southbeach

The Unsustainable Lie of Inflation

unemployment in Zimbabwe is reckoned to be at 90%, but this has not prevented hyper inflation.


On Nov <span title="Convert this amount" class="currency_conver... 02:39 PM goldbug101 wrote:

> "Hyper Inflation" is a term that should be followed by Zimbabwe or
> Weimer Republic.
>
> Prices doubling every few weeks and days, sometimes by the hours.
>
>
> No matter how much "money" the FED prints, true "hyperinflation"
> will not occur in the US unless the unemployment figures return to
> the 4-5% range.
>
> People who are not working and subsist only on the fixed income of
> unemployment or SS or pensions are the great weight holding down
> any "hyperinflation."
>
> The TBTF banks are hoarding this new "money" from the FED which leaves
> little velocity to ignite serious inflation, let alone hyperinflation.
>
>
> The TBTF banks, and many smaller community banks as well, have giant
> black holes on their balance sheets that must be filled with all
> this money being printed by the FED.
>
> Only if those balance sheet black holes are filled up would the velocity
> of money rise to maybe create hyperinflation.
>
> If real hyperinflation was to ever take hold, it would not last long
> in the US as society would collapse and there would be a rebirth
> of a new nation.
>
> Shakespeare predicted it would start by killing all the lawyers.
> If hyperinflation comes to pass, bankers and politicians will be
> the first to face the anger of the masses.

Book Review: The Greatest Trade Ever, By Gregory Zuckerman

I think the guy in Texas was J Kyle Bass. I recall a documentary featuring the in depth research he did - interviewing people at various stages in the subprime/MBS value chain and coming to the conclusion that his early concerns about the absence of risks for mortgage sellers (and bank repackagers) or credit checks were all too well founded. Fascinating stuff. Borrowers got played by the initial 'lenders', and the skewed system.


On Nov <span title="Convert this amount" class="currency_conver... 09:27 AM jay brebner wrote:

> david faber also dedicates part of his book on the crash to hedge
> fund manager in texas who pulled the same trade and made 6</span>
> billion for his clients. Disciplined to a rational idea - gotta
> love it.

How Apple's Market Share Will Propel Stock to $500, Part 2

Apple is a great company, and certainly executing very well on their core competencies and assets (App Store and iTunes are definitely crown jewels there). I would say though that Android is going to be much more of a factor, and market share holder, than you suggest. I see Apple, and perhaps even more Android (and by corollary its sponsor and prime platform/ecosystem beneficiary Google) as the big winners in the smart phone market. Nokia are struggling, and Palm may just be too marginal to survive alone, while Microsoft has to hit a home run with Windows Mobile 7 or they'll be an also ran. Further, I think smart phone adoption and volumes will be even bigger than most industry forecasts suggest - since everyone wants to surf the web, consume media and check email, and once it becomes common expectation that a phone does this, most consumers bar traditionalists, laggers and the impoverished will want one. It's a very interesting market!

Own Gold? Time to Fold

Alan, I was a little skeptical about this article when you first published it on SA 11 months ago. Just wanted to comment that it's stuck in my mind ever since! Given the price history of gold since then (and this is not an 'i told you so' comment), do you have any thoughts on 'what went wrong'? Was it the analysis or the timing which was at fault? I'm no gold bug, and frankly am more focused on the potential oscillation timing between deflation and inflation, and how to trade that (more to protect real value of assets versus inflation or sub-market returns than SA). One thing is clear - the gold market, and what drives pricing, is a complex set of issues. Now I've heard that the big dealers are short the metal, so maybe it (nearly) is "time to fold".

Short Amazon: Risky Investment at Current Price

interesting perspective, and I somewhat share your skepticism about the sustainability of Amazon's current share price. conceptually though, there are some factors to consider which I don't think you've adequately addressed:

1. e-commerce market size is growing, and will continue to grow - hence it's not a zero sum game for leading ecommerce players - so if Amazon grows with the ecomm market, they could still grow earnings nicely
2. share of ecommerce wallet - Amazon is again well positioned to benefit disproportionately from their superior proven ability to execute and delight customers - launching new categories, and growing strongly in non $ denominated countries (e.g. € zone, Yen) which provides a strong lift to dollar denominated earnings, and taking more than ecomm market growth rate in overall share
3. leverage - Amazon and Walmart will be the players most likely to be able to leverage their scale to really crank the revenue handle - and generate strong bottom line growth, even on compressed margins.
4. International growth - see above - the weaker the dollar gets, the more international sales in stronger currencies boost earnings
5. Innovation - Amazon is pushing into some interesting areas (cloud, payments) which could further boost their reach and customer base. 'Owning' the consumer's transaction info - that crucial billing relationship, really aligns with the audience growth objectives of the core business.
6. Strong management - there are some very good long serving executives at Amazon who know the game very well, and this stability allows the company to continue their track record of above average execution.

So, I'm not joining your short trade just yet (there's a good chance of getting run over by the sentiment train right now), but I may do so once the post earnings party euphoria starts to fade.

Android, iPhone Ride Rising Tide

was about to comment on that 600 a month! thanks for taking care of it. always worth a re-read before publishing an article, particularly things like ARPU figures...


On Oct <span title="Convert this amount" class="currency_conver... 11:08 PM KenC wrote:

> You wrote, "The US carriers will eventually run out of people who
> want to permanently increase their phone bills $ 600</span> a month"
>
>
> Strangely, noone so far has commented upon your math. Presumably,
> above, you meant year, but even the, you are implying that data plans
> are $<span title="Convert this amount" class="currency_conver...
> </span> a month, which they are not. They are $<span title="Convert
> this amount" class="currency_conver... to $<span
> title="Convert this amount" class="currency_conver...
> a month.
>
> I have an iPhone <span title="Convert this amount" class="currency_conver...
> </span>G, and my data plan is $<span title="Convert this amount"
> class="currency_conver... a month. Why? I live in
> an EDGE area, with <span title="Convert this amount" class="currency_conver...
> </span>G <span title="Convert this amount" class="currency_conver...
> </span> miles away. I pay the EDGE rate even though when I'm in
> <span title="Convert this amount" class="currency_conver...
> </span>G-land, I get <span title="Convert this amount" class="currency_conver...
> </span>G speeds.
>
> So, data plans are not as outrageous as you seem to believe.

Are We Poised for Another Great Bull Market?

JG, not sure if you're going Long on provocation just fishing for responses, but it's working! Anyway, though I agree this is likely a Government sponsored "bull" market bought at high cost by our future tax contributions, I'd be wary of betting on an imminent tide turn. Lots of sideline money missed the March steroid rally, and this is providing upside support in the face of fairly non convincing evidence of imminent recovery. I think the lows are in for the year, and we may not see any significant correction before EOY (though of course we're all looking for the sign to double short the market, and then plow profits into buying the next rise...)

Does anyone know of any good studies on the effect on equity valuation of massive aggregated fund pools which our pension and investment fund create? Seems to me there's a constant upward pressure on multiples from more and more capital chasing equity exposure/upside. Wondering if it's leading to a somewhat permanent shift to equities becoming too expensive on a risk adjusted basis?

On Sep 30 08:33 AM JG Savoldi wrote:

> Our model says that we're about to get the answer to the question
> very soon. We're expecting a 22% crash into October 13th as the
> SPX kicks-off a larger degree decline toward 529</span> later this
> year/early 2010.
>
> The BAM Model is not based on Elliott Wave Theory, but I'm also seeing
> a potential structure that would fit very nicely with our forecast.
>
>
> I'll elaborate more on this thought on our blog later this week and
> post a few charts etc. but if you look at the SPX 11-21-08 low as
> a point of origin, and observe the <span title="Convert this amount"
> class="currency_conver... Fibonacci relationship
> between what could be interpreted as an A.B,C structure into the
> recent highs, that potential large 4th wave expanding triangle pattern
> would project down to SPX <span title="Convert this amount" class="currency_conver...
> </span> in a "D" wave.
>
> My interest in this pattern is that my model is calling for a 50%
> crash over the next 2-5 months (target <span title="Convert this
> amount" class="currency_conver... as I said) but
> it's then predicting what appears to be a melt-up to SPX <span title="Convert
> this amount" class="currency_conver... before a
> further collapse into 2012-2014.
>
> That would fit very, very nicely with this idea of a large degree
> Elliott wave expanding triangle 4th.
>
> Regardless of structure, we're short here and expecting the crash
> to start accelerating to the downside later today as we enter the
> first of three crash zones contained in October.
>
> 9/30--10/2
>
> 10/13--10/14
>
> Follow us on Twitter for the rest of the details!
>
> bit.ly/l3hv8

While eBay Burned, Whitman Fiddled

really like your work - keep it up. the entitlement culture among the top execs at companies like Yahoo and eBay is nauseating. i know it's just human nature (aka greed), but its amazing that performance related compensation turned into: stock plummets, compensation rockets.

Dell / Perot: Insider Trading in M&A Is Alive and Well

why not fine all the perps 10-50x the profit they made. might help reduce the deficit a little...prison time costs us money, but if they have to pay instead...

Why Argentina's Talking Again

not really a relevant comment to the article, but a nice way to market your views and services.


On Sep 21 11:31 PM Mad Hedge Fund Trader wrote:

> itx A number of readers have asked me to come up with a safe, high
> yielding investment in which to hide out in case the equity markets
> swoon again. That means they are looking for a security that offers
> a high fixed return, denominated in a strong currency that will benefit
> from future upgrades that will boost the principal over time. All
> of that is another name for the Invesco PowerShares Emerging Market
> Sovereign Debt ETF (seekingalpha.com/symbo...). The fund
> has 40% of its assets in bonds issued in Latin America and 31% in
> Asia, with the bulk of the maturities exceeding ten years. The two
> year old fund now boasts $ 340</span> million in market cap and pays
> a handy 6.42% dividend. This beats the daylights out of the nine
> basis points you currently earn for cash, the 3.40% yield on 10 year
> Treasuries, and still exceeds the 6.42% dividend on the iShares Investment
> Grade Bond ETN (seekingalpha.com/symbo...), which buys predominantly
> single “A” US corporates. The big difference here is that foreign
> bonds are issued in strong foreign currencies instead of weak dollars,
> and have a rosy future of further credit upgrades to look forward
> to. It turns out that many emerging markets have little or no debt
> because until recently, investors thought their credit quality was
> too poor. No doubt a history of defaults in Brazil and Argentina
> in the seventies and eighties is at the back of their minds. With
> US government bond issuance going through the roof, the shoe is now
> on the other foot. A price appreciation of 125% over the past year
> tells you this is not exactly an undiscovered concept. Still, it
> is something to keep on your “buy on dips” list.

Is the Time Right for Nokia?

Sweating bullets won't cut it. No SVP or EVP fires themself, or admits the true extent of the gap between their skills and what a company needs to reinvent itself. Self deception and poised speeches skating over the evidence is far more comforting. Gerstner was an outsider...

Nokia's trend loss in high end is horrific, and they seem to be always 2-3 years too late in responding to market trends (remember the flip phone debacle...).

Thanks Keith for an interesting and thought provoking article.


On Sep 20 05:51 PM davidrdesign wrote:

> You had me all the way until this: "Nokia’s present strategy of multiple
> handset products looks flawed and dated. The key today is applications
> and services not hardware design. Developers want fewer platforms
> and I suspect so do customers. Nokia's management and the essential
> components of its strategy has barely changed over the last decade.
> It is time for a change."
>
> The inference here is that Nokia doesn't know this or is ignoring
> it. There aren't. They're just too big to make it happen fast enough.
> But I know they know. They're working on it and sweating bullets
> about it.

Buying Apple Today: Like Buying Microsoft in 1998?

"Apple has 100 million credit card-registered iTunes users who have access to one-touch purchasing. This will swell, conservatively, by 4-6 million customer per quarter as iPhone and iPod touch devices require syncing and loading. No company on earth will have what Apple has within 2 years, and that's key to the software portion of the business."

Just to add a detail to this good point. In the mobile value chain, so called 'operator billing' - where the consumer pays for items via their monthly operator/carrier phone bill - adds a massive cost to the transaction flow, which makes the proposition less appealing to content providers and application store owners. So App Store could easily be not just the largest application store in the world, but the most efficient/profitable since it reduces the excess profit grab of the operators for their billing services.


On Sep 11 06:34 AM Timeline Strategy Consulting wrote:

> I think you're wrong, and here's why.
>
> In 1998</span>, Microsoft had established a massively dominant operating
> system and business suite (Office) business, as well as leading market
> shares in database, server, and other enterprise. There was little
> that it did in which it did not lead. Thus, its growth outlook was
> capped. It's ironic that Microsoft's current dominance in operating
> systems (93.06% for Microsoft vs. 4.87% for Mac via one measurement)
> is often used as the defense of investing in MSFT or against investing
> in AAPL. Such dominance is more risk than opportunity, for the company
> and for the shareholder.
>
> Contrasted, there is no space in which Apple competes, other than
> music players (which have now declined to 18% of its revenue) where
> it holds more that 10% market share. Not desktop or laptop computers,
> and despite the success of iPhone, not mobile handsets.
>
> Here's an open question for you. How can you financially value a
> business that is:
>
> <span title="Convert this amount" class="currency_conver...
> </span>. Already massive (<span title="Convert this amount" class="currency_conver...
> </span> million units sold worldwide for at least $<span title="Convert
> this amount" class="currency_conver... per unit,
> or $<span title="Convert this amount" class="currency_conver...
> </span> billion)
> <span title="Convert this amount" class="currency_conver...
> </span>. Growing massively (20% year over year)
> <span title="Convert this amount" class="currency_conver...
> </span>. Technologically up for grabs
> <span title="Convert this amount" class="currency_conver...
> </span>. The next consumer-driven revolution
> <span title="Convert this amount" class="currency_conver...
> </span>. Led by hardware but followed by software
>
> This, of course, is the smartphone market, and Apple's swiftly-growing
> position here on the technical side is somewhat muted by the manner
> in which it recognizes revenue via the 2-year subscription model.
> I am admittedly biased in favor of (long) Apple, but I believe that
> they are building an unassailable position in handsets and applications
> that go with them. Simply put, the competition is confused and scrambling,
> consumers are flocking, and Apple got 95% of the ecosystem right
> at exactly the point that the terrain was unclaimed.
>
> One practical example - there is currently a 5-8 week wait time for
> iPhone <span title="Convert this amount" class="currency_conver...
> </span>GS at various T-Mobile locations in the Netherlands and at
> other carriers throughout Europe. At those same locations, you can
> obtain practically any other handset the same day, but Apple can't
> make theirs fast enough. What's next? China, of course, and perhaps
> that's even the reason why these handsets are in short supply currently.
>
>
> And here's one point that should not be overlooked - Apple has <span
> title="Convert this amount" class="currency_conver...
> million credit card-registered iTunes users who have access to one-touch
> purchasing. This will swell, conservatively, by 4-6 million customer
> per quarter as iPhone and iPod touch devices require syncing and
> loading. No company on earth will have what Apple has within <span
> title="Convert this amount" class="currency_conver...
> years, and that's key to the software portion of the business.<br/>
>
> Practically speaking, AAPL sees $<span title="Convert this amount"
> class="currency_conver... earnings in 2010, which
> at a P/E of <span title="Convert this amount" class="currency_conver...
> </span> yields a share price of $<span title="Convert this amount"
> class="currency_conver...
>
> So, in summary, Apple's potential rests upon this area in which they
> snuck in. Once there, they quickly established something simultaneously
> untouchable by competition and very appealing to consumers, and that's
> the appeal.
>
> By the way, I think that you forget the 'not' in this sentence:<br/>
>
> "Of course, if you're buying Apple, you're too terribly interested
> in the assets."

The Case for Moving iTunes to the Cloud

or everyone could buy expensive (though admittedly very nice looking) Apple time capsules...

Yahoo Insiders Should Be Shown the Door Out

Sounds like great investment advice: "get a senior role at Yahoo! and then kick back and get rich". Where do I apply.

Betting on the Big Banks

agree completely with your sentiments. it's a white knuckle ride in the big financials though, and the 'we changed the rules again' factor hardly helps. we're talking opportunist trades rather than line by line fundamentals analysis. I can't believe we won't crater again though given the rotten assets tucked out of sight - resi and commercial real estate need time to bottom and then stabilize. the relaxing of accounting rules and taxpayer intervention just slows this process. Still, i don't agree with those famous 'let em fail' guys either - too much 'innocent bystander' damage despite the costs of the bailout.