Market Share

The question Du Jour is, "Has margin compression been fully priced into this stock?" or more to the point "Is it time to buy Apple shares as a value play?"

A generation of economists and students of macroeconomics were taught that the Quantity Theory of Money described the relationship between money and prices in the economy. 

Last week, Bill Gross did not mince his words when he said that he now "sees bubbles everywhere" and that "when that stops there will be repercussions" but for now Benny and the Inkjets, not to mention his band of merry statist men, who take from the poor and give to the wealthy, are playing the music on Max, and so one must dance and dance and dance. And after one legacy bond king, it was the turn of that other, ascendant one - Jeff Gundlach - to share his perspectives Bernanke's amazing bubble machine. His response, to nobody's surprise: "there is a bubble in central banking. We are drowning in central banking and quantitative easing.... And it's not ending until there are some negative consequences."

ConvergEx's Nick Colas undertook a recent trip to Afghanistan.  As he notes, the country has a long way to go to reestablish a viable economy and political stability, but he saw enough to be optimistic on both counts.  Security around the capital is tight, and Afghan troops look professional and disciplined.  There is ample food on display in countless local grocery stands.  Girls go to school throughout the city, although women are a less common sight on the streets.  Scarcity makes for odd economic outcomes – the only passenger car you’ll see is a Toyota Corolla, imported from different countries.  No Afghan will be surprised that you are a tourist in their country – they are still very proud of its history and resilience.  Westerners there will assume you are “On business.” Here are seven “Postcards from Kabul” with his last observations from this trip.

Overnight risk continues to ignore all newsflow (today the economic reporting finally picks up with advance retail sales due at 8:30 am as expectations for a second modest decline in a row of -0.3%) and is focused entirely on what the consensus decides to make of the Hilsenrath piece, even as the difficulty level was raised a notch following another late Sunday Hilsenrath piece, which puts more variable into the "tapering" equation, and whose focus is whether Bernanke will be replaced by Janet Yellen, Geithner or Summers, or anyone. With all three classified as permadoves, one does scratch their head how the market can be confused: worst case Fed tapers by $10/20 billion per month, market tumbles, then Bernanke's replacement or Ben himself ploughs on even more aggressively with QE. QED.

This one post contains comprehensive profit margin analysis apps, 15 minutes of prescient Apple video analysis, and basically better research than you'll find in a year's worth of Goldman research. Don't belive me? Post a compariosn for all to see.

• U.S. Bulks Up to Combat Iran (WSJ)
• Taking sides in Syria is hard choice for Israel (Reuters)
• Gold Traders Most Bearish in Three Years After Drop (BBG)
• It's a Hard Job Predicting Payrolls Number  (WSJ)
• EU economies to breach deficit limits as economic picture darkens (FT)
• IBM Says U.S. Justice Investigating Bribery Allegations (BBG)
• At Texas fertilizer plant, a history of theft, tampering (Reuters)
• SAC Sets Plan to Dock Pay in Cases of Wrongdoing (WSJ) - "in case of"?
• EU to propose duties on Chinese solar panels (Reuters)
• Billionaire Kaiser Exploiting Charity Loophole With Boats (BBG)
• SEC Zeroing In on 'Prime' Funds (WSJ)
• Apple Avoids $9.2 Billion in Taxes With Debt Deal (BBG)
• China April official services PMI at 54.5 vs 55.6 in March (Reuters)

999 basis point drop in earning power in less than a year! Whoa, let's trip over ourselves and lock in bond rates of 70bips over treasuries for 30 years. 1st we have margin compression, now we have common sense compression!

Last time it issued bonds was in 1996, when it flirted with bankruptcy. But now a new era is dawning.

• Turn to Religion Split Bomb Suspects' Home (WSJ)
• The propaganda is back for the 4th year in a row: Spring Swoon Sequel No Reason for Economic Growth Scare in U.S. (BBG)
• Bernanke Jackson Hole Absence Contrasts With Greenspan Adulation (BBG)
• Large economies promise to boost growth (FT)
• Tata Faces Crisis as $20 Billion Spent on Water (BBG)
• U.S. Eyes Pushback On China Hacking (WSJ)
• Fed's Bernanke sees no U.S. inflation risks: Nowotny (Reuters)
• Austerity on Trial With U.S. Versus Europe Amid New Evidence (BBG)
• Eurozone anti-austerity camp on the rise (FT)
• Spain Aims to Soften Budget Cuts (WSJ)
• Japan's Aso Calls Recovery 'Few Years' Away (WSJ)
• BOJ Said to Consider Price Forecast Upgrade (WSJ)

Due to decades of unreserved credit growth that temporarily boosted the appearance of sustainable economic growth and prosperity, rational economic behavior cannot produce real (inflation-adjusted) economic growth from current levels. The nominal sizes of advanced economies have grown far larger than the rational scope of production that would be needed to sustain them. This fundamental problem explains best the current state of affairs: malaise (i.e., bank system de-leveraging and economic stagnation) spreading through the means of production and the need for increasing policy intervention to stabilize goods, service and asset prices (by depressing the first three and inflating the last?). We live and work in a contrived meta-economy that can be managed through narrow channels in financial and state capitals. Given the overwhelming past misallocation of capital cited above, we think the most important realization for investors in the current environment is that price levels of goods, services and assets may be biased to rise but they are not sustainable in real (inflation-adjusted) terms. The crowd is ignoring the obvious, as all signs point towards the next currency reset.

As we have been warning for a while now, Japan wanted inflation and is certainly getting it, just in all the wrong places. While Abe has been desperate to transfer the collapse in the yen and the (transitory) surge in the Nikkei to the all important increase in wages, and the much sought-after wealth effect, the reality is that corporate input costs are rising far faster than revenues, and wages will be the last thing profit and earnings-conscious companies raise. As for the Japanese consumer, trained by 30 years of deflation, any profits in the stock market will be promptly converted to cold hard cash and bank deposits which represents that vast majority of Japanese financial assets, which means a double whammy for companies who will also see a drop in sales volumes, crushing margins even more as a result. One company which could no longer tolerate soaring energy and food costs (both of which we described previously here and here), is McDonalds, and as the FT reports, the fast-food chain announced today that the price of its entry-level hamburger would increase by 20% from ¥100 to ¥120, while a cheeseburger would now cost ¥150 instead of ¥120.

• Venezuela Says Chávez Successor Wins Vote (WSJ)
• China growth risks in focus as first quarter data falls short (Reuters)
• Japan Gets Calls From U.S. to Europe Not to Drive Down Yen (BBG)
• EU Set to Clash on Bank Deal as Germany Sees Treaty Limit (BBG)
• Dish Launches $25.5 Billion Bid for Sprint (WSJ)
• Commodities Tumble, Stocks Slide as China Growth Slows (BBG)
• Top fund managers take home $8bn less (FT)
• Obama Programs Derided by Republicans as Pejorative Entitlements (BBG)
• Gene swapping makes new China bird flu a moving target (Reuters)
• McDonald's Cranks Up The Volume on 'Value' (WSJ)
• UK pension deficits set to rise by £100bn (FT)

Overview of the major central bank meetings and data preview as well as the latest from Cyprus and Italy.

Amidst the debacles, fiascos, and nightmares is a scrappy industry that uses ingenuity and the right amount of hops to beat Wall-Street-engineered giants.