Many have discounted Microsoft in the mobile computing wars, primarily because they have made quite a few managerial, marketing and technical missteps that have cost them a significant advantage in the smartphone space. Well, as anyone that studies their history knows, the corporate (and corporate division heads) graveyard and infirmary are literally littered with companies that underestimated Microsoft due to their size and early fumbling when entering into markets.

Simply ask the makers of dBase, FoxPro, Wordperfect, Lotus, nearly all of the server OS companies, as well as the makers of GeoWorks, Sony & Nintendo gaming divisions, and the list can go on for quite some time. I'm not saying that MSFT wins everything, or even that they will win this one, but the largest software company in the world with some of the most promising tech, widest user base and several hundred million dollars in marketing (very useful, just ask Apple) and developer incentives will be the purview of fools to ignore or automatically discount into the failure bin.  I have said as much in the recent past...

  1. There Is Another Paradigm Shift Coming in Technology and Media: Apple, Microsoft and Google Know its Winner Takes All
  2. After Getting a Glimpse of the New Windows Phone 7 Functionality, RIMM is Looking More Like a Short Play

As for the marketing part, this commercial is pure, utter and undeniable GENIUS!!!

[youtube EHlN21ebeak]

Published in BoomBustBlog

Summary: Bloomberg features what they consider to be the most successful and accurate financial analysts since 2008. Of course, the firm that "Does God's work" is the one that won! Reggie Middleton disagrees, and thinks a blog beat them all! I urge the mainstream media to look beyond the traditional banking centers of influence for analysis. Not only is it soooo old school in a new digital age, but they just might find comparable (if not superior) talent in the blogosphere.

I urge the mainstream media to take a look at more than just the traditional sources when they make these all star rankings...

Bloomberg Regports: Goldman No. 1 at Rating Financial Companies With 38% Right

Daniel Harris, a financial services analyst at Goldman Sachs

Daniel Harris, a financial services analyst at Goldman Sachs Group Inc. [Clean cut, meticulous, ivy league, cookie cutter Goldmanite, Hamptoms in the summer, straight out of the Wall Street handbook - I get it]

... Goldman Sachs and KBW did better than most at figuring out where markets were headed. Goldman is No. 1 and KBW No. 2 in the Bloomberg Markets ranking of the world’s best financial sector research firms. Goldman’s Harris is one of the top three analysts of financial service firms, according to data compiled by Bloomberg.

2,500 Analysts [but no bloggers, which is exactly where this story went awry, IMHO :-)]

The ranking is based on stock recommendations made by more than 2,500 analysts worldwide at 77 research firms and investment banks from January 2008 to July 2010. It looks at the analysts’ “buy,” “hold” and “sell” calls on shares of 90 of the largest banks, diversified financial service companies and insurers in the U.S., Europe and Asia with at least 20 analysts covering them.

Even the best of the firms and individual stock pickers failed to accurately predict the fall and rise of most big financial stocks. Goldman Sachs’s analysts won their No. 1 rank by making 30 accurate calls on the 79 financial stocks they follow, or 38 percent, while KBW’s No. 2 post was based on 27 prescient calls on 78 stocks.

... “It was a very difficult climate to make stock recommendations in,” says S.P. Kothari, a professor of management and deputy dean at Massachusetts Institute of Technology’s Sloan School of Management in Cambridge. “First, you had to predict the downfall of the financial sector in 2008, which only very few people did. Then, you had to change your outlook to catch the recovery -- all within a relatively short period of time.” [So true, at least sort of. The problem was not about changing your outlook, it was about going against the fundamentals to catch manipulated stock price action to capture bank stocks as they shot to the upside in an environment where they were doomed to simply crash back down. Of course, I don't really expect to hear a lot of that in the MSM, but it does peek its nose out every now and then]

Looking for Ideas... Jason Brady, a managing director at Santa Fe, New Mexico- based Thornburg Investment Management, which oversees about $56 billion, says he doesn’t read analyst reports for picks on individual stocks. “It’s unusual to see original thinking in these reports, even though that’s what’s most valuable to me,” he says. “The ones who are different aren’t always right, but they’re frequently the most interesting and thoughtful.” [May I suggest you subscribe to BoomBustBlog, I am the antithesis of the sell side, and have nothing but crazy ideas - that is until a year  has gone past, and people say "hmmmm..."]

Yeah, I bet these guys get paid an awful lot of money for that as well. I hope Bloomberg's editors dont' forget us poor bloggers in the future comparisons. Uhh.... Not that I'm hating or anything (I definitely want to give these Goldman dudes credit where their due), but I think I may have just BLOWN THESE GUYS OUT OF WATER with damn near zero recognition. Come on mainstream media, it's a new day and age and you should know by now there are other places to look for analysis other than the big banks that "Do God's work"! Give the little man some luv! You know times are hard when you get featured as the best of the best with only a 38% success rate! Then again, and admittedly, these last few years were very hard - all jokes aside. Let me recast this Bloomberg article in BoomBust fashion.

Published in BoomBustBlog

Is it possible for the US Government to choose to forgive mortgage debt? Sounds outrageous? Read on for the legal theory behind this claim and let me know what you think? I thought it was little esoteric as well, but as I looked deeper... Well, I'll let you be the judge.

A lot of attention accrued to Representative Grayson's calling out of foreclosure fraud, and for good reason. The story is absolutely amazing, and kudos to a member of congress that defends his constituency.

[youtube AqnHLDeedVg]

It's not as if other entities have failed to take notice. ZeroHedge has its usual witty commentary regarding the possibility of foreclosure transactions potentially being unwound due to fraudulent foreclosure activity. The NYT ran an article stating that Fitch will look into lowering the credit rating of companies that participated in the submission of inappropriate foreclosure paperwork, which apparently seems to include an awful lot of companies. It goes on to state (as excerpted by Zerohedge):

Fitch Ratings said that Wednesday it was asking mortgage companies about their internal processes for executing foreclosure affidavits. If it finds the processes lacking, Fitch will consider downgrading the company’s rating.

The agency also said if the issue is widespread, the resulting delays and extra costs to foreclose could increase losses related to residential mortgage-backed securities.

Here's the twist. A lawyer who happens to have followed my writings over the years has suggested that most are missing the big picture in focusing on fraudulent foreclosure documents. He contends (and I'm paraphrasing here, these are not my words, per se) "that since the U.S. has ownership interest in many (if not most) delinquent and distressed mortgages, this fact will be counted as policy in litigation. As a consequence it matters A LOT if you can say that your client has a Fifth Amendment Due Process right (or third party beneficiary Federal common law right) to a HAMP modification which is in FACT a minimization of the risk of default (not that flaky 31% number) BECAUSE, among other things, the U.S. has no economic incentive to foreclose". Now, I am no lawyer and thus the legal issues are beyond my domain, but I must admit I found the theory interesting. So, I've decided to crowdsource this one in anticipation that some of the more astute legal minds can shed some light on the validity of the theory. I'll supply the financial stuff in this post, and I'll rely on the legal eagles to peer review the theory.

Published in BoomBustBlog

We performed an analysis of the correlation of the stock prices of the companies that we have covered over the last two years to the broader stock market. Based on the price movements in the selected stocks and S&P 500 over the last decade, we mapped the pattern seen in the degree of correlation that is exhibited when there are changes in the overall market direction owing to change in the “perceived” macro-situation.

For the purpose of our analysis, we divided the total period under consideration (December 31, 2000 till August 31, 2010) in to four sub-periods reflecting four different market sentiments:

  • Pre-crisis- Dec 31, 2000 -Dec 31, 2007 – Long-term
  • Financial crisis- Jan 01, 2008 to March 09, 2009
  • Rally - March 10, 2009 to April 30, 2010
  • Correction - May 01, 2010 to Present

Based on the daily prices of the stocks and S&P 500 in the aforesaid periods, we calculated the following metrics to analyze the degree of correlation as well the relative price movements:

  • Correlation coefficient
  • Beta
  • Annualized volatility
  • Ratio between stock volatility and S&P 500 volatility
  • Annualized return
  • Z-score – calculated by dividing annualized return by annualized volatility
  • Ratio between stock z-score and S&P 500 z-score

Based on the matrix obtained, we have the following key observations:

Published in BoomBustBlog

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:

Stocks Move with the Market: CNBC

  • 78% of the S&P 500 simply moves with the market and ignores underlying fundamentals
  • CNBC attributes this to the rise of algorithmic trading and death of traditional stock picking, however, correlations have been higher in eras that lacked heavy algorithmic trading

Correlation Soars on S&P 500: WSJ

  • Individual stock correlations to the S&P have reached their highest point since the crash of 1987
  • Movements have forced fund managers from examining long term fundamentals and into quick moves into cash, treasuries, and investment grade corporate debt
Published in BoomBustBlog

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.

Published in BoomBustBlog

Interested parties can check me out on Bloomberg TV tomorrow: "Street Smart" with Matt Miller & Carol Massar at 3:30 pm.

Published in BoomBustBlog

Following up on my Research in Motion commentary in , I'd like to comment on potential future paths for the company. From what I see from their public announcements, I remain as unimpressed now as I was just before (After Getting a Glimpse of the New Windows Phone 7 Functionality, RIMM is Looking More Like a Short Play) and after (RIM Smart Phone Market Share, RIP?) the OS6/Torch launch. The tricky part is that RIMM is now starting to look rather inexpensive relative to consensus earnings and historically projected growth rates. This is where a little strategic foresight comes into play. I have made available for download (for all paying subscribers) the Mobile Operating System Market Share Model which illustrates, on a very granular level, the market share movements (gains and losses)  of the major mobile OS providers.

Research in Motions recent equity share decline stems not only from market share loss, but from the apparent lack of a clear cut and believable plan to stem that market share loss.

Published in BoomBustBlog

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.

Subscribers are welcome to download the document, File Icon The Race for 4G Next Generation Broadband Deployment that illustrates the pitfalls and potential of the race to build out the next generation of high speed cellular networks.

Published in BoomBustBlog

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")

Crain’s New York

“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.

Reggie in Forbes (Going short)

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.

Published in BoomBustBlog