Daily: Romney is toast, Apple will have a monster quarter, and QE infinity will fail
Here is today’s daily note. I have three main topics to highlight in the links: Romney, Apple and QE infinity.
Romney
The Pawlenty defection is a big deal. I don’t think I have ever seen anything like it. It’s a total meltdown for Romney now. When your campaign Co-Chair defects to become a bank lobbyist less than two months before an election, it says something about the state of your campaign and the priorities of those around you. Clearly, Republican leaders as a whole and Romney insiders specifically don’t think he can get it done. It’s hopeless. So they are jumping ship. The question is where they should go. And apparently Pawlenty thinks getting the big bucks as a lobbyist is a good next move for a Presidential campaign chair and former politician. US politics is completely captured by special interests. As Randall Wray puts it, “It doesn’t matter whether you are in the Tea Party or Occupy Wall Street. Government is working for powerful interests”.
Romney adviser quits campaign – FT.com
I get sick of this. The revolving door between lobbyists and Washington is sickening. More of the same.
“Mr Romney faced another setback when Tim Pawlenty, the co-chair of his campaign, announced he was stepping down to become head of the Financial Services Roundtable, a top banking industry lobby group.”
Could the GOP really win by losing? Maybe not | AEIdeas
Petholoukis is a fervent conservative suppoter. If he’s writing Romney off, you know Romney is toast.
EconoMonitor : Great Leap Forward » Here’s the Most Shocking Statement in the Mother Jones Video
“Our regulatory agencies that are supposed to protect the public are protecting the people that they’re supposed to be regulating. And I think people are fed up with that. It doesn’t matter whether you are in the Tea Party or Occupy Wall Street. People see that the government is working for the powerful interests and the people who are well connected politically and not for the common person, which threatens that whole idea that we have this great opportunity, which we should have and have had historically in the West for anybody from whatever background to become successful. One way in which that becomes compromised is when the government is no longer seen as an honest agent and when our tax dollars are not really being put to work for us but for the people who are plugged in politically”
Apple
The news on Apple is bullish. Apple is a market darling and a must-own stock that will therefore be pushed by huge momentum surges. The iPhone 5 launch is crushing it. And so expectations for Apple’s quarter are understandably going up. That’s going to lead to a stock surge that gets amplified by the momentum that comes from Apple’s size in the Nasdaq and S&P500 as closet indexers are forced to buy to prevent underperforming their benchmarks. But what happens when the upgrade cycle wanes? I think the onslaught from Android is relentless and I expect Android to regain share, causing Apple to disappoint. When they miss early next year, there actually may be another gimme for Apple since this quarter gives Apple slack. A second miss would be unforgivable though and momentum would shift abruptly. This is how I see things now.
Apple iPhone 5 fever rages despite grumbling over maps | Reuters
“Apple Inc fans queued around city blocks worldwide on Friday to get their hands on the new iPhone 5, pointing to a strong holiday season for the consumer device maker despite grumblings about the mapping app in the new smartphone.”
German court rules Samsung, Motorola do not infringe on Apple ‘touch event’ patent
“The Mannheim Regional Court on Thursday ruled against Apple’s claim that Android devices infringe on the company’s patent regarding how a multitouch device handles so-called “touch events.””
the understatement: Quantifying the Impending iOS 6 Maps Backlash
“In total, 63 countries with a combined population of 5 billion people will be without one or more of these features they previously had in iOS. Apple is risking upsetting 70% of the world’s population1, seemingly without much greater purpose than speeding the removal of their rival Google from iOS. Few consumers care about such battles though, nor should they have to.”
Google has an iOS 6 Maps app awaiting approval. It is solely up to Apple to approve. | 9to5Mac
“we’ve heard Google has been building separate versions of a iOS GoogleMaps.app for quite a while that goes back years. Additionally, we’ve learned an updated iOS 6 version of the Google Maps.app has been submitted to Apple. It is awaiting approval, however, and that could take some time. It took a year for Apple to approve Google Voice, for instance”
Who benefits from iOS6’s crappy maps? – Anil Dash
“The classic criticism that thoughtless Apple haters use against the company is that it makes products that are pretty but dumb. Usually those criticisms are by people who don’t understand the value of a comprehensible user experience, frustrated by the reality that many people will eagerly trade the open-ended technologies of competitors for the simple and satisfying experience that Apple provides.
But this time, they’re right: Apple’s made a new product that actually is pretty but dumb. Worse, they’ve used their platform dominance to privilege their own app over a competitor’s offering, even though it’s a worse experience for users. This is the new Maps in iOS 6.”
Apple Maps App Takes Reality Distortion to a Whole New Level – John Paczkowski – Mobile – AllThingsD
“spokeswoman Trudy Miller. “We are excited to offer this service with innovative new features like Flyover, turn by turn navigation, and Siri integration. We launched this new map service knowing it is a major initiative and that we are just getting started with it. Maps is a cloud-based solution and the more people use it, the better it will get. We appreciate all of the customer feedback and are working hard to make the customer experience even better.””
Jeffrey Gundlach Is Not Having a Good Month – Deal Journal – WSJ
Burglarised and short Apple. Reminds me of a friend trying to short JDS Uniphase and similar outfits during the telecom bubble. It’s a losing game. These are momentum stocks. I think Apple can go a lot higher. Only when it misses again next year because of the relentless onslaught from low-priced Android product flooding the market, will it be different.
Samsung releases new “Next Best Thing” ad for Galaxy S3, makes fun of “innovative” iPhone 5 [VIDEO]
This is funny:
“Samsung has just released a new 90 second ad spot for the Samsung Galaxy S3, and it takes us back to the build-up to the Galaxy S3′s launch. Yep, that’s right — it’s a new “next best thing” ad, and this time all the Apple fans waiting in line for the iPhone 5 are teeming with anguish over the fact that it’s already bested by the Samsung Galaxy S3.”
Road rage: ‘Amazing iOS 6 Tumblr” shows off best Apple Maps hiccups | VentureBeat
““The reason Apple likely released Maps as it stands today is because they felt that they had to throw Google out as soon as possible,” said Thielking. “There was no customer outcry for an improved Maps app on iOS, although Android’s native app was technically superior. Apple rushed it and once they announced it, they couldn’t really go back.””
QE Infinity
Then finally, there’s QE. EVERYONE is doing QE in the developed world. Look at the mass of stories below. It’s simply breathtaking. The latest QE participant is Denmark with its own LTRO to match the ECB’s. The thing is, this is a competitive currency devaluation here. Denmark is informally pegged to the euro. So the ECB’s aggressive stance means increased demand for Danish Kroner and so the Danes are forced to provide their own liquidity. This is also why the Swiss are intervening in currency markets to protect their currency against appreciation to the euro.
That’s also what we saw in Japan’s QE8 move because of their currency’s move higher versus the US dollar. This is killing Japanese exports given China’s dollar peg and the Japanese are now seeing current account deficits instead of surpluses. The trade problems make the Chinese-Japanese conflict all the more severe on the foreign policy front. This looks to be a potential black swan because there are risks of a trade war.
Finally, note that Brazil has reacted angrily to developed economy QE maneuvers. They insist they will take capital control measures to prevent hot money flows. Let’s see if this is just rhetoric or something real.
QE doesn’t work though. Two good articles from James Galbraith and on Paul Volcker demonstrate lucid explanations as to why we should be skeptical.
Brazil may fire up tax artillery in ‘currency war’ | Reuters
As I explained on RT last week, this is what we should expect:
“Brazil threatened on Friday a further clampdown on speculative foreign capital, firing a warning shot in a “currency war” its finance minister blamed on money-printing by Western central banks.
Finance Minister Guido Mantega said Brazil would not allow its currency, the real, to strengthen as a result of aggressive monetary stimulus by the United States and other developed nations.
“If necessary … we have (the option) of short-term capital taxes,” he told reporters on the sidelines of an Economist conference in London.”
Denmark’s $17 Billion Rescue Gives Banks Carry Trade – Bloomberg
Denmark is having a housing bust. So this is a form of QE to recapitalize the banks on the sly. EVERYONE is doing this.
“Denmark, the world’s third-biggest mortgage bond market, is about to get as much as $17 billion from banks looking for somewhere to invest cheap central bank cash, helping to end the longest losing streak since January.
Danske Bank A/S (DANSKE), the country’s biggest lender, estimates most of the proceeds from three-year Danish central bank loans will go into similar-maturity assets in Denmark’s $480 billion mortgage-bond market, where yields exceed returns on government debt. “
Junk-Bond Fund Deposits Soar to Highest This Year as ETFs Lead – Bloomberg
“Investors funneled the second- biggest amount of cash ever and the most this year into high- yield bond funds as the Federal Reserve’s announcement of new stimulus measures pushed them toward riskier assets.”
Quantitative easing isn’t magic | James K Galbraith | Comment is free | The Guardian
“What should we make of the latest moves to kickstart the US economy, and to save the euro? As the late, great Harvard chaplain Peter Gomes said to my graduating class many years ago, about our degrees: “There is less there than meets the eye.””
QE3 will not fix America’s problems, warns Paul Volcker – Telegraph
“Paul Volcker, the former Federal Reserve chairman credited with taming the inflationary threat of the 1970s, has warned that further quantitative easing will fail to repair economies in Europe and the US.”
Fed stimulus won’t end until unemployment hits 6 percent: Gross | Reuters
“PIMCO’S Bill Gross, who runs the world’s largest bond fund, said on Thursday that he does not see the Federal Reserve pulling back from its quantitative easing policies until the U.S. unemployment rate at least drops to 6 percent.”
More QE coming, Bank of England minutes suggest – Telegraph
“More money printing is likely within months despite signs that inflation is proving stickier than expected, economists said, after minutes from the Bank of England’s rate-setting meeting revealed that policymakers are poised to vote for further quantitative easing.”
Hawks Are Marginalized – Tim Duy’s Fed Watch
“Fed hawks are largely marginalized. Their views have not and will not have a significant impact on policy making. They will only appear to have an impact on policy if the data signals that a policy shift is needed. Given the current set of policymakers on the Fed, the hawks will only have a voice if Bernanke is replaced with one of their own. And that is when it would get interesting, as I am not sure that the moderates would follow a hawkish Chairman.”
PIMCO, DoubleLine, TCW big winners from Fed’s QE3 assault – CNBC
“The three investment firms all manage mutual funds that loaded up on mortgage-backed securities well before the Fed announced last Thursday that it would start buying $40 billion in government-backed mortgage debt each month until there’s a sharp improvement in the job market.”
Japan launches QE8 as 20-year slump drags on – Telegraph
This is what awaits the US: “Japan has launched an eighth round of quantitative easing to weaken the yen and cushion a slide back into recession.”
United States
Philadelphia Area Manufacturing Contracts for Fifth Month – Bloomberg
“The figures, which showed a slump in sales and cutbacks in employment, add to concern a pillar of the expansion is faltering. Cooling exports due to the European debt crisis, combined with slower business investment and restrained household spending in the world’s largest economy, mean manufacturing may stay depressed.”
U.S. household debt posts largest rise since 2008 | Reuters
“”It’s encouraging news. With credit growth, one would expect to see an increase in spending and investment,” said Millan Mulraine, a senior economist at TD Securities in New York.”
It doesn’t sound encouraging to me. Households should NOT be piling on debt.
Norfolk Southern: “Volume Declines in Certain Markets” to Hurt Earnings… | PRAGMATIC CAPITALISM
Like the FedEx announcement, this is an ominous sign of slowing to the point of near contraction. Watch ground, air and rail shipping for economic proxies.
Sales of U.S. Existing Homes Climb to a Two-Year High – Bloomberg
“Purchases of existing houses increased 7.8 percent to a 4.82 million annual rate, the most since May 2010, figures from the National Association of Realtors showed today in Washington. The median forecast of 78 economists surveyed by Bloomberg called for sales to increase to a 4.56 million pace. Commerce Department data showed builders began work on the most one- family homes since April 2010.”
Goldman Sachs chief Lloyd Blankfein attacks austerity for ‘killing’ US economy – Telegraph
Now the big banks are running scared of the fiscal cliff. WIll they browbeat Washington into preventing collapse?
Europe
Germany’s birthrate is the lowest in Europe – and falling fast | World news | guardian.co.uk
“Germany is a shrinking country. It has the lowest birthrate, just 1.36 children per woman, in Europe, and one of the lowest in the world.
According to the national statistics office, fewer babies were born in Germany last year than at any time in its history. A total of 663,000 children were born, 15,000 fewer than in 2010 and in stark contrast to 1964 when German births (east and west) peaked at just under 1.4 million.”
Spain moves closer to bailout as government leaks planned pension cuts | World news | The Guardian
“Sources reveal Mariano Rajoy plans to save €4bn a year as part of strategy to pre-empt eurozone’s conditions for help”
Spain needs less money for banks than first thought, says IMF chief Christine Lagarde – Telegraph
pure propaganda. A sovereign bailout is now being planned.
13 Prozent mehr: Steuereinnahmen explodieren im August – Nachrichten Wirtschaft – DIE WELT
I am astounded by this. Tax revenue is exploding in Germany. It was up 13% in August compared to a year ago. That’s huge. The juxtaposition to the periphery is equally huge. It’s almost like Germany has switched with Ireland and Spain in terms of frothy property market and economy buoying state tax revenue. Simply, wow.
BBC News – Hardtalk – Hans Werner Sinn: ‘Germany should not lead’ in Europe
“Hans Werner Sinn is one of Germany’s most prominent economists who has long argued against the size of the bailouts for debt laden eurozone countries like Greece.
He tells HARDtalk’s Katya Adler that calls for Germany to lead more in Europe is another way of saying it should pay more.”
Latvia still keen to join single currency despite euro crisis | World news | guardian.co.uk
“Latvia hopes to join euro in 2014 – and other eastern European countries with similar ambitions are watching carefully”
China
China manufacturing contracts for 11th month – Telegraph
“HSBC’s Flash China manufacturing purchasing managers’ index (PMI) hit 47.8 this month, a mild improvement from a final reading of 47.6 in August.
But the latest reading marked nearly a year of contraction, underscoring broader economic weakness and shrinking demand in key overseas markets.”
Banks
Fed’s Fisher repeats call to break up big banks | Reuters
“The financial system is “rigged” to benefit big banks, Dallas Federal Reserve Bank President Richard Fisher said on Wednesday, repeating his belief that the five largest U.S. banks should be broken up to protect the economy from another crisis.”
Banks need $488 billion to hit new capital rules | Reuters
“The world’s biggest banks would have needed to find 374 billion euros ($488 billion) if tough new capital rules to be phased in from January had been in place last year.”
Banks have 8 years to either a. get a half-trillion dollars in capital, and/or b. shrink their balance sheets dramatically and/or c. benefit from QE-induced asset inflation.
German banks gain extra six months to apply Basel rules: sources | Reuters
“The Bundesbank and banking supervisor Bafin will give banks in Europe’s largest economy until mid-2013, six months after the target starting date, to get reporting and controlling structures in place as well as adjust information technology systems, the sources said.”
Technology
Personal assistant Android app Maluuba tries to out do Siri — Tech News and Analysis
“Maluuba began as a project between three University of Waterloo students and in February it raised $2 million from Samsung Ventures. The company is now trying to expand to more topics to take on more actions for users. And it’s planning its own SDK to welcome other developers who want to integrate with Maluuba.”
Trulia Shares Surge as Much as 43 Percent in IPO – Tricia Duryee – Commerce – AllThingsD
With QE3 on the table, I could now be wrong about the IPO bubble bursting. The risk on trade is coming back.
“Why would Facebook quietly hide everyone’s real email addresses and only display @facebook.com addresses on our profiles? Signs, rumors, and one source point to pressure from Apple to join forces and keep Gmail addresses from being pulled in by iOS 6 Facebook contact sync.”
Which Password Manager Is The Most Secure?
BBC News – Microsoft defeats Google over a third patent in Germany
“Samsung, HTC and others pay a licence to use the technology, but Motorola had resisted.
Google now faces additional sales restrictions on its products in Germany unless it makes significant changes to its Android operating system.”
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