Today’s links have three major themes. They are the continuing economic and political problems in Europe, the impact of the global growth slowdown on earnings and the escalating mobile war between Apple and Android.
First on the European front, in Spain, Portugal and Greece the story is of austerity, debe deflation and depression given the numbers now coming out of each country. Germany is being pressed on the Greek bailout because it has become obvious that Greece needs a haircut as austerity alone will never see the country meet targets. Politically, this is a no-go in an election year as next year is in Germany. German Chancellor Merkel could see support from within her own governing coalition ranks crumble if she takes a pro-haircut approach. Moreover, the FDP junior partner is polling poorly and has nothing to lose in this coalition fight. They are most against bailouts.
On the earnings front, we are seeing cyclical companies like Dow take charges to reflect slower demand. To me, this is a warning sign that the earnings cycle has peaked and is rolling over. In the absence of continued high deficits/stimulus, I expect earnings surprises to be increasingly negative and to impact shares. Note that the Imperial Tobacco article points to extreme weakness in the Spanish domestic market if a defensive consumer non-cyclical is having such a hard time.
In the mobile war, the one thing I want to highlight here is the declining customer loyalty at Apple, where we see a number of Apple’s customers willing to give up an iPhone because they believe Android represents a viable alternative. I still believe most Apple customers will continue to be locked in for a long time to come. But the declining loyalty statistics speak more to the draw Android could have for new smartphone users, with more going to Android. We are already seeing greater penetration in Europe for Android where the iPhone 5 has staved off penetration in the US. I expect this trend to continue as the product cycle in the Android space is continuous given the number of handset and tablet makers. One big note is the move by the US Department of Defense away from Blackberry, a former staple in the corporate environment. To me, this article says that Android and iOS are robust enough platforms for corporate use and that Blackberry is going to lose customers in droves soon as corporations swing to platforms with larger scale and long-term viability. Blackberry is done.
Europe
Medienbericht: Dexia braucht bis zu sechs Milliarden Euro – Banken – Unternehmen – Handelsblatt
According to Belgian daily Le Soir, sources in the Belgian government say that Dexia, the nationalised Franco-Belgian bank, needs another 6 billion euros to be recapitalised. By the 8th of November the exact amount will be clear.
Eurozone woes weigh on Merkel’s majority – FT.com
“Angela Merkel’s centre-right coalition of Christian Democrats and Free Democrats are anxious about the prospect of voting for yet more financial aid for Greece, and for a programme for Spain, which could unleash unlimited bond-buying by the European Central Bank.
Leading parliamentarians have in recent days sounded more sympathetic towards more help for Athens, but almost every one thinks the politics of eurozone bailouts are becoming more fraught a year ahead of elections.”
German Politicians Demand to See Gold in US Federal Reserve – SPIEGEL ONLINE
“For decades, almost half of Germany’s gold has been stored deep below the Federal Reserve Bank of New York. Now, with the euro crisis swirling, German politicians are asking their central bankers to take stock of the reserves. Some even say that the gold should be shipped home.”
BBC News – Greece agrees deal with creditors on austerity plan
“Details of the budget cuts remain sketchy, but Mr Samaras is seeking broader powers to privatise public services.
However, given the dissent among members of the three-party coalition government, the delay in voting on the package will give Mr Samaras more time to reach a consensus.
He has warned that Greece will run out of cash next month unless it receives 31.2bn euros in loans from the EU-IMF bailout fund.”
El PIB interanual cae el 1,6%, la peor tasa desde finales de 2009 – CincoDías.com
Spanish GDP has fallen 1.6% in the last year, the worst performance since 2009. It is clear that austerity has introduced a deadly Greek-like debt deflation in Spain.
This article serves as a warning that labor market slack is no guarantee that inflation cannot become embedded, despite the many times I have questioned this in the US case. In Spain, inflation has jumped up to 3.5% from a low of 1.9% earlier in the year. Most of this is due to a hike in the VAT, however. So it’s not clear whether this is a one-off adjustment or a new trend..
Solo un 37% de las viviendas que se venden se financia con hipoteca – CincoDías.com
Property sales are low in pain right now, with only 30,000 transactions going through each month. 37% of these are now being financed without benefit of a mortgage. The crisis and tight credit conditions have caused a reduction in credit availability and so more and more people qualified to buy must do so without a mortgage.
Griechen-Schuldenschnitt kein Thema – Wirtschaft – KURIER.at
According to Austrian paper Kurier, the Wednesday meeting of European finance ministers will not discuss Greek debt haircuts. Yes, they will discuss next steps in dealing with the situation in Greece. But, according to the paper, there is so much opposition to another Greek haircut that it won’t even be discussed.
Huge tax hikes set to be approved in Portugal – European, Business – Independent.ie
“PORTUGAL’S parliament is expected to approve the biggest tax hikes in its modern democratic history today, paving the way for a court fight over a budget the government says it urgently needs to keep a €78bn bailout afloat.”
The German bloc will have to take its bitter medicine in Greece – Telegraph Blogs
“The IMF simply lost its political way in Greece. It knew – or should have known from dozens on rescue operations around the world – that Greece would crash into a self-feeding spiral without a rapid debt restructuring and a devaluation.
Both channels were blocked because of the sanctity of the EMU Project. (Though default would come later, in a capricious fashion, singling out pension funds, insurers, and private creditors only).
The policy never had any chance of working for Greece. The IMF under Strauss-Kahn went along with the EMU agenda, pretending all was well, sacrificing the Greeks to gain time for the European financial system to build up safety buffers.”
Transcript of ’44 Bretton Woods Meeting Found at Treasury – NYTimes.com
“Historians had never known that a transcript existed for the event held in the heat of World War II, when delegates from 44 allied nations fighting Hitler gathered in the mountains of New Hampshire to create the International Monetary Fund and the World Bank. But there were three copies in archives and libraries around Washington that had never been made public, until now.”
Earnings
Dow Chemical to take charge of up to $1.1 billion | Reuters
“Dow, the largest U.S. chemical maker, said the restructuring program – its second of 2012 – was necessary because of dropping demand for its plastics and other products.”
Imperial Warns Spain’s Economy Set to Worsen – WSJ.com
“Spain is one of Europe’s key smoking markets, and Imperial’s Spanish unit was valued at £2.7 billion when it acquired Spanish rival Altadis in 2008. But the maker of Davidoff cigarettes Tuesday took a non-cash charge to cut the goodwill, or intangible, value of its assets, reflecting the progressively downbeat outlook for the debt-ridden country. The impairment meant Imperial’s net profit for the year ending Sept. 30 fell to £678 million from £1.8 billion a year earlier.
Tobacco stocks are traditionally considered a safe retreat for defensive investors, even during economic downturns. Cigarettes are seen as one of the last discretionary spending indulgences to be given up by cash-strapped smokers seeking solace for their worries in troubled times, thereby providing a consistent revenue stream for the world’s biggest tobacco makers.
But unemployment in Spain hit a record of just over 25% in the third quarter—the highest rate in the euro zone—and the Spanish government has warned the jobless total may rise still further amid attempts to reduce the country’s budget deficit through austerity measures such as cutting public wages and unemployment benefits and raising sales taxes.”
Panasonic on track for second $10bn loss – FT.com
“Panasonic has warned it will suffer a loss of nearly $10bn for the second consecutive year, discarding an earlier prediction that it would return to profit, in a move that underscores the deep and persistent problems facing Japan’s consumer electronics sector.”
Technology
Reviewers confirm 4th-gen iPad is merely an incremental refresh
“Alongside the release of iPad mini reviews, the embargo was also lifted for reports on the fourth-generation iPad, which brought incremental changes and tweaks including the faster A6X processor.”
This is what the reviews say about iPad Mini — Apple News, Tips and Reviews
“The Wi-Fi version of Apple’s iPad Mini goes on sale on Friday. It is already sold out and the reviews, which hit the web tonight, seem to like the iPad Mini. However, most remain wistful for the more modern Retina display on the larger iPad.”
iOS growth outpaces Android in U.S. and U.K., but not elsewhere | Apple – CNET News
“Figures released today from Kantar Worldpanel ComTech show Android continuing to make market share gains across Europe in the 12 weeks of sales that ended September 30. In that region, Google’s mobile OS rose to a 67 percent share, compared with 51 percent for the same stretch a year ago, while iOS edged down slightly to 16.5 percent.
It was a different story in the U.S. for the 12-week period. In Apple’s home market, iOS leaped from 21.5 percent a year ago to nearly 38 percent, while Android slipped from just over 66 percent to 57.5 percent. Apple also saw an increase in the U.K. (to 28 percent, up from 18 percent), and Android did, too (to 58 percent, up from 53 percent).
Apple sold more than 5 million units of the iPhone 5 during the smartphone’s debut weekend in late September, and for that quarter as a whole (ended September 29), it sold 26.9 million iPhones overall, an increase of 58 percent from the same period last year.
Kantar expects the Apple growth trend to continue.”
Apple iPhone Owner Loyalty Declines
“”There is no doubt that Apple is continuing its success in retaining existing user base while attracting new customers,” commented Paul Brown, Director at Strategy Analytics’ User Experience Practice. “However, negative press prompted by a perceived lack of recent innovation by Apple has meant we are starting to see some growth in the number of previously highly loyal consumers who are now reconsidering whether or not they will purchase a new iPhone for their next device.””
Pentagon plans to buy iPhones, Androids in threat to BlackBerry’s market share – The Washington Post
“The Pentagon is planning to open its network for the first time to Apple iPhones and devices running Google’s Android operating system, a threat to BlackBerry maker Research in Motion.
The Defense Department plans to hire a contractor to build a system that will manage and secure at least 162,500 Android devices and Apple products such as the iPad, according to a document posted online Oct. 22. The system may be expanded to handle 8 million devices, the department said.”
Samsung officially adds iPhone 5 to infringement lawsuit | Electronista
“Still reeling from its major court defeat against Apple in the US and a string of legal losses in other countries (punctuated by the occasional — but minor — victory), Samsung has now added the iPhone 5 to its new lawsuit against Apple, this time claiming that all LTE-equipped mobile devices Apple makes are in violation of eight patents the Korean “fast follower” device maker holds. The lawsuit is widely seen as weak, since at least some of Samsung’s LTE patents would likely be declared “standards-essential” and subject to FRAND regulations.”