overvalued given their current and prospective financial condition and economic outlooks. What is of particular interest is the fact that a full 50% of these companies landed on our computer screens as finalist in 2008, before the great market melt-up of 2009. They were overvalued and in bad shape during the lower prices of the turbulent times, hence they are significantly more so after seeing their share prices ride the wave of irrational, recession double-dipping, "recovery" exuberance. We have even released forensic analysis of 4 of these 10 companies over the last two years, and all of the banks in the list were also members of the original Doo Doo 32 of May 23, 2008. Members of this list provided significant profits for bears and short sellers as their prices gyrated and collapsed and the market began to realize the precarious situation that they were in. Now that low volume melt-ups are [starting to] giving way to realistic fundamentals, one can expect more of the same. The more things change, the more they stay the same. We plan to refresh the analysis of the repeat offenders, and offer fresh analysis of those who are new to the list.
The two separate short scans that we have conducted were for the non-financial sector and the financial/banking sector resulted in a short-list of 23 companies, with 10 of those companies targeted for full blown forensic analysis, time and resources permitting.
Below is the outline of the methodology used to produce them as well as a select excerpts from one of our previous reports on a particularly egregious "valuation" repeat offender that has proved profitable in the past whose macro outlook tied to the housing sector is a gloomy as ever - despite a near 100% pop in its share price. This the obligatory "freebie" that I toss in to entice non-subscribers to take the plunge. This particular "freebie" happens to be quite actionable, at least in my humble opinion.
Non-Financial Companies to Short in 2010
For those who are new to my writings and research (those who follow me should skip down to the next section), I have had relatively strong results in ferreting out weak companies which the sell side, the ratings agencies and the media consider "buys", "conviction buys", and AAA/AA credits - only to collapse, be acquired on the cheap or fall into bankruptcy less than a year later. Despite the painful rides necessary to ride out volatile markets that absolutely ignore fundamentals, in the end broke is broke and insolvent businesses tend not to last very long. The list of companies called out as insolvent against the rating agencies/sell side analysts/super smart billionaire investment crowd include:
- Bear Stearns: Is this the Breaking of the Bear? and Lehman Brothers (Is Lehman really a lemming in disguise)
- Washington Mutual and Countrywide
- Hovnanian: Credibility is the Key to Success for a CEO � Hovnanian has Lost that Key: A letter to Mr. Hovnanian
- General Growth Properties: “GGP and the type of investigative analysis you will not get from your brokerage house“ (BoomBustBlog professional subscribers can download the entire GGP composite history in .pdf format)
- MBIA and Ambac: A Super Scary Halloween Tale of 104 Basis Points Pt I & II, by Reggie Middleton
- among approximately 50 other similar calls..
These calls provided 5 quarters in a row of phenomenal returns (see performance) until the massive market melt-up of 2009 where we saw fundamentals get thrown down the sewer drain while math and common sense were turned on their respective heads. Well, guess what boys and girls... Methinks math is back and it may be here to stay for a while.
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