The magic has gone indeed? Apples iPhone 5 shows good, but not extremely good results… just like I predicted

Not to boast on past achievements, but some of my past predictions have been quite accurate.

On September 14, 2012 and immediate after the lackluster reception of the new Apple iPhone 5 by, I wrote:

Although the critical reception has been moderate, I still expect the iPhone 5 to be an immediate sales monster that will probably bring a very good Christmas season for Apple. Apple has wealthly and extremely loyal customers that want to be seen with the latest products from this powerhouse brand. What could go wrong, you would ask?!

Nevertheless, it seems that the true magic in Cupertino has gone. Just like I already predicted in 2011, ‘Apple has become a brand a little bit more ordinary’.

The deadliest remark on the new iPhone 5 was that of Adam Leach: “the surprise was that there was no surprise” (see second red quote). Tim Cook’s desperately optimistic words “What places Apple way out in front of the competition is how they work so well together[…]", suddenly seem nothing more than cheap marketing babble.

Does this mean that the iPhone 5 is “just another smartphone” and Apple “just another brand”? In a sense, yes. People, to start with the critics, expected a miracle from the new Apple iPhone, but received a beautiful and probably very well-built smartphone with a number of new features. But a miracle?! No way, sir.

I expect the aura of magic to slowly disappear from Apple in the coming years. Tim Cook seems definitely not a magician like Steve Jobs was. The good news is that the brand will survive, without a doubt. The bad news could be that the shareholders might have to accept a lower future stock rate for their $669 Apple shares.

The iPhone 5 did become the sales monster that I predicted in the aforementioned article, but the second half of my prediction – that it is just another smartphone – seems also to be true.

At the beginning of this week, the aura of untouchability of Apple started to flake seriously as a consequence of the somewhat disappointing sales figures of the iPhone 5. These sales figures, although still very good, have been so much disappointing that large shipments of small HD screens from Sharp had to be cancelled. The Financial Times wrote on this story:

Apple: through a screen darkly

Is iPhone maker so large that usual rules of growth and valuation do not apply?

Apple has cut first-quarter orders for iPhone 5 screens by half from their original levels, according to “people familiar with the situation”.

Assuming the reports are true and demand-driven, how much does the stock stand to be hit? Part of the pitch on Apple is its astonishingly low valuation: its trailing price/earnings multiple stands at a remarkably cheap 11 times. That may suggest that a sharp slowdown in growth – sales expanded roughly 25 per cent year on year in the past two quarters – is priced in. Analysts are more bullish: they expect 22 and 15 per cent growth in the next two years, without much margin compression.

Here is a less comforting thought: Apple is so large, is already such an important part of virtually every equity portfolio, that the usual rules of growth and valuation do not apply. In that case, we really are in unfamiliar territory.

I skipped a few lines of this unusually weak article from the FT, in which the reporter complains that he knows so little about Apple, because the company spreads so little information about itself. I thought that reporters were there just to find out missing information after all in such cases; not to sulk about not having found it.

However, the conclusion seems to be spot on. I also don’t believe that the Apple stock will show much growth anymore. To the contrary, the stock might lose some more of its rating.

I have the following reasons for these conclusions:

• The market for smartphones might become saturated very soon. Especially in the western countries, Japan and Russia, everybody that wants a smartphone and can afford one, has already a smartphone. The current smartphones are already very good and many smartphones are already prepared for 4G reception. Why bother to buy a new one?!
  
• Apple’s magic has indeed gone in my humble opinion, turning it into a much more ordinary brand.
  
• The legal battles between Apple and Samsung seem more and more like a catfight between Nicki Minaj and Jennifer Lopez. There is something at stake indeed, but in the end you are bored to death with the useless brawls! By doing so, the brand runs the risk of losing sympathy from its customers, turning wins in these legal battles into pyrrhic victories.
   
  
• Apple products are much overpriced, when you compare them with the smartphones and tablets that the (fierce) competition produces. Brands like Samsung, HTC, Sony and Huawei seem to offer phones of equal quality and ergonomics for a much more competitive price. Even the despised Nokias (with Windows 8) and Blackberries could be back with a vengeance very soon. When the customers will use their brains, they will start to look for a good phone for the best price: not the phone of the A-brand for the worst price.
  
• More and more people who care for the environment and human rights (those are really not only the treehuggers) will look Argus-eyed at the situation at Foxconn, making this infamous Chinese manufacturer a possible liability for Apple. In my opinion: If you must pay $800 for an iPhone, then you will expect that it is created under near-perfect circumstances for the Chinese workers. Regular readers of my blog know that it hasn’t been like that until last year unfortunately.

I will finish with my September, 2012 prediction about the stock rate: The bad news could be that the shareholders might have to accept a lower future stock rate for their $669 Apple shares.

If people have been bold or reckless enough to follow this non-advice and short the Apple stock in September 2012, they would read this article with an emphatic and happy smile, as you can see in the chart, courtesy of Bloomberg:

Stock rate development of AAPL during the last 6 months
Chart courtesy of Bloomberg
Click to enlarge

This article reflects my personal opinions and should not be treated as an investment advice!

David Cameron shows his variety of the diplomatical pneumonia and cancels his Dutch speech… due to the hostage situation in Algeria.

PM David Cameron of the United Kingdom must be a regular reader of my blog. Last Sunday, I wrote about Cameron and his designated speech on the EU, to be held in The Netherlands:

[...] there is probably not much leeway for Cameron within the European Commission and at the government leaders of the European countries to claim a special position for the British in the Union: a position that does maintain the benefits from the EU, but without its obvious drawbacks for the British.

The UK already enjoyed a number of special agreements since the 80’s and Cameron’s position within the EU did not become stronger, since he decided to boycot a new treaty for the EU and the Euro-zone in December, 2011. 

[...] 

If Cameron’s speech is too much anti-EU, then he passes a point-of-no-return that hardly leaves him any other option then heading for the door of the EU. In this case, not only the EU, but also the US will be angry with the UK, thus further isolating the island.

However, when his speech is not sufficiently aggressive and critical towards the EU, he will not only lose the confidence of a large part of the British population, but also within his own Tory party and grassroots he might become a ‘persona non grata’.

If I was David Cameron, I would start to suffer from a political pneumonia that keeps me in bed until the 23rd of January, hoping that everybody forgets about this doomed speech.

During this week and especially today, it felt like Cameron had indeed read my blog.

Initially, he put his speech forward to today (Thursday, January 17) from January 22, a strong sign of intelligence and good judgment about the German and French sensitivities concerning the Elysée treaty.

On top of that, it seems that David Cameron indeed developed the political pneumonia that was necessary to cancel this doomed speech without loss of face. In this case, it might have been the hostage situation in Algeria. Today, the Financial Times wrote on the consequences of these events for Cameron’s speech.

Cameron cancels pivotal EU speech

David Cameron has cancelled a pivotal speech on the EU in order to grapple with the unfolding hostage crisis in Algeria.

A Downing Street aide said the prime minister had taken the decision not to travel to Amsterdam for the speech on Thursday evening after information from Algeria “that means he simply cannot be away”.

Mr Cameron had sought to stay on top of the Algerian situation while travelling to Holland, even setting up a system to chair an emergency Cobra meeting with officials from Amsterdam.

However, he subsequently decided he needed to deal with the crisis in north Africa which has involved several British nationals. “We have to prepare ourselves for the possibility of more bad news ahead,” he said.

The decision to cancel the EU speech will come as a surprise to many given the enormous build-up to the event, in which Mr Cameron was set to indicate a preference for a referendum in the next parliament over Britain’s relationship with Brussels.

The Europe issue has dominated the political agenda all week with Mr Cameron buffeted by the views of eurosceptics and europhiles jostling for position on the airwaves.

Please understand me that I’m not disrespectful towards the poor hostages in Algeria and that I certainly don’t want to make jokes over their heads. I am  worried as well about the situation that they are currently in and I truly hope that all hostages will be freed without any harm done. I wish their families and loved ones all the best in these trying times.

However, I do stand with my conclusion that the situation in Algeria might be a blessing in disguise for Cameron, who now can postpone his speech into oblivion without much loss of face. His speech was doomed from the beginning for the reasons that I wrote in the aforementioned quote from my Sunday-night blog.

If a designated speech alienates either one of both parties that you do much business with, it is better not to hold it at all. At least, unless you want to say goodbye to one of these parties…

Are the rats leaving the sinking ship? Euribor suffers from a small exodus of banks in the aftermath of Liborgate.

Oh no, not me, Im a man of repute.

But the devil caught hold of my soul

and a voice called out shoot!

The Battle of Epping Forest - Genesis

During the last months, the Euribor group (i.e. European Interbank Offered Rate) – the pan-European counterpart of the worldwide accepted Libor (London Interbank Offered Rate) interest rate – suffered from an unexplained exodus of banks that officially settled the Euribor rate until recently.

From the original 44 banks in 2012, only 39 are left now and another candidate for leaving the Euribor group might be ahead. The following banks have already left the Euribor settlement group: Rabobank, Raiffeisenbank Austria AG, Landesbank Bayern (Bavaria), Citigroup inc. and DekaBank Group. The Austrian lender Erste Group Bank AG is currently reviewing its options.

This exodus among the Euribor banks cannot be seen separated from the Liborgate investigation that is hanging above the market like Damocles’ sword. Barclays PLC in the United Kingdom and UBS AG in Switzerland already admitted last year having rigged the Libor rate.

Also the Dutch Rabobank – one of the five banks now leaving the Euribor group- admitted last year that a few members of its personnel were involved in the Libor-manipulation, a fact for which they were fired a few years ago. 

The Rabobank stated that it left the Euribor-group for business-economical reasons; an explanation that must be taken with a pinch (or two) of salt unfortunately.

In my humble opinion, Rabobank – and with them some other banks, I presume – is  afraid that the investigations into Libor will be stretched out to the Euribor group as well.

Perhaps, in a transparent attempt to escape the wrath of the European and United States supervisors, these banks toss the white flag and call it a day within the Euribor group, in order to cut their losses and do anything possible in damage control. This is the reason that I suspect more banks to follow their example.

The Wall Street Journal wrote on this developing story:

Euribor Fears Rise as Rate-Setting Panel Shrinks

Worries are mounting about one of Europe's benchmark interest rates, after another bank on Wednesday decided to abandon the panel that sets the rate.

In the past four business days, three European banks have said they will stop providing data to help set the euro interbank offered rate, or Euribor, which serves as the basis for interest rates on trillions of euros in loans and other financial contracts. The latest, on Wednesday, was Austria's Raiffeisen Bank International RBI.VI +0.07% AG. Another Austrian lender, Erste Group Bank AG, EBS.VI +0.25% said Tuesday that it is reviewing its options. The departures leave 39 banks on the panel, from a peak of 44 in 2012.

"I am very concerned with the situation, absolutely. This is a serious situation," said Cedric Quéméner, a director of Euribor-EBF, whose members in the European Banking Federation set Euribor.

"Euribor needs to be reformed and quickly. Banks leaving set a bad example for other contributing banks," Mr. Quéméner said in an interview. "If we have more banks leaving, we may have no more Euribor."

Like its more-prominent cousin Libor—the London interbank offered rate—Euribor has come under scrutiny about whether banks have manipulated the rate. Barclays BARC.LN +1.71% PLC and UBS AG admitted last year that employees tried to manipulate Libor. The European Union is nearing completion of an investigation into potential collusive activity by banks in the setting of Euribor.

Euribor was set up by the European Banking Federation in 1999 to establish a new interbank reference rate within what is now the 17-country currency union. In addition to serving as a benchmark for trillions of euros in savings and loans, the European Central Bank also uses it as a factor in its monetary-policy decisions. Many mortgages across Europe track Euribor rather than the ECB benchmark rate.

The three banks that have recently left the rate-setting panel have pointed to business reasons like shifting internal priorities and what they describe as a shrinking in the bank-to-bank lending market as reasons for their departure.

Last Friday, Bayerische Landesbank and Rabobank both pulled out. Erste Group Bank said Tuesday it is also reviewing its options for its membership. Citigroup Inc. C -1.14% and Germany's DekaBank Group withdrew from the Euribor panel in 2012. Mr. Quéméner said banks "normally" have to give around 10 days' notice before they stop quoting rates.

"As of this moment there are no other banks looking to leave the Euribor panel," he said.

Although the Euribor rate is less important from a global point of view, it is much harder to rig than the Libor rate. The latter rate is settled by only 18 banks, while the former had 44 banks to settle the rate in 2012 and now still consists of 39 banks. This is a much larger group of banks, making conspiracies between groups of banks much harder and diminishing the influence of one single bank on the result of the rate settlement process.

However, it is of course more than just a wild presumption that the Euribor rate is rigged too. Why would this rigging be exclusively the domain of the Libor-rate?! The worldwide banking industry has shown over the last decades that it plays for keeps: within the rules and when the rules were too restrictive, even outside those rules. Besides that, many of the banks that are involved in settling the Libor-rate, are also involved in settling the Euribor rate.

in order to muck out the dirty stables called Libor and Euribor, the international supervisors might use any means possible to get their grasp on the perpetrators among the international banks.

In the case that other banks would get caught in rigging the Libor and/or Euribor rates, this will presumably lead to penalties in the billions of dollars for the banks and – on top of that – many years of imprisonment for the executive managers of these banks.

In that case, the battle between the international supervisors and the executive managers of the global system banks would approach Genesis’ Battle of Epping Forest much closer than many bankers would like for their good health.