I like Professor Shiller and respect his work. Really, I do, but... Massive bubbles, the sort of the proportion of the 2008 crisis, are nigh impossible to miss if you can add single digits successfully and are able to keep your eyes open for a few minutes at a time. Yes, I truly do feel its that simple. I saw the property bubble over a year in advance, cashed out and came back in shorting - all for a very profitable round trip. Was I a genius soothsayer? Well, maybe in my own mind, but the reality of the situation is I was simply paying attention. Let's recap:

1. The housing market crash in the spring of 2006 and publicly in September of 2007:Correction, and further thoughts on the topic and How Far Will US Home Prices Drop?
2. Home builders falling and their grossly misleading use of off balance sheet structures to conceal excessive debt in November of 2007 (not a single sell side analyst that we know of made mention of this very material point in the industry): Lennar, Voodoo Accounting & Other Things of Mystery and Myth!
3. The collapse of Bear Stearns in January 2008 (2 months before Bear Stearns fell, while trading in the $100s and still had buy ratings and investment grade AA or better from the ratings agencies): Is this the Breaking of the Bear?

We all know what happened after this part. Well, 5 years later, before we even ran off the effects of the last crash, things are looking bubblicious again and again very few are facing facts. Reuters/CNBC reports "Nobel Prize Winner Says Housing Market Looking A Little Bubbly":

Robert Shiller, who shared the 8 million Swedish crown ($1.25 million) prize with fellow laureates Eugene Fama and Lars Peter Hansen, said the U.S. Federal Reserve's economic stimulus and growing market speculation were creating a "bubbly" property boom.

You think so?!

The Royal Swedish Academy of Sciences lauded the economists' research on the prices of stocks, bonds and other assets, saying "mispricing of assets may contribute to financial crises and, as the recent global recession illustrates, such crises can damage the overall economy."

This was the case in the collapse of the U.S. housing market, which helped trigger the 2008-2009 global financial crisis. Markets are at risk of committing the same error now, Shiller told Reuters after learning he had won the Nobel prize.

"This financial crisis that we've been going through in the last five years has been one that seems to reveal the failure to understand price movements," Shiller said.

Bubbles are created when investors fail to recognize when rising asset prices become detached from underlying fundamentals.

Shiller and other economists warn that prices in some markets have risen too far, too fast due to the Fed's ultra-easy monetary policy. The benchmark U.S. Standard & Poor's 500 index hit a record in September, though it is generally not considered overvalued based on expectations for corporate earnings results or economic growth.

Shiller's work led him to suggest in 2005 that the U.S. housing market might be overheating. He helped create a closely watched gauge of housing prices, the S&P Case/Shiller Index.

In June this year, he pointed to a potential new housing bubble in some of America's largest cities. 

"It is up 12 percent in the last year. This is a very rapid price increase right now, and I believe that it is accelerated somewhat by the Fed's policy," he said.

China, Brazil, India, Australia, Norway and Belgium, among other countries, were witnessing similar price rises. "There are so many countries that are looking bubbly," he said.

The Fed has held U.S. interest rates near zero since late 2008 and almost quadrupled its balance sheet to around $3.7 trillion through a campaign of bond buying, or quantitative easing, to hold down long term borrowing costs.

Bloomberg TV & Reggie Middleton on the Flawed Case Shiller Index: "That's what they said in Japan about 12 years ago, look where they are now!"

Previous opinions on the topic...

Is There A Bubble In The Canadian Condo Market? We Drill Down Into The Facts To Find Out

Before I get started, I just want everyone to know that I always declared that There's Something Fishy at the House of Morgan (Wednesday, 27 April 2011). Here are a few historical graphics to bring you up to speed to what should now be painfully obvious, re: JPM!

I have warned of this event. JP Morgan (as well as Bank of America) is literally a litigation sinkhole. See JP Morgan Purposely Downplayed Litigation Risk That Spiked 5,000% Last Year & Is Still Severely Under Reserved By Over $4 Billion!!! Shareholder Lawyers Should Be Scrambling Now Wednesday, March 2nd, 2011.

Traditional banking revenues: manifest destiny as forwarned - Weakening Revenue Streams in US Banks Will Make Them More Susceptible To Contingent Risks

Okay, now back to today's news...

JP Morgan reported this morning and we got more of the same, simply that much harder to ignore. On Thursday, 06 January 2011 I posted "As JP Morgan & Other Banks Legal Costs Spike, Many Should Ask If It Was Not Obvious Years Ago That This Industry May Become The "New" Tobacco Companies". Today Bloomberg reported JPMorgan’s Dimon Posts First Loss on $7.2 Billion Legal Cost to mounting litigation and regulatory probes. No surprises here. We saw it coming two years ago and warned accordingly. As excerpted:

The third-quarter loss was $380 million, or 17 cents a share, compared with a profit of $5.71 billion, or $1.40, a year earlier, the New York-based company said today in a statement. Shares of the company rose 2.6 percent at 7:50 a.m. after profit adjusted for one-time items beat analysts’ estimates. 

...The pretax legal charge was $9.2 billion, compared with $684 million a year earlier. Litigation reserves at the end of September were $23 billion, the bank said, adding that “reasonably possible” losses in excess of those reserves were $5.7 billion.

And the (now perennial) kicker...

JPMorgan rose to $53.90 in New York trading from $52.52 at the close yesterday. Earnings adjusted for one-time items were $1.42 a share, exceeding the $1.30 average estimate of 20 analysts surveyed by Bloomberg.

Pray thee tell me, how many times do "one time" items have to occur before they're no longer considered "one time" items???!!! JP Morgan "found" earnings in the form of reserve releases (again), from the press release:

$1.60 billion pretax benefit; $992 million after-tax ($0.26 per share after-tax increase in earnings) from reduced reserves in Consumer & Community Banking

Now, we've seen this movie before haven't we? The following is an excerpte from a post I made TWO YEARS AGO!:

Wait a minute! If Reggie Middleton complained about reserve pulling and legal expenses 1,2 and 3 years ago and was proven right, how are the occurence of these items in 2013 to be considered "One Time" items????

Exactly!

ZeroHedge puts itsuccinctly: 

In short: of the firm's $1.42 in pro forma EPS, a whopping $1.59 was purely from the addback of these two items.

 As per Bloomberg: IMF says Greece will miss bailout target

The International Monetary Fund published a report predicting that Greece's 2014 budget surplus will fall 0.4 percentage points short of the 1.5 percent gross domestic product mark required by the terms of the country's international bailout. Greece was previously thought to be on track to meet the surplus target, but the forecasts were overoptimistic.

Get the hell outta here! Optimistic! Really? From the IMF???!!! As I channel my post from 2010, aptly titled "Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!"

image005.pngimage005.png

Notice how dramatically off the market the IMF has been, skewered HEAVILY to the optimistic side. Now, notice how aggressively the IMF has downwardly revsied their forecasts to still end up widlly optimistic. image018.pngimage018.png

Ever since the beginning of this crisis, IMF estimates of government balance have been just as bad...

image013.pngimage013.png

... The EU/EC has proven to be no better, and if anything is arguably worse!... If the IMF was wrong, what in the world does that make the EC/EU?

The EC forecasts have been just as bad, if not much, much worse in nearly all of the forecasting scenarios we presented. Hey, if you think tha's bad, try taking a look at what the govenment of Greece has done with these fairy tale forecasts, as excerpted from the blog post "Greek Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on Fire!...

Alas, I digress. Back to the Bloomberg/IMF snippet...

Tax collection is sagging; Greece is still in recession; and privatization is proceeding much slower than planned.

But this was quite evident last year as Greece failed to achieve Primary Balance and was slipping ever so farther away from that rather lofty (at least to most of continental Euope on a real, applied basis) goal. Don't say you didn't know, because I told you so, and on a European broadcaster as well...

And back to our snippet of the day...

The Greek finance ministry immediately responded to the new IMF projection, saying the government would do whatever was necessary to achieve a surplus of 1.5 percent GDP: cut spending, step up tax collection or both.

Oh yeah, that will work just fine. Cut off your legs to reduce your weight and drag so you can run faster. Does anyone in these financial ministries know anything about FiNANCE???!!! 

Further cuts, however, may be politically untenable: The country is already in turmoil over the government's austerity measures. Meanwhile, failure to reach fiscal targets may delay further aid from both the IMF and the euro area. A new Greek crisis is a distinct possibility for next year.

Uhhh. PSSST!!! But, we haven't finsighed the "OLD Greek crisis" yet, you know the one I warned you about in 2010! From my 2010 article for subscribers, Greek Debt Restructuring Analysis - Professional, I excerpt as follows:

In 2012, Der Speigel ran an article stating what I told my subscribers for the two years previous - Greece was in a hole that it simply couldn't crawl out of. From the piece aptly titled "Greece Fulfills Its BoomBustBlog Derived Destiny - Shows This Time Really Isn't All That Different After All!!!":

I believe I was one of the very few to declare Greece a foregone default in February 2010 (I Think It’s Confirmed, Greece Will Be the First Domino to Fall and then with with more specificity a month later As I Explicitly Forewarned, Greece Is Well On Its Way To Default, and Previously Published Numbers Were Waaaayyy Too Optimistic!).
By the 2nd quarter of 2010 I was one of the very few to clearly and articulately detail exactly how Greece would default with specific structures in play- What is the Most Likely Scenario in the Greek Debt Fiasco? Restructuring Via Extension of Maturity Dates. Due to a few institutions who were skeptical, I attempted to make it a bit more real - A Comparison of Our Greek Bond Restructuring Analysis to that of Argentina.

Well, Greece defaulted according to plan, despite all of the "people in the know" saying otherwise -Greek Crisis Is Over, Region Safe”, Prodi Says – I say Liar, Liar, Pants on Fire! - from government officials tothe EC and IMF - Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! Even after the default, I made clear that this wasn't over for Greece, for the default actually left Greece worse off fundamentally, not better. Go wonder... I know I did, reference the warning from 5 months ago:

This will be exacerbated by a re-default of the Greek debt that was designed to bail out the defaulted Greek debt. Why will this happen? Greece has severe, rigid structural
problems that simply cannot (and will not) be solved by throwing indebted liquidity at it. As a matter of fact, the additional debt simply exacerbates the problem - significantly! This was detailed in the post Beware The Overly Optimistic Greek Speculators As Icarus Comes Crashing Down To Earth!

Alas, I digress. Back to the der Spegiel article...

According to a preliminary troika report, the additional shortfalls are the result of lower than expected tax revenues due to the country's ongoing recession as well as a
privatization program which has not lived up to expectations. The troika plans to calculate the exact size of the shortfall when it returns to Athens at the beginning of next month.

I'm sorry, but I simply cannot resist. This article was posted on BoomBustBlog in July of 2011 - Greek Asset Sales Fall Short, As We Virtually Guaranteed They Would In Spring 2010.
In it I reviewed how the BoomBustBlog team detailed EXACTLY how bullshit the privatization plan was, in explicit detail - in the spring of 2010. THAT WAS MORE THAN TWO AND A HALF YEARS AGO, PEOPLE!!!
If a blog can have this much foresight, with this much specificity, than what does one make of this so-called troika??? As excerpted:

This is a tragic Greek comedy. Professional/institutional subscribers should reference the Greece Public Finances Projections 2010-03-15 11:33:27 694.35 Kb in its entirety.
For those who chose not to subscribe, I am posting excerpts from pages 5 and 6 from said document, don't read this while eating or drinking for fear of spitting up your lunch!

Any subscribers who would have went heavily bearish into these banks when I first commented on the would have done quite well:

•  Banks exposed to Central and Eastern Europe
•  Greek Banking Fundamental Tear Sheet

Okay, I digress - yet again... With such excessive bullshit, one does tend to get thrown off track. Back to the der Spiegel excerpts...

The news of the potentially greater financing needs comes at a sensitive time for the country. Many in Europe, particularly in Germany, are losing their patience and there has been increased talk of the country leaving the common currency zone. Over the weekend, German Finance Minister Wolfgang Schäuble reiterated his skepticism of additional aid to Greece. "We can't put together yet another program," he said on Saturday, adding that it was irresponsible to "throw money into a bottomless pit."

Well, my friend, if you had that BoomBustBlog subscription, you would have known before you spent that first euro that Greece was a bottomless pit. Let me reiterated what I pasted up top... This situation will simply get worse, considerably worse. I demonstrated in the post The Ugly Truth About The Greek Situation That's Too Difficult Broadcast Through Mainstream Media that anyone who purchased the last set of bailout bonds from Greece will simply lose their money as well (that's right, just like those who purchased the previous set) since Greece is still running deep in structural problems and can't afford the interest nor the principal on its borrowing. It's really that simple. And guess what? Anyone who dips new money into Greece now will suffer the EXACT same fate!

As excerpted from Greece Sneezes, The Euro Dies of Pneumonia! Yeah, Sounds Bombastic, Yet True!

Wait until a 2nd Greek default (virtually guaranteed as we supplied user downloadable models to see for yourself, the same model used to forecast the 1st default) mirrors history. Of the 181 yrs as a sovereign nation after gaining independence, Greece been in default 58 of them. Don't believe me! Check your history, or just read more BoomBustBlog - Sophisticated Ignorance Or Just A Very, Very Short Term Memory? Foolish Talk of German Bailouts Once Again...

image022image022

Greece's default will hit an already bank NPA laden Spain quite hard: The Spain Pain Will Not Wane: Continuing the Contagion Saga and ditto with Italy "As We Assured Clients Two Years Ago, Italy's Riding The Broken Promise Express To Restructuring". Once Italy gets hit, the true bank runs will start as socialist France (the so-called half of the EU anchor) loses control of its banking system. Reference "As The French Bank Runs....": 

Saturday, 23 July 2011 The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!: I detail how I see modern bank runs unfolding

Will Greece Set Off the Pan-European Sovereign Debt Crisis?

About 6 months ago I said "Economic Depression Is The New Success". In said article, I forcast serial European bank runs, to wit:

From the BBC: Iceland's 'tenacity' lifts economy out of crisis

Whisper it - Iceland's economy is on its way back. The frozen island on the edge of the Arctic, which had 10 straight quarters of shrinking GDP, is suddenly on a steady run of seven quarters of growth averaging at 2.5% per annum - something that few European countries can boast. Unemployment has fallen to just below 5% and confidence is returning...

Ready! Set! Bank Run!!!

Cyprus contagion raw

Subscriber downloads below (click here to subscribe):

• •  Sovereign Contagion Model - Retail (961.43 kB 2010-05-04 12:32:46)
  •  Sovereign Contagion Model - Pro & Institutional

Well, today Bloomberg reports "Icelanders Run Out of Cash to Repay Foreign Debts: Nordic Credit". Basically, as percieved to be cut off from foreign markets, Icelanders are running out of non-Krona denominated cash to pay off foreign debts. Here's more on the dilemma:

Non-krona debt owed by entities besides the Treasury and the central bank due through 2018 totals about 700 billion kronur ($5.8 billion), the bank said yesterday. The projected current account surpluses over the next five years aren’t estimated to reach even half of that and will equal a shortfall of about 20 percent of gross domestic product.

The nation faces a “repayment risk of foreign debt by private entities in the economy, who don’t have access to foreign financial markets,” Sigridur Benediktsdottir, head of financial stability at the Reykjavik-based central bank, said yesterday in an interview. “We view this as being exacerbated or made worse by the fact that our current account is actually declining.”

Prime Minister Sigmundur David Gunnlaugsson has said Iceland’s foreign exchange shortfall is “a matter of huge concern” as he tries to scale back currency controls in place since 2008. The government’s biggest challenge is to allow capital to flow freely without triggering a krona sell-off that would cause Iceland’s foreign debt to spike and undermine the nation’s economic recovery.

Wait a minute, if the Icelandic debt spikes, what happens to the Icelandic banks banks whose primary government bond (aka "risk free", ahem...) holdings happen to be Icelandic. Here's a hint: The Anatomy of a Europan Bank Run!

Last week I queried "Is There A Bubble In The Canadian Condo Market?" We Drilled Down Into The Facts To Find Out and offered our researched opinion to paid subscribers (see below). Boombustblogger backwardsevolution has shared some interesting charts that appear to go straight into the heart of the matter..

All paying subscribers, feel free to download.

 Is There A Canadian Condo Bubble? (Residential Real Estate)

Non-subscribers can purchase this report through a day pass subscription via PayPal or Credit Card. 

Apple's flagship device, the iPhone 5S is facing tremendous competition from Android powered handsets. We now have devices that cost more then 15% less than the premier iPhone, yet run circles around the Apple flagship in nearly every single worthwhile category.Unlike the Android beasts of the recent past (sans the Samsung Galaxy series) these newer Android devices aren't only geek and engineer's toys - they are coming to market backed by centimillion dollar marketing budgets. If you remember, this is how Apple caught the crown.

Now, it's not as if Apple can't do better from an R&D, engineering and production perpective - it can. It's just that the company is trapped, hamstrung, by its need to incessantly safeguard its above industry average margins. Of course, whatever goes up, must come down, and we'll be seeing more of that in Apple in the coming quarters.

The "S" products are Apple's method of stuffing margins by selling what is essentially a commodity product at a premium price. Essentially, they recycle last year's model with a new chip and camera and relaunch it as essentially a new device. They have gotten away with this for some time now, but over the last year, the Android onslaught has been so aggressive that as Apple stuffs margin in lieu of innovating, the Androids pull ahead in capability and innovation while at the same time effecively dropping prices. The result is now very obvious as the video below, put together in the NYC Grand Central Station Apple store, attests to...

Following up on Deconstructing The Most Accurate Apple Analysis Ever, I am offering subscribers an updated valuation of Apple now that it has fallen to EXACTLY where I warned subscribers in October (the week of its all-time high of about $707 it would fall) to. After playing with the iPhone 5 for about a week, I told subscribers to expect the stock to bounce up against the pessimistic band of our valuation analysis. Apple last traded at $420, this is how I put it 5 months ago...

This report is still available for download to paying subscribers:

•  Apple 4Q2012 update professional & insitutional
  
•  Apple 4Q2012 update - retail

With this report and Apple's subsequent ~40% or so drop, we have profited from Apple on both the long and short sides (After My Contrarian Calling Apple's 3rd Miss Accurately, I Release My Apple Research Track Record For 2 1/2 Years)

Now it's time to discuss where the stock will go from here. Valuation and specifics are the purview of paying subscribers only. All subscribers may email me for my valuation numbers (a quick summary only) and professional/institutional subscribers may contact me for a 5 minute discussion on this topic. I will have an updated valuation report out with 48 hours, likely by tomorrow midday. In the meantime I'll share a smattering of metrics, facts and trends that the sell side is still refusing to face. Let's dance, shall we?

Apple Is In Trouble – Plain & Simple!

Apple has successfully transformed itself from a portable and desktop computer company to a mobile device company, and managed to do so right at the crux of the mobile computing boom. As such, it has benefited mightily, briefly becoming the largest and most respected company in the world. Alas, what goes up must eventually come down. The largess revenues and margins gleaned by Apple brought massive competition, and in the case of Google’s Android, business models specialized in gutting the fat margins which caused Apple to prosper. As a result, margin compression ensued, but very few actually saw signs of it until it was too late (reference Deconstructing The Most Accurate Apple Analysis Ever).

Take note of the chart below which show Apple’s expenses at the corporate level spike.

The spiking of expenses is corroborated by nearly all fundamental profitability metrics. Before delving into these metrics, let’s review how they margin compression is actually being leveraged. You see, Apple’s margin problem is not emanating from just aggressive competition with smart business models, ubiquitous cloud services (Google) and low cost means of production (Samsung). Apple is now paying the piper for its shift into mobile by having its pipeline effectively saturated with mobile products, thus nullifying the margin expansion that the move into mobile products have brought on. Mobile products had higher margins than their desktop/laptop counterparts. The chart below shows Apple as a nearly completely mobile products company.

Now, one may say, “but even if they have turned completely into a mobile products company, margins should stabilize, not compress!”. How true, young grasshopper, except for the fact that as Apple has nearly completed its transformation, Google has started compressing margins in the mobile space, which has in turn started to put pressure on the margins of this nearly completely transformed company. Look at the progression of the revenue/product mix over time.

As can be seen from the chart below, Apple is not a phone/tablet company…

From margin perspective, one may see an extra hit to margins as Apple has actually had a relative increase in Mac sales, whose margins are materially lower than iPad and iPhones. This will be compounded by iPhone 5 and iPad mini sales, both of which have lower margins than the products they replaced or are cannibalizing.

Now, follow the trend in entity level margin compression (below) while cross referencing the (the product mix revenue above) and you will see that there is a near saturation of mobile products, with lesser margin tablets and even lower margin notebooks creeping in over the last three quarters…

As a matter of fact, this has been the largest drop in margin (in terms of %) since I’ve followed the company.

Oh, and BTW, you can have shrinking margins AND shrinking market share, re: 4:58 in this CNBC video below (watch the whole clip if you haven't seen it before).

 Stay tuned. Tradable numbers will be forthcoming to subscribers (click here to subscribe) within 48 hours. To all retail investors (pros should know better) who do not subscribe, please do not attempt to read into what's in the subscription material by guessing from my public posts. All of the opinion and analysis that I make public has been of extremely high quality and quite accurate in aggregate, but it was not intended to be used as investment advice. That is what you pay for.

Samsung has started selling the newest edition of its venerable Note series, the Galaxy Note 3. Those of you who follow me know that I have predicted Samsung taken the reigns from Apple with its Android powered Galaxy series of phones as far back as 2011, reference Deconstructing The Most Accurate Apple Analysis Ever Made ....

This prediction came true and the financial positions based upon it paid off - in Spades!!! I also made additional observations, most notably that Google's Android business model will bring about margin compression across the board and not in just the Apple camp. Was I right? Well... Samsung Follows Footsteps Of Apple, HTC, Nokia - Wasn't That Quick?

The launch of the Galaxy Note 3 shows several things:

1. Samsung has been extremely successful in creating and defending market niches
2. Samsung has beat Apple at its own game of volume plus (not or, but plus) premium pricing
3. Samsung is trying to go for margin by selling its devices at a premium 
4. Samsung's success may be its downfall, just as was the cast with hubristic Apple management. Heavy hardware R&D was not the order of the day. Combine this with the fact Samsug's (and Apple's) runaway success in terms of sales volumes naturally meant that they will have problems in procuring the best components, particularly when the manufacturers/vendors of said components are your direct competitors. This happened to Apple buying chip/memory/CPUs from Samsung, screen and camera tech from LG and Sony, etc. The Android less then free model has turned contractor and vendor into enemies. Now, Samung is facing the same problems that took its erstwhile, yet defeated enemy down.

This is most notable in the lack of OIS (optical image stabilization) in the Samsung Note 3. Basically, this physical feature allows for the device to take more accurate, sharper and accurate pictures given the same amount of resources. The note was slated to have this feature, but it fell through because the vendor couldn't produce the volume needed to satisfy the needs and demands of Samsung's flagship device.  That or the competition didn't want Samsung to have it, just like Samsung didn't want Apple to have its best component technology.

I want you to look at the difference this provides in both still photography and videos...

The Note 3

Teh G2...

The Note 3...  

The G2...

 The Note 3...

The G2

t's not just the still camera that's significantly better. The video is smoother, sharper, clearer and faster - at up to 60 frames per second in full HD (the Note 3 records in 4k UHD, but since the screen doesn't support that resolution it's very difficult to guage quality. When I tested it, it still paled to the G2's 1080p results.

Now, Samsung did attempt to compensate by adding what is called digital image stabilization. This is basically software interpreting and attemptin to replicate optival image stabilization. It just doesn't work - not in this case nor any other case that I know of.

The LG G2 screen is brighter and more crisp than the Samsung flagship. The form facter displays better engineering chops in my opiniom through designe and is more compact due to the control buttons being on the back of the phone. The G2 bits a 5.2" screen into a device the size of a Galaxy S4. The Note's screen is on 5.7", a mere half inch larger in a device well over an inch bigger. Granted, it does have a Wacom digitizer and pen, but I used it rarely after the novelty wore off. The battery life in the G2 is also vastly superior. 

All of this in a device that retails for a full $200 less than the Galaxy Note 3. Do you remember what happened to Apple when it started charging a truly undeserved premium for its phones?

Next up, we look into what the new Apple iPhone 5S and 5C portend for Apple investors and speculators, then we move on to security. How do  you secure your phone and communications from the NSA, nosy people, or devious hacker types.

Within two years of getting the mobile computing crown (toppling Apple and insuring that Nokia and Blackberry didn’t stand a chance), Samsung is already prepping to relinquish it. I know, the hoi polloi screams from the common street analyst’s rooftop, incessantly chanting “… but Samsung is dominating handset sales, creating and literally owning categories, and essentially out Appling Apple!”

Well, the reason why I apparently out-maneuver the Street in this space (as in others) is not vastly superior intellect nor a LiPoSilica Oxide powered crystal ball borne from some extraterrestrial technology. It’s actually so much simpler than all of that.

I pay attention!

If you look at the rise and fall of:

1. Blackberry (formerly known as RIMM, reference When Berries Go Bad)
2. Apple (formerly known as unbeatable New Apple Research Coming Up, But BoomBustBloggers Don't Need It For Apple's Performed Exactly As I've Forecast!)
3. and Samsung (currently [and ignorantly] known as the market leader, reference Samsung Follows Footsteps Of Apple, HTC,…and Samsung Will Be Ready To Do That Fruit Thing, Just Like Blackberry & Apple - Courtesy Of Google, #MarginCompression!

You will see an undeniable patter of revenue and profit peaks, then revenue peaks (sans the profit peaks), then outright margin compression. I’ve pointed each out in explicit detail to subscribers, causing me to wonder why I’d send the alarm on Samsung for freeJ. Well, there’s a reason for everything!

Once it comes to profitability and margins, We Reached "Peak Premium Smartphone… Ignoring raw fundamentals and margins, let’s look at the newest crop of hardware. The much ballyhooed Samsung Galaxy S4, although breaking sales records, produced much less revenue that both Samsung and its analsysts anticipated. From a technological standpoint, it's simply a spec bump from its predecssor (the S3) and a collection of software gimmicks with the hope of eventually forking Google's Android in an attempt to stem the inevitable margin compression tide coming down the pike.

The upgrade to the pre-eminent phablet, the Samsung Note 3, was much anticipated by many - including yours truly. Again, it was essentially just a spec bump (using widely available components, at that) that didn't even have the top of the line specs due to Samgung's extreme success as of late.

You see, because Samsung sells so many phones now, it just can't simple procure the best and the latest tech to incorporate into its gadgets. It has engage into very heavy supply chain management and logistisc, ala Apple. Samsung is also encountering the same foibles that Apple did, namely supplying what seems like insatiable demand - even if that means including inferior parts. The Note 3 uses essentially the same Sony sourced Exmor camera that the Galaxy S4 uses (as well as about half the market) with not jump in specs. Performance was reached (or at least they tried to reach it) by using additional software tricks and gimmicks such as digital image stabilization (essentially, fancy cropping and interpolation). This was done because the hardware components that allow for lossless/noiseless optical image stabilization were not available to Samsung in the volume that it needed. This is important, because the camera is one of the most important and oft used parts of a smart phone. Samsung has basically upgraded the Note 2 via a faster commoditized CPU and screen while its competitors have leapedfrogged it in both performance and innovation by truly creating something different, better, and useful.

Does this some familiar? Reference 

 Deconstructing The Most Accurate Apple Analysis Ever Made - Share Price, Market Share, Strategy and All

Next up, I will show you - visually, how Samsung has already done the Apple thing. After that, we will address the abysmal state of security in the mobile realm and how government disinformation strives to keep it that way. Most importantly, for my subscribers, I will walk you through exactly what it is you can do about it.

The WSJ reports - BlackBerry to Slash Workforce by Up to 40%: Layoffs to Cut Across All Departments as Phone Maker Confronts Shrinking Sales. This was a foregone conclusion. If you remember, we called the very profitable Blackberry (then RIMM) short in 2010. With the advent of the new touch screen Z10-type devices, the stock rallied as many thought Blackberry had a snowball's chance in hell. They didn't! Even if Blackberry was on plane technically, which I feel they weren't for their devices were on par with many Android/Apple at launch, but Android's innovation/development/growth rate is off the chart. This means that whatever is cutting edge this quarter is old hat 3 quarters from now. 

How could Blackberry keep up with this pace? They simply can't. Even if they could, there's this issue of margin compression. You see, as tech in the Android space advances, the prices drop - precipitously! Let's reminisce, referencing Blackberries, Apples & Fruit Borne Successitis - The Problem With Excess Profits Is Hubristic Management Tends To Take Eyes Off The Prize!!! 

- or-

Looking Through Windows To See The Big Data On Fruit - Or Android Gets 'em Again

In early 2010 I warned on Blackberry (then RIMM), with market share loss to Android being the prime determinant... Many More Black Eyes for the Blackberry? A Complete Forensic Analysis of Research in Motion. I put significant data out in the public domain to illustrate my point and put explicit price points out for subscribers, ie. RIM Smart Phone Market Share, RIP? Was I right?

Blackberry market share vs margin correlation analysisBlack

I explained this in detail in the post "Cost Shifting Your Way To Prominence Using The Network Effect, Or Google Wins - Apple, RIM & Microsoft Have ALREADY LOST!". Failure to achieve the network effect effective is tantamount to a failure to be able to control you margins, long term. Of all people to of know this, who do you think preached it most convincingly? 

Margin compression was sure to kill Blackberry, even if they did hit their sales numbers, which they didn't and couldn't!!!

This is how Google did it...

Reference our Blackberry research as well...

Right On Time, My Prediction Of Apple Margin ... - BoomBustBlog

After reading an interesting article in the New Scientist, How NSA weakens encryption to access internet traffic, I was brought to mind a piece that I wrote to address the single most powerful tool in the NSA's arsenal - the blatant ignorance of the common tech enduser. I wrote intensely on this topic in What Angela Merkel Could Learn From Me and Using Glass To Spy On The Spies, to wit:

"...you can see how and why Android is safer to the populace than all of the popular competition. Windows and iOS all have the same problems, except for the facts that

• • You dont have access to the code

• • You don't have the ability to submit changes to even be considered for acceptance

• • With Android, you don't need for Google to accept your personal changes, you can simply roll your own personal version and use it for yourself which should be the preference for the paranoid types. You can't do this with any other popular OS.

• • The amound of independent eyes on Android trumps that of any other OS, by far. If something has a chance of getting caught (ex. spy code) it will likely get caught on Android code base. This has already happened, read XDA developers code posts for the HTC Evo"

On that note, quoting the piece from the New Scientist, How NSA weakens encryption to access internet traffic:

The Snowden files say the NSA spends $250 million a year on covertly influencing the product designs of technology companies, suggesting inserting such vulnerabilities is a high priority for the agency.

It could also be swiping keys directly from online service providers, says Kuhn. The TLS encryption protocol, which puts the "s" in secure https connections, relies on servers storing a secret key to decrypt incoming messages or transactions. The NSA could bribe a system administrator or otherwise infiltrate the organisation to gain access to these keys, allowing it to decrypt any intercepted traffic to the relevant server.

To avoid the NSA's gaze, Kuhn says people should turn to open-source software, where many people evaluate the underlying code and can identify any attempts to weaken it. "There is going to be a lot of pressure on IT decision-makers to justify why they gambled the security of their infrastructure on some close-sourced offering that is very likely infiltrated by NSA programmes."

There's also the news pieces stating that the NSA can access the personal information on popular handsets, including Blackberry, iOS and Android handsets. The NSA apparently had problems with the Blackberry devices, for about a year. Then again, knowing that Blackberry simply handed the keys over to the Indian government, I wouldn't have felt very secure, even for that year.

There are many reasons to avoid closed systems, with security and government systems being just two. There's also downright, market based innovation, as illustrated in this CNBC clip from Thursday...

Here's an example of the innovation that I use for privacy and control - CyanogenMod introduces system level encryption for messaging. The ability to have code scoured, cleaned, and fixed by tens of thousands of others will beat the efforts of any single company - any time of the day. If you really care about your privacy, you should think twice about iOS, Blackberry and Windows.