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Sunday, June 30, 2013

Maturing iOS 7 chatter

As the dust settles from the initial design reactions to iOS 7, more productive assessments are being brought to light from the influential-class bloggers:

(There is also anecdotal evidence from twitter chatter that already like using iOS 7, although being a beta, it still crashes frequently.)

The general consensus is a very distinguishable OS that requires a premium handset.

This pushes against the thesis of commoditization.  Causing price differentiation, and a pathway to maintain margins. 

The threat of commoditization is very evident when looking at the current Chinese market. The below charts, via Fortune article by Philip Elmer-Dwitt, China's handset market, via the low-end, are pushing Android growth. (Which Google benefits nothing from. They are completely shut out of the china handset market phones, even with Android. Google is basically subsidizing the very heavy lifting in OS development, for nothing in return.)

 Click to enlarge.
The standout of this niche market in Android is Xiaomi, best known for mimicking Apple's strategy.  This new growth is primarily being driven by a new emerging consumer class in china.

The iOS 7 creates differentiation that requires premium components.

Friday, June 28, 2013

$ibm and $acn

Looks like Accenture is experience what IBM experienced last quarter.  The only difference, IBM blamed themselves not executing. Accenture is blaming weak industry conditions.

Accenture did have a nice run prior to the report.

IBM didn't see such a consistent move.

May look to add tomorrow.

$aapl analysis (not that it matters)

Any kind of disappointment, frustration and annoyance I try to express is an understatement.

Before Apple announced their $60Billion (fucking) buyback, AAPL would follow a consistent trend downward.

Before its buy back, there was a cycle of negativity, hence no demand for the stock. No demand, stock falls, valuation gets compressed. The multiple is now compressed to the level of the great-recession.

After the $60Billion "demand" was announced, like magic structure started to develop within the chart. A nice jump off the low, and negative trend lines were broken and being tested.  The 10sma, on the weekly chart, the resistance line that saw AAPL go from 700 to 376 was breached. Awesome, structure was developing.

The daily action was consolidating the move off the low, hovering near the SMAs and horizontal base. (Healthy set up for a continued move up.) All seemed well.  The buy back provided a new trading dynamic. Structure was being confirmed. The buy back seems to appear near 420, around May 15th, allowing AAPL to maintain the support of the many SMAs. (It maintained structure.)

Then on June 1st demand simply walked away. A liquidation began, and the liquidation was met with zero demand. Where the fuck is the buy back? The buy back is suppose to mitigate this type of crap. (Especially in an up market.)

Assuming an even distribution to the buy back ($20B per year), there is about $54million worth of demand every single day.  But the $60 billion was not specific as to when those purchases were going to be made. Theoretically, the purchases can be very lob-sided, and $30 billion take place over the next 6 month, while the rest takes place over the next two years. But there was nothing. (Or, at the very least, the DM oscillator w/in the daily chart suggest the liquidation value was far far more then the $54M.)

Now, everyone that believes in the fundamental story, and ignores the bullshit chatter from a hypocritical Google to Samsung (with known fucked-up shady marketing practices), is again left frustrated.

Despite my frustration, I completely understand a degree of weakness within the shares. Stocks are merely a function of perception.  The better the perception, the better the multiple. (Hence my rant about managing the stock.)  Apple started fucking up the perception during the Q4 2012 quarter. While beating their own estimates, they did not beat the street. Since then, Cook did a cut-throat job at slashing the street's expectations. And their forecast for Q3 re-enforced the destroyed expectations of the street.

Also, the recent earnings slump has a lot to do with margins.  The year-over-year comparison is very tough when outsized (44-47%) margins are seen. Margins have simply normalized, and that is reflected in the EPS. 

Apple has effectively reset wall street expectations. They now have to beat those expectations and prove earnings-per-share have stabilized or can accelerate (to some degree) again.

Frankly, I do not care what analysts have to say about Apple.  With a buy back (they actually execute) and stabilized earnings, their trailing multiple will approach other large tech stocks that do the same. (MSFT is at 17, IBM is at 14, INTC is near 12 and even after ORCL's horrible miss its PE is at mid 13.)  A multiple of 12-13 is not unreasonable. 

In the mean time, the charts are just crap.  If AAPL can reverse from here, it will see a higher-low, which is good. But it will still need to break through the SMAs it melted through.  Even if that happens, it looks like it will channel trade until earnings growth accelerate again.  (If eps stabilizes at 40, and Apple beats the street's expectations, with a multiple of 12, the stock will be at 480. Top-end of the channel.)

Wednesday, June 26, 2013

Tim Cook is a great operational CEO...

But he sucks, really sucks, at managing the stock.

I don't want any other persons running Apple. He is the right person for the job. I just want him to do a better job at managing the stock. 

Cook, and the board, have put all the pieces in place TO DO a better job at managing expectations:

1. Lowered the street's perception of future earnings. 

2. Initiated a massive buy back. Allocating 60 billion fucking dollars to buy back shares by 2015. (Which is about 15% of the company.)

Here is my issue:

They successfully lowered the bar, but they are not supporting the stock!

Utilize the buy back! That is why it was put in place! It's suppose to supplement the lacking demand from the negativity. 

Over the past two weeks its as if they stepped away from the purchases. Any structure that was created from the announcement was completely lost. Technical levels were breached. Stop-loss orders were triggered, and the believers in the fundamental story are left contemplating whether or not the stress of being long the stock is worth it. (The negative cycle that feeds on itself.)

A stock needs structure in order for institutions to get on board. Institutional money managers are mostly imitators and idiots. They do not understand the importance of the communication and the unifying benefits between OS X Mavricks and iOS. They don't understand that WWDC highlights Apple as already being a unified and integrated ecosystem. (Something Google and Microsoft are racing toward, but Apple is already there.) They don't understand that pricing power has remained constant for the Mac line while PCs were selling well below half the price of Macs. They don't understand that the majority of pricing power will be consistent because Apple does not focus on market share. They don't understand that if Google or Amazon want to create a viable phone option billions would be needed and allocated, and a focus on production execution is a must. (The poor quality of the Nexus 7 one year after release and poor ability to keep with the limited demand of the Nexus 4 prove that for Google.)  They are choosing to ignore Apple's services are growing at +20% a year and already larger then the iPod leg. 

The imitators and idiots don't care for fundamentals that position the company. They don't care about the services Apple provides but are so seamless that the benefits are ignored. They just want to see structure in the charts. Without it, you lost 2/3 of all the investor base.

If Tim Cook is going to manage perception and expectations, like Apple has historically done, I hoped they sandbagged expectations for this quarter (because their rev and margin est seemed light) to start under-promising and over-delivering again

Please, Tim, start managing the stock as well as the company. Utilize the buy back. Under-promise and over-deliver. 

Monday, June 24, 2013

Bro Down!, Fed Fisher style - $tnx

Fed Gov. Fisher is great. (When the time comes, I hope he is our next chairman.)

Fed vs Bond Vigilantes

Bond Vigilantes: What's up bro! (rates rise)

Fed. Reserve: What bro. (Fed expecting a market re-pricing)

Bond Vigilantes: What's up bro! (rates rise above last year's level)

Fed. Reserve: Take a swing bro! ("I don't think anyone can break the Fed.")

Bond Vigilantes: Right here bro! (rates ease off for the day) What makes you the authority bro!

Fed. Reserve: We are the Federal Reserve bro! ("We haven't forgotten what happened to BOE.")

Lets see if they bro-it-out.

Market Thought... great rotation, still waiting

Bonds are selling off, and the 10 year rates started to rise.

A bit of perspective on the move. The 10 year rate is near levels of last March.

The SP500 is obviously already higher then it was last year.

Powder was already being put to use expanding the SP500 multiple.  Only recently, in the last few weeks, have sizable bond outflow figures come to light.

Will these funds make their way to the equity markets? Don't see why not. The SP500 is already at initial levels of long-term support.

Side note: Friday was a bit frustrating. Its a day I would normally have loaded up on bank stocks via GS and BAC. But the threat of increased capital ratio made me hesitate. But the more I thought about the hesitation, the more I kept thinking about the increase in bond spreads the banks will benefit from. (Rising rates as the Fed Rate stays constant.)  And the slow unwind of the GSEs. Those profits are going to go to the private sector. The hesitation may have been a mistake.

Friday, June 21, 2013

Market Thought... blood

The market declined, and the Vix spiked. The overlay charts started to become inverted. Fear is abound.

A longer-term view:

Those huge spikes in 2010 and 2011 were due to real systemic fears that questioned the very system we operate in. Current Vix spikes should be more in line with operational fears (around mid 20s to low/mid 30s).

Despite the tapering chatter, economic data was pretty good yesterday, despite the blah jobless claim numbers. China also started to pump liquidity to their banks.

The SP500 is near or approaching its low-end.  There is plenty of support. Ultimately the 10 year resistance has become support, and given the fundamental macro environment, break it downward is unlikely.

Improving economy, global stimulus still intact (despite the Fed chatter of shorting the date from the end of 2015 to 2014) and China maintaining its higher GDP.

Monday, June 17, 2013

Market Thought... China debt chatter saturation

The China debt chatter started getting heavier, but today it seems like its mainstreamed.

All-in-all, there is a consensus: local and business debt in China is out-of-wack with shadow lending, and interbank lending has spiked, but there is $3.4Trillion in reserves the Central Government will use to maintain social order. (Also, Chinese banks are really only exposed to themselves. So the risk of contagion is low. And the low consumer debt is nice too.)

The latest export numbers were bad. Or a signal that the Central Government is ready to clean house. After all, if they want the local provinces to establish a muni-bond structure, the local governments will need to develop trust with investors.

Will China see a hiccup de-leveraging one area of the economy vs stimulating or expansion-of-credit in other areas to support a more consumer driven economy?

For the last couple of decades the Central Government has been able to fiddle its economy like a violin.    

Confidence in China seems to have already waned w/the decline and clear divergence from the SP500.

However, its not so different from the rest of the emerging markets.

When chatter is mainstream, can either: 

1. feed on itself producing a cycle of negativity or euphoria

2. the market is already discounting the concern because everyone knows "it"

Looks like the latter is taking place here. 

If China allows this debt issue to hit their economy, it will cause a hiccup in Japan's efforts to re-flate. (But I do think, once Japan is done debasing the Yen, Europe will create a stimulus effort.)

(Here is a good write up on the situation, but the chatter is bountiful.)

Market Thought... technicals

Everyone is scared of the tapering? I guess. Or maybe its Japan's wild ride. Seeing a bull market and a bear market within a 6 month period. (All while still being up some 20% for the year, thus far.)

Given the Vix, investors are scared of something.  The SP500 is on areas that can easily act as support, especially given the elevated Vix.

If the 62sma breaks down, the monthly chart suggests the SP500 may see the 1550 area.

$aapl - discipline sucks

The action has simply been annoying.  Comparing multiples amongst tech really brings home the frustration.

While MSFT, INTC and GOOG see some serious multiple expansion, AAPL sees a serious multiple contraction. (The change in trailing PE is from the start of 2013 to present.)

MSFT and INTC are frustrating to watch because the WinTel duopoly is dying fast, yet the market ignores it and welcomes the expanding multiple.

Google is also frustrating to watch because it is already the 3rd largest US corporation, and its multiple was allowed to expand despite law-of-large-numbers. 

Observing the decline in future earnings potential, some level of contraction is merited.  Before the first quarter report, Apple was expected to maintain a trailing earnings-per-share (EPS) near $43-44. But as "realistic" guidance is given, it is now expected to be around $39-40. 

From a pure quant perspective, the above makes a "bit" of sense.  I use the word "bit" because the above only shows a % change from an arbitrary start date (beginning of 2013). Apple's mean PE for the last 1.5-2 years (prior to Jan 2013) was around 14.

An 11% decline in trailing EPS produced a 28% decline in the trailing PE.  That seems like an inefficiency. 

While every AAPL long frustratingly waits for this inefficiency to be removed, Apple has issued a huge buy-back that thus far has seemed to kick in when AAPL is near 420.

Sometimes I wish I did not understand these inefficiencies, and purely base a decision on momentum. But I always end-up realizing I hate trading with my head stuck in the mo-mo's ass.

Friday, June 14, 2013

Tuesday, June 11, 2013

Market Thought... a little after 1:00

Interesting action in the AM. The SP500 was down big, but the 10yr yield was up (bonds sold off).  The conundrum maintained itself until a little after 1pm. (I call it a conundrum because when the markets are down big, its risk off, and money should flow to treasuries.)

The markets climbed their way back until the unwind of the conundrum took place at 1pm.

The only scheduled economic activity at 1pm was the 3yr Note Auction. Potential geopolitical catalysts that started about 10-11 hours ago include:

1. Turkey police entering Takisim square to disburse the protesters

2. Privatization concerns (via weak demand) surrounding Greece

Not sure if the above are strong reasons, but the morning catalyst for the decline was the "lack-of-additional-stimulus" from the BOJ, which in my eyes was complete bullshit.  At the moment, the markets want reasons, whatever they may be.

$aapl - iOS 7 chatter

The initial chatter is polarizing. (Frankly I am surprised, listening to the keynote and taking in the subtle cues of the short videos, I got really excited.)

Here are a few from key influencers:

- Daring Fireball: Ive proved to merge software and hardware creating more then just a 'flat' design. (I agree w/this view.)

- theloopinsight: overall positive, but finds the icons on the home screen odd. (The icons definitely have a softer tone to them, but I think the oddness is more from the background being used.)

- the verge: basically not a fan, and finds the design confusing. (Although, over the past few months I have gotten the sense that the author, and editor of the site, is so far up Google's ass, its difficult to find his thoughts are fair anymore.)

I consciously left out TechCrunch because lately they really are only writing posts that inspire debate vs actual substance, and their posts of substance are superficial re-prints of the obvious.

Twitter chatter is just all over the place.

The current chatter is based on superficial observations with not enough interaction to the OS to be true reviews. We will start getting some worth while reviews over the next few weeks.

Thursday, June 6, 2013

NSA eavesdropping is not new - Frontline

Capabilities were put in place after 9-11. Frontline did a documentary on it in 2007.

I don't like it, but its been going on for awhile.

trades... $BAC $GS $IBM $EBAY

The SP500 is approaching the 1600 level, with almost 5% off its high, and fear spiking.

As the market enters correction levels, some individual names are getting attractive again.

bac - looking to double up near 38SMA.

gs - looking to re-enter an initial position near 154. Then add if it stabilizes or goes towards 150.

ibm - re-entered an initial position. I would like it to stabilize here, and add, but it may approach 199-200.

ebay - there has been additional weakness in ebay, that would suggest a new support is being discovered. The weekly had the 20sma, then 38sma act as support. But these now have breached.  The 50sma may act as support, but given the developments in payments, via Apple's potential entry into the space, it may take an additional hit. Looking for the mid 40s.

Monday, June 3, 2013

$GOOG mobile search share declining

Despite the massively subsidized Android operating system Google provides to all the OEMs, its mobile search share is declining. (as per StatCounter)

Last year Google enjoyed about a 94% market share. As of May 2013 its 84%.

Search attention is being taken from somewhere. Most likely searches and actions from specific apps, Facebook and/or switching defaults to Yahoo.

Globally, Google looks to keep holding its own, with share is still in the 90s, although slightly declining.

Thought the above was interesting. In the US Android and iOS controls so much share. Google controls the vast majority of Android and pays Apple to default Google on the iPhones. Considering this, share should hold steady. But somethings is going on.

quick thought - SAC causing liquidations?

Are the redemptions and issues related to SAC causing some of the liquidations and unusual weakness in some names?

Sunday, June 2, 2013

Market Thought... last 30 minutes

The SP500 collapsed the last 30 minutes of trading.

That action caused the VIX to spike and weekly support to be tested.

With the spiking Vix, there are supports on the daily chart that can act as an area to support a bounce. But the weekly chart suggests a SP500 can go towards 1600.

The spike in the vix still suggests no complacency.

The catalyst for the market decline is not so straight forward. The US markets, and even the European markets, have held up fairly well despite the volatility of Japan. The few geopolitical events that can act as a "reason" for a sell-off include:

1. Syrian tensions growing. (Syrian will retaliate against the next Israel strike. EU ends arms embargo to the rebels and Russia provides arms to the Government.  Seemingly no peace talks in sight.)

2. Turkey riots. A civic construction project turns to national outrage due to PM involvement. (A lot of people did not like the micro-managing of the PM or "dictatorship" quality.)

3. Continued China weakness. (Below is an overlay of the FXI and SP500 for Friday.)

(Tonight's weak HSBC PMI doesn't help. Its cracked below 50. Bit lower than the Flash data.)