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Bo Peng
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I run a fund based on automated trading and technical analysis. But my favorite pastime is thinking and talking about political economy. I guess I'm George Soros. Writing helps clarifying my thinking. All opinion expressed here is mine, wholly mine, nobody's but mine. And all trading/investment... More
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  • Short Squeeze On Apple Is Over. All Clear For Shorts.

    (I submitted this article to SeekingAlpha on 4/25, the day after AAPL's earnings. Unfortuantely they decided not to publish it after a long process. In the meanwhile, AAPL has dropped >5%.)

    I know, the road of predicting Apple's (NASDAQ:AAPL) top is paved with tombstones. But this has never stopped people from trying. I thought it's time I made my contribution.

    I got into the Ready stage when Steve Jobs passed away (here and here). It turned out to be too early, as I cautioned. I've been watching it since, was tempted a few times but never pulled the trigger, and missed some short opportunities as a result. But there are still plenty of short juice left. Here's why.

    1. The New iPhone is a faint shadow of its predecessors in the wow factor, and loaded with small but annoying problems. And the coolest thing about the next iPhone is "liquid metal"? OK, it sounds cool. But look at the thingy you use to ply out the simcard (I thought human civilization has moved past the lowly trick of using proprietary sockets and little widgets after USB, but Apple shall remain forever behind). Yup, just more of that.

    As I had predicted (and feared), innovation at Apple has taken a huge hit after Jobs. It's not what Mr. Jobs had done personally in design or the talent pool at Apple; it's how he had spotted talent, organized them, and made good judgments. Steve Jobs was a great visionary leader. Tim Cook may be an excellent manager, but so far nothing in his track record demonstrates that he's a visionary. And it continues not to demonstrate that, confirming my earlier call.

    2. The landscape of consumer electronics can shift in a heartbeat. If you slow down in innovation, you can go from throne to slaughter house in a year. Look at Sony (NYSE:SNE), Nokia (NYSE:NOK), and RIM (RIMM), among many others. Apple's vast cash pile will be helpful, but it's a secondary support role and can never make up for Steve Jobs.

    3. Competition will only intensify in the future. Android shows no sign of slowing down and will continue benefiting from the competitive and open nature of multiple manufacturers. Samsung (OTC:SSNLF) is never far behind. And Google Glass will be the death knell to Apple, for both the iPhone and iPad, when it comes out. I doubt it was an accident that AAPL topped right on cue of the Google Glass news.

    4. OK, now China saved Apple. That's fantastic. How about going forward, though? First, there have been many signs of China slowing down; the only question seems to be how hard the landing will be (I still maintain my earlier prediction of a relatively benign landing). My favorite story is that a Rolls Royce stretch dropped 100 million Yuan (~$16M) at this year's Beijing Auto Show from last year -- the price last year was for a "package" (no it's not what you think you pervert) but still.(click to enlarge)

    I can't find hard data on Apple's market share in China. But everybody there who wants and can afford to be cool seems to have at least one iThingy, including college kids on borrowed money (just like here). Note that phones are not subsidized by carriers in China; a 32G iPhone4S goes for about 5000 Yuan ($830), or one month's untaxed salary for a decent white-collar job even in major cities. Everybody else has Android. I seriously doubt Apple's growth story can go on for longer than a few months -- it has been too much of a frenzy to last. It may maintain the market share for longer; but the growth will zero soon.

    In summary, Apple's lack of innovation post-Jobs has confirmed the fear, Google Glass poses a huge threat, and the huge surge in China sales is not only unsustainable but also likely a one-time phenomenon.

    I wrote this the day after earnings. During the time this article was in the queue, the persistent decline in the three days post-earnings has confirmed that the surge was nothing more than a short squeeze. As always, you need to be paranoid when shorting AAPL; take profit often and cut loss early.

    Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in AAPL over the next 72 hours.

    May 02 2:23 AM | Link | 1 Comment
  • No Iranian War
    The recent capture of super-secretive RQ-170 drone by Iran likely means the world can rest assured there won't be an Iranian War for quite awhile.

    Bloomberg has a very good analysis of how the drone was likely captured, as opposed to "landing on its own free will." Being more secretive than Top Secret and with its very existence denied until a photo surfaced recently, the drone has multiple fail-back mechanisms in case of lost communication and/or control, which includes returning to base, holding pattern, and lastly self-destruct. As shown by the Iranians, the drone is certainly not shot down, nor did it have a hard-landing, assuming what was shown is the real thing, confirmed as "appears to be" the case by "three US defense officials." It is extremely unlikely that all the fail-back mechanisms failed in the same mission, short of an extrme case of Murphy's Law.

    What does this mean? Somebody has intercepted and decoded the communication between the drone and satellite, blocked it, sent their own control signal to the drone, and took over the cool RC toy. This is highly sophisticated stuff, so sophisticated that nobody would've believed before the story that anybody on Planet Earth, circa 2011 AD, is capable of doing.

    What does this mean? Satellite communication is one of the critical pillars of US military infrastructure. If its reliability and information security cannot be trusted beyond any reasonable doubt, then the US would be at a potentially disastrous strategic and tactical disadvantage against a competent enemy. The implication is that the US may find it necessary to rethink and rework its entire military infrastructure and strategic as well as tactical handbook. We're talking about decades and trillions of dollars. Military strategists have been thinking and/or worrying about for decades a disruptive technology that can subvert US military supremacy as the Dreadnought did to the earlier era of naval warfare. Could this be it?

    This overshadows the damage of any potential leak of technology carried in that drone, according to my calculation, by about 3,547,912.5821 times.

    So, there's no Iranian War, at least not before the US can be sure that that drone was not actively captured.

    Dec 11 3:48 PM | Link | 2 Comments
  • Brace For Euro-induced Bloodbath
    Overnight, the mysterious evil bond vigilantes not only launched another attack on Italy (didn't they just renew the ban on naked short sell?), but also set their sights on Spain. I have a hunch that this might be bad news, though with today's market you never know.

    Back in early August, when bond vigilantes' Assault of 2011 was just starting, I was cautiously optimistic that Eurocrats might, if only barely, be able to hold things together this time. Since then, I have been increasingly acquiring a sense of awe over the seemingly inexhaustible and inexplicable ingenuity of Eurocrats in their relentless pursuit of experiencing all 4,819 ways of Painful, Slow Suicide. They have managed to severely punish everybody, including MF Global and Goldman (NYSE:GS), who has the audacity of placing any trust, confidence, or hope on them. How dare you.

    Could this be It, the climax after what seemed like never-ending dry hump? In any case, it's very likely that eurozone is finally finding itself at the fork in the road: they either get serious about saving the euro or call it quits. I shall refrain from making any suggestions, of which I'm sure more than enough have already been offered by people much better qualified. Suffice it to say here that it will be an interesting day.

    Aside from the usual, expected, boring stuff -- equities crash, dollar surge, commodities crash, gold crash, possibly even US treasuries crash, more intriguing and revealing will be the following:
    1. What happens in CDS land -- will it price in the possibility of non-triggering haircuts in Italy/Spain/France? If banks ultimately agreed to be volunteered on the Greek haircuts, ostensibly the same calculation could hold in the case of Italy/Spain/France, except on a scale that's a few orders of magnitude bigger.
    2. Will there be bank runs in peripheral (which now includes France apparently) and transfer of deposits to the core (Germany)? It's already happened, silently, in Greece. Will it happen in Italy now especially that Unicredit has been exposed?
    3. How far and wide will deleveraing chain reaction go once started by banks? It's hard not to link the recent selling of Chinese bank stakes by US banks to the euro crisis, aside from concerns on Chinese banks and economy itself. What will they sell next?
    4. How stressed will money markets (bank funding) be in Europe and US?
    Of course, all of these depend on what governments do, as everything nowadays. But there's no point analyzing the irrational.

    Get ready for the adrenalin rush, boys.

    Disclosure: I am long UUP.

    Additional disclosure: short GLD
    Nov 15 6:41 AM | Link | Comment!
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