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Jonathan Wagner
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Coder, with a passion for the stock market. I Have been interested in the stock market since I was 12 and I have dabbled in experimental technical analysis methods such as non-time correlated fractal market analysis. I am the creator of the #1 drawing on maps application the web called... More
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  • The Default Scam

    If you're not aware the USA is ready to rip apart at the seams if the government can't manage to raise the debt limit. Checks will not be sent out, countries will not be paid, and the entire USA economy is going to be brought to its knees. The only problems with this is that this is not what is going to happen.

    Despite the doom and gloom being expressed by the president and pretty much every news outlet, the reality is that the USA government will never default even if they don't manage to raise the debt limit in time. What is going on right now is a political circus that has no basis in reality. So let me explain using Obama's own type of metaphors.

    You know what happens when you miss a mortgage payment? You still have to pay it. It doesn't actually matter when the government raises the debt limit because whenever it does it will retroactively pay any missed payments in the same way that someone who misses a mortgage payment still has to make payments. They have already done it with government workers and there is no reason the government won't do it for everything else.

    Now some will make the claim that the there will be massive economic fallout and that people will trust the USA less yada yada, this is doubtful since there is nothing stopping the power of the money printing presses.

    Sure printing large amounts of money has negative effects but these effects don't bubble down from the government, they bubble up from things like the average Joe getting hit with cost of living increases.

    The default fears are a scam, the USA government will never default; it can print money. In some ways this money printing is a form of default through inflation but this has been going on for years. The idea that the government not raising the debt limit in time will have any worse of an effect than what has already been going on for years is a flat out joke.

    Do not be fooled into believing that if the deadline is not reached it is the beginning of the end because you might find yourself holding the bag as more printed money holds up the market. If there is one thing you never want to bet against, it's the government.

    Tags: QQQ, SPY, Economy, Default
    Oct 16 8:43 AM | Link | Comment!
  • Apple Harmony

    If you're reading this article there is a pretty good chance you have read a lot regarding Apple (NASDAQ:AAPL). Maybe you have read that this down trend is temproary or maybe you think it is overvalued.

    However, there is something a lot of people are not aware of regarding Apple. It has a spectacular spectrum or put another way, it has very clean and visible long to medium term trends. This tends to be the case with most larger cap stocks but Apple's spectrum is particularity pristine. While harmonic analysis isn't very good for shorter terms, it is a useful tool for longer term trends. In summary harmonic analysis allows for the extraction of common cycles that may be, but not guaranteed, present in a stock.

    (click to enlarge)

    Before anyone makes any trading decisions based on the above realize, while cycles are very real, they do change gradually. This means that in three to six months the harmonic forecast could potentially be different.

    Despite this gradual change, it is not unrealistic to believe that this depreciation is being caused by a longer term cycle.

    Considerations
    If you're investing there is always the chance a stock could "settle" near its price to book. Most investors I imagine are probably collecting their earnings and this might have nothing to do with a company's potential and everything to do with portfolio management. This is not necessarily a bad thing since this would create a value proposition for Apple in the next six months for future investors.

    However, Apple doesn't have a too bad of a price to book for a tech stock. If you compare Apple to Amazon (NASDAQ:AMZN), it's a crazy value. That said, a lot of the fluff in Amazon's stock price could be accounted for by future unknown potential where as Apple has become a bit more predictable in terms of revenue and earnings growth which could result in the stock settling a bit.

    You need to also consider the market as a whole. While Apple has been depreciating in stock price it started to devalue with the market in October and this means that, at least partially, the stock price depreciation is not linked to underlying fundamental issues. You could believe the underlying economy is a fundamental issue but in that case everything will suffer and not just Apple. There is absolutely no reason to believe that Apple with their revenue growth and also cash on hand will just simply fail fundamentally.

    Perceptive Fundamentals
    How people perceive fundamentals will ultimately affect their trading decisions, however, perception can sometimes be misleading.

    (click to enlarge)

    In the first chart we note that although in recent quarters there has been a drop in EPS quarterly year over year growth, Steve Job's passing did not reduce their growth rates to exceptionally new lows.

    The second chart demonstrates that while it appears that their book value is starting to "round out", if we were to eliminate current behavior of the book value then we would see that there were multiple times over the past 10 years where this same affect would of occured. In some cases it would of appeared even worse such as the period shortly before the blue arrow.

    Outlook
    Apple could continue to decline for another 1 to 6 months. However, I am of the opinion based on other personal analysis that in 2013 we will see the start of another upward market leg which would cut Apple's stock price depreciation time by half or more. It is near impossible to predict exactly where a stock's price will end up at but one thing I can be fairly certain of is that Apple's price will not descend below their price to book unless there is a combined fundamental flaw with the company and market recession, which I think is unlikely. This might be a good time for long term value investors to liquidate, however, if you're a longer term investor there might still be upward movement ahead.

    Tags: AAPL, Tech
    Jan 28 11:34 PM | Link | Comment!
  • Android, HTML5, And Interview

    One of the core conversations in the Android vs iOS debate is the place of mobile apps, web apps, and HTML5. This is a justifiable conversation because it plays a vital role in the income potential of both companies. In this article I will explore mobile, HTML5, as well as include an interview with someone on the ground floor of mobile development.

    Brief History of HTML5
    The HTML5 keyword is used alot and it is also used out of context in alot of situations. HTML5 is a series of web technologies that allow certain things to be done directly in the browser. The most note worthy of these is the Canvas tag which allows for drawing in the browser and also the video tag which allows for video streaming without a third party plugin. It should be noted however that drawing in the browser was possible before using something called SVG, however, Canvas makes it particularily easy.

    HTML5 has mostly got a repuation as being a flash killer, however, while this may be true, with the rise of mobile and the decline in PC sales, HTML5 is slowly but surely having another singificant role.

    HTML5 and Mobile
    As Android started to get market share, developers became interested in ways to create applications that could work on multiple platforms without having to code more then once. There is an implied cost saving to this since you don't need two seperate applications built on different code.

    The most promising so far is what is being called the web app. Its an application that can be built using HTML, CSS, and Javascript then this website can be "wrapped" to become a native application on simultaneous phones. The easiest explanation of this is to imagine a website that is designed to work like a mobile application.

    With Facebook recently moving away from HTML5, this might leave people wondering what the future of mobile is and how this affects both iOS and Android. Web technologies continue to improve and HTML5 was recently declared being finished. Though it is finished, that doesn't assure HTML5 will suddenly take over app development, but it is a step in that direction.

    Web Homefield Advatange
    The web has a major advantage and that is most companies build a website before they build an app. If you want to be discovered as a company you're more likely to be discovered through a google search than an app search.

    The problem is that alot of mobile websites are either bad or more likely non-existant, but this is starting to change. With HTML5 being finished and helpful frameworks like Jquery Mobile, it is easier for developers to create web apps and mobile sites that are designed to work with the very real growing mobile internet.

    In a previous article, I talked about how I was using these new technologies to create a cross platform mobile experience using the new HTML5 technologies. While this is possible for what I am doing, this might not be possible for other applications such as intensive 3D grames. As phones improve, the option for creating intensive experiences using mobile technologies will become a reality, and this might fundamentally shift the current existing dynamics of mobile development.

    What are the realities of this however, and are development firms embracing it? Additionally, are mobile development firms benefiting financially from Android in general? To try and answer some of these questions I found a development firm that has done alot of iOS development as well as mobile development for Android and mobile websites.

    The Ground Floor
    Red Piston is a mobile development company that has developed and designed hundreds of mobile apps, mobile games, and mobile websites. A significant amount of their previous work is for iOS by Apple (NASDAQ:AAPL). Jakub along with Red Piston has worked with some large brands including Lowes, Universal Records, Warner Brothers Music, Virgin, Mercedes, and GM.

    In this article I interview Jakub Koter, the co-founder, and ask some very important questions regarding mobile development, HTML5, and the rise of Android.

    Jonathan: How has the rise of Google's (NASDAQ:GOOG) Android market share affected or not affected your business?

    Jakub: Initially when Android started getting a significant market share there was no change in business, clients still wanted iOS and dismissed the Android platform. Some of our own products we released Android did very poorly as well. Bottom line was Android users did not pay for apps. But this is changing slowly and as a result we do have an increase in android development especially the games we develop for our clients.

    Jonathan: What is the types of Android development you're getting requests for?

    Jakub: Mostly for game development and free apps that are purely for marketing purposes.

    Jonathan: How do you feel about HTML5 and, in particular, its impact on mobile?

    Jakub: Personally, I feel html5 is great. It's awesome for mobile sites and basic apps. It sucks for games and rich media apps. As most of the profitable apps on the AppStore are games, photo editing or music apps, many mobile devs have no choice but to use native tools. I have no doubt that once html5 can be as flexible as native tools all developers will embrace it for mobile app dev. I mean I love cross platform tools but most of them are still not there and you end up programming the app multiple times anyways. Impact will be huge, it's just not ready for prime time yet.

    Jonathan: What percentage of your business comes from service contracts versus proprietary app sales?

    Jakub: About 70% from clients, 30% from our own stuff.

    Jonathan: Have you seen any growing trends in your business in regards to development?

    Jakub: Cross platform tools are getting better and more devs are using them. Augmented reality apps seem to have attention of a lot of people.

    Jonathan: Finally, do you personally have any forecasts for HTML5, Android, or iOS?

    Jakub: Html 5 will probably not be seriously used for app development for another 3-5 years. Android will remain a major competitor to Apple. It will be interesting to see once Google starts making their own phones with all the Motorola resources they bought. Android will be used more as a platform for game consoles, tv's. etc. iOS will continue to set the standards.

    My Thoughts
    While HTML5 is definitely on the rise, it appears that it still hasn't truly hit prime time. This might explain why Facebook had to switch, it was simply too soon.

    What is interesting however is that the conflict between Android and iOS is significantly increasing the evolution of the web in general despite the particular economies of their app stores. Why could this be?

    Developers simply don't like having to code more then once, especially in different languages. This pressure is moving a lot of developers to look for solutions outside of native coding such as myself for instance. It still comes down to what I am doing however, while I might be able to make a basic business app with web technologies, if I wanted to create a more intensive 3D experience I would have to resort to using native code. However, the idea that you could do 3D using web technologies is not out of reach because of things like Web GLbecoming more mature.

    Google is banking on Web Search
    There is no mystery that Google is banking on web. The problem is, like I mentioned earlier, the mobile web right now is generally not very good and this is why people generally tend to be drawn to mobile apps for the better experience.

    Google is making significantly less then Apple in terms of the app store. However, the app store is not their play, they make money from eyeballs on advertising which comes mostly from their search. This is undeniable from the chart showing Google's breakdown below:

    (click to enlarge)

    Source: Microsoft, Apple, and Google: where does the money come from?

    So while Google might make money from app sales, their goal is to get eye balls on search. Eric Schmidt himself noted that Google makes most of its advertising revenue from search.

    The Android app store, intended or not, is nothing more then a sophisticated bait and switch. While users might get Android for the "apps" Google makes money when the users do search. This is important for Google investors to understand because this is where the money actually comes from with Android.

    But Can't users do Google Search on iOS?
    Yes they can, and Google even makes money off of those users but that is not important. When I was at Google IO 2 years ago, Google VP Ben Gomes retold a story of asking what was the value of Android because he was skeptical, why should they do it? weren't they an advertising company? Andy Rubin, currently the head of the secret Android project responded with two points.

    1. It was critically important to provide a free operating system to encourage innovation at every level of the stack.

    2. If Google did not act, they would be faced with a draconian future where there would only be one device.

    Here is a link to the 2011 keynote.

    While these comments are some what ideological and a bit hyperbolic, there is a strong benefit for Google because they knew that every user at some point would use the web. When you control 80%+ of the search market share this was a customer acquisition tool whether they acknowledged it or not.

    Search Ad Revenue vs App Store Revenue
    Android devices will not stop selling, and even if Apple reclaimed a lion share of the market share, Google could still make money from the growing sophistication of the mobile web.

    Google maintains a 93.3% share of the overall $1.99 billion US mobile search ad market. Spending on mobile search ads in the US is expected to jump 55% to $3.6 billion next year-of which Google is expected to earn a 92.4% share. (source)

    If the above trend continues, Google could soon be making as much money from mobile search as the Apple app store is making from app sales. The bottom line is that if people start using Google search and the mobile web more, Google will make more money, but this won't necessarily stop people from buy apps from the Apple store.

    It might not be Either Or
    What will happen if Google's search ad revenue continues to grow while Apple app store revenue continues to grow? You can buy an Apple device, buy apps, and still use Google search. Comparing Android's app store revenue to Apple's app store revenue is almost like comparing apples to oranges because that is not where Google is actually making their money from. So while the revenue generated by Apple's app store comes from consumer, the majority of Google's revenue comes from advertisers, so there is nothing stopping both companies revenue growing side by side.

    Outlook

    Google is also a long term value play. From my interview, and also my previous article, companies are recognizing that developing free apps for Android can be a great marketing play and while there might be a lot of debate about how much money they are making off apps, it should always be remembered that for Google it is about search.

    Apple in my opinion is becoming a long term value play because there is no reason to expect sudden drops in revenue from Apple. They have a solid product line and for the future of the next three to five years, all they need to do is roll out modifications or variations of this product line to maintain sales and all of this supported by a very loyal fan base. If you're a conservative investor, you might want to wait to see how this correction plays out to see if you can get greater value or wait for Q1 results if you're concerned with growth fundamentals.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Dec 27 1:41 PM | Link | Comment!
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