Month: January 2018

European Credit Markets Plunge To 6-Month Lows; Stocks Tank

“Whatever it takes” may not be enough to save this..

 

Despite the ongoing money-printing and delusion of ECB bond purchases, European credit markets are crashing.

Investment-Grade European corporate bond yields spiked to 6-month highs today – diverging notably from the flow of central bank buying…

 

And as credit weakens so stocks tumbled most in over 6 weeks…

 

 

Which sent Europe’s VIX surging…

 

 

But US VIX is back above EU VIX – by the most since August 2015’s China-Deval flash crash…

 

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House Judiciary Tells FBI To Preserve McCabe Emails Pertaining To Trump Election

The noose around the now former FBI Deputy Director Andrew McCabe appears to be getting tighter.

Just hours after news that McCabe was departing the FBI, allegedly forced out from his position, the Chair of the House Judiciary Committee Chairman, Republican Bob Goodlatte released a a letter urging FBI Director Christopher Wray to preserve Mr. McCabe’s emails, and all other communications, before his official departure from the agency.

From Goodlatte’s statement:

“Today’s news that FBI Deputy Director Andrew McCabe is stepping down from the Bureau is overdue. Recent revelations call into question Mr. McCabe’s leadership in the top operational post in the FBI.  However, Mr. McCabe’s departure certainly does not mean that we are done rooting out the problems at the FBI. I continue to be extremely troubled by the decisions made by the FBI during the 2016 presidential election and the role senior FBI officials played in these questionable decisions and irregularities.

“The only way to ensure the FBI remains the premier law enforcement agency in the world is to ensure that the leadership at the Bureau holds the trust of the American people. This change in leadership at the FBI is a good first step in repairing the damage to their reputation.”

And from his letter, highlights ours:

Deputy Director McCabe’s decision to step down comes at a time where a confluence of events and reporting show serious irregularities in the FBI and DOJ’s investigation of former Secretary of State Hillary Clinton’s mishandling of classified information. Deputy Director McCabe was prominently involved in both that investigation and the FBI’s pre-Special Counsel investigation into allegations of collusion between the Trump campaign and Russia. It is essential that the FBI preserve Mr. McCabe’s emails, and all other communications, before his official departure from the agency.

Here is the request to preserve McCabe’s emails and documents:

This Committee currently has an investigation open on the FBI’s handling of the events surrounding the 2016 election. It is therefore essential that we have all of Deputy Director McCabe’s documents and communications pertaining to the 2016 election. It is also in the public interest that all documents and communications pertaining to Mr. McCabe’s involvement in the pre-Special Counsel Russia investigation be preserved from destruction or deletion. These measures are critical to ensure that this Committee and others can perform necessary and robust Congressional oversight.

Many have suggested that the timing of McCabe’s abrupt departure – just as the FISA memo was set to be released -was not accidental. Although confirmation will have to wait, at least until such time as the FBI assures the public that Hillary Clinton’s Bleach-Bit wasn’t used on its own servers to delete a few thousand emails…

* * *

Full Goodlatte letter below (link):

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GE just signaled the next crisis and nobody’s paying attention

Earlier this month, General Electric took a $6.2 billion charge to its insurance unit for the fourth quarter. And the company said it will set aside another $15 billion over seven years to bolster reserves at GE Capital.

The charge had to do with long-term care policies (to pay for nursing homes and other late-life care) GE holds on its books.

So, one of the oldest and most highly-regarded companies in America just made a small, $21 billion miscalculation. Oops.

Keep in mind, GE’s entire market cap is only $140 billion.

The insurance charge, along with costs tied to the US tax plan, led GE to a $9.64 billion loss in the fourth quarter.

Then last week, GE announced the Securities and Exchange Commission (SEC) was investigating the company’s accounting practices (specifically how the company books revenue from long-term service contracts on things like power-plant repairs and jet-engine maintenance).

But this isn’t GE’s first run in with the SEC…

The company’s accounting practices have long been considered a “black box.” The New York Times even published a story in 2009 comparing the company to Enron – the energy giant brought down by fraudulent accounting.

And is all started with GE’s legendary former CEO Jack Welch.

Welch would regularly beat Wall Street’s earnings estimates by a penny or two. And he was named manager of the century by Fortune Magazine for his ability to pump GE’s stock.

And while Welch is lauded for his “six sigma” management, it seems his real talent was using GE’s many divisions to move assets around and goose earnings to hit short-term numbers.

The creative accounting caught up with GE in 2009, when the company paid $50 million to settle SEC allegations it had used improper accounting methods to boost numbers in 2002 and 2003.

Among the strategies GE used to make its 2003 numbers was selling railroad cars to banks, with side deals and verbal promises to assure the banks they couldn’t lose money on the deal.

Enron used the same trick in 1999 when it “sold” Nigerian barges to Merrill Lynch, allowing the company to fake a $12 million profit.

Today GE is a $140 billion company (shares are down by nearly half over the past 12 month). The company has nearly $160 billion in debt. And in fiscal year 2016, the company lost $41 billion in cash.

GE’s financial performance makes my favorite whipping boy, Netflix, look like a piker.

GE got here, in part, because the government guaranteed all of the company’s debts until 2012 to help it survive the Great Financial Crisis.

Then the Fed lowered interest rates and printed trillions of dollars to goose the economy.

Instead of using this beneficial environment to repair its horrible balance sheet, GE spent some $50 billion buying back stock and paying dividends… and allowed Welch’s successor, Jeff Immelt, to walk away with $211 million (despite the company erasing $150 billion of market cap value during his tenure).

GE has gotten away with this behavior because we’re in the middle of one of the largest asset booms in history. The markets are at all-time highs. And nobody asks the tough questions when they’re making money.

It doesn’t take a giant pin to prick the bubble. It just takes something unexpected… Nobody ever knows what will set off the next crisis.

But in GE’s case, you can bet there isn’t just one cockroach.

Plus, interest rates are rising today (the 10-year Treasury is above 2.7%) and the Fed is taking away the quantitative easing punch bowl. What will happen to overly indebted companies like GE (who are likely covering up more huge losses) when the credit dries up and debt service gets way more expensive?

Mind you, GE already can’t afford its debt.

GE is just one example of a potential crisis in the making.

Maybe a bank sets off the next crisis…

I just read a Wall Street Journal piece about “drive by appraisals.” When the big institutional investors, like private equity giant Blackstone, started buying tens of thousands of individual homes, they needed a quick way to appraise the properties to get loans.

Blackstone and its lender, Deutsche Bank, settled on these drive by appraisals, where brokers give their price opinion of the property. These assessments, called broker price opinions (BPOs) were outlawed by congress after the crisis.

But the prohibition doesn’t apply to investors buying tens of thousands of homes (of course you don’t want to have an accurate asset value for collateral behind really big loans).

Sometimes brokers will even outsource the process to India, where companies will use Google Earth and real estate website to come up with home values.

BPOs have been used to value homes backing more than $20 billion of bonds sold by companies like Blackstone.

As Warren Buffett says, “you never know who’s swimming naked until the tide goes out.”

Just know, there are major losses – and likely fraud – hiding out there today. But it’s gone largely ignored because of the one-way market we’ve experienced since 2010.

GE and these drive by loans are just two examples. And the worst is yet to come.

Source

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Bernie Sanders and Elizabeth Warren Wrote a Letter to Trump About Infrastructure. It’s 3 Pages of Protectionist Nonsense.

Sen. Bernie SandersA group of senators is pressuring Trump to make his infrastructure proposal as cost-ineffective as possible by adding protectionist provisions to it.

“As you draft your infrastructure proposal, we encourage you to not only protect existing ‘Buy America’ laws, but work with Congress to expand these protections,” reads the Friday letter (first made public Monday) signed by such progressive luminaries as Elizabeth Warren (D–Mass.), Bernie Sanders (I–Vt.), and Sherrod Brown (D–Ohio). Such a move, these senators say, will “improve wages, boost growth, and support American manufacturers.”

To judge from the letter’s extensive quotes from Trump’s own speeches and executive orders, protectionist procurement requirements are one area where #resistance progressives and the president are in agreement.

Trump’s inaugural address promised a government that would “buy American and hire American.” A few months later, he signed an executive order in Kenosha, Wisconsin, which promised to crack down on waivers for “Buy American” provisions on federal projects.

Current federal law requires that infrastructure projects receiving federal dollars source a certain percentage of materials—typically iron, steel, and “manufactured goods”—from domestic producers. Federal cabinet heads have broad authority to waive these requirements if they impose undue costs, if the materials are not available in sufficient quantity, or if it would otherwise be in “the public interest.”

That “public interest” provision allows the government pretty broad authority to skirt Buy America requirements, which they often do—and for good reason, says Baruch Feigenbaum, a transportation analyst with the Reason Foundation (the nonprofit that publishes this website).

“Buy America basically makes things more expensive. Instead of getting the most cost-effective materials from throughout the globe, you’re forced to buy things in America,” he says.

The senators writing to Trump had precious little to say about cost effectiveness, instead asserting that “only strict adherence this [Buy America] principle will ensure that the economic benefits of infrastructure investment to American companies, not to foreign companies.”

“The point of an infrastructure project is to build infrastructure,” retorts Feigenbaum. Hiring workers and purchasing materials are a means to that end, not an end in themselves.

Stepped up enforcement of Buy American provisions isn’t the only infrastructure demand coming from the Democratic side of the aisle. In January of last year, Senate Dems proposed their own $1 trillion infrastructure plan composed entirely of direct federal spending; it was full of progressive priorities, including $130 billion for public transit, $100 billion for “21st century” (read: renewable) energy projects, and $20 billion for expanded broadband internet. House Democrats have proposed a $2 trillion infrastructure plan similarly composed entirely of direct federal dollars.

The Trump administration says it wants to shift as much infrastructure financing as possible onto states, local governments, and private investors. Still Republicans will likely need support from some Democrats to move an infrastructure project through the Senate, necessitating some horse-trading.

“Democrats are going to be skeptical to work with the White House, so giving Democrats Buy America stuff will make them more likely to agree to an infrastructure package,” says Feigenbaum. Given Trump’s personal support for the idea, and given the leverage Democrats hold, the administration’s forthcoming infrastructure plan is likely to contain more protectionism, and consequently less actual infrastructure investment.

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A Year Of Russian Collusion

Authored by Daniel Greenfield via Sultan Knish blog,

September 2009.

Obama hadn’t even been in office for a whole year when he gave in to Moscow’s biggest demand by dropping the missile defense shield for Poland and the Czech Republic. During his campaign, he had enthusiastically backed the defensive program, declaring, “We have to send a clear signal that Poland and other countries in that region are not going to be subject to intimidation and aggression.”

Like all of his campaign promises that were based on political triangulation, law enforcement, counterterrorism, Jerusalem and gay marriage, it was a campaign lie to be thrown out after the election.

Putin praised Obama’s sellout of our allies as a “brave decision.” In his first year, President Trump touted the sale of Patriot missiles to Poland. That was a truly brave decision.

After the Russian invasion, Obama refused to provide Ukraine with military assistance. While he had handed out weapons to Islamist terrorists in Syria and Libya, the Ukrainians were only offered MREs. The same administration that covertly shipped a fortune in foreign currency on unmarked cargo planes to Russia’s Iranian allies took months to meet Ukrainian requests for boots and spare tires.

 

The Trump administrated unapologetically approved the sale of sniper rifles to the Ukrainians.

“I’m aware of not only the extraordinary work that you’ve done on behalf of the Russian people,” Obama had gushed during his meeting with Putin. There were no protests from the same media that has since then repeatedly suggested that Trump’s praise for Putin indicated a soft spot for dictators.

Looking back at Obama’s first year and Trump’s first year, it’s easy to assess who was giving Moscow more. It wasn’t just missile defense. In the spring of ’09, Hillary was in Moscow toting a misspelled Reset Button swiped from a swimming pool. But it was Obama who had first urged a “reset or reboot”. That was the month he sent a secret hand-delivered letter to Russia offering to kill the missile shield. The Russians turned down his proposed deal, but he went through with the appeasement anyway.

Trashing missile defense was just one step in a larger effort to revive Jimmy Carter’s defense policies. In his first year, Obama began the push to ratify the Comprehensive Test Ban Treaty. CTBT would have allowed the Russians (and everyone else) to build up their nuclear arsenals while crippling our own. The new START treaty was drafted in ’09 and signed next year. And Russian violations of it were ignored.

It took a new administration to change that.

In his first phone call with Putin, President Trump blasted the START treaty as a bad deal that gave Moscow a free ride. Next month, the Pentagon officially came out and said what everyone knew.

This was a sharp contrast with the previous administration which had refused to detail Russian violations. It falsely claimed that it couldn’t answer the question because “the New START treaty forbids releasing to the public data and information obtained during implementation of the treaty.”

Before the Iran deal, the Russia deal had been Obama’s legacy. And the same lies, echo chambers and spin that would be used to cover up Iranian violations were being deployed to mask Russian violations.

The Russians couldn’t have been too surprised at Trump holding their feet to the fire. Trump had blasted the START treaty during the third presidential debate while Hillary Clinton had rambled on about cyberattacks. The Russians would have been far more concerned about nukes than keyboards.

That was the same debate where Hillary Clinton had accused Trump of being Putin’s “puppet”.

But if that’s true, where are the concessions and the appeasement? Every tangible foreign policy issue that the commentariat at conspiratorial lefty media outlets like the Washington Post, the Huffington Post and ThinkProgress had seized on as evidence of Trump’s collusion has come up short.

Remember when Trump was secretly conspiring to lift sanctions for Exxon-Mobil’s Russian drilling project?

“Could Massive Russian Oil Deal with Exxon Explain Why Putin Appears to Have Meddled in US Election?”, Democracy Now shrieked. “Trump-Putin Bromance: Election Hacking, Oil Drilling,” the Huffington Post caterwauled.

ThinkProgress made them seem restrained. “Trump, Putin, and ExxonMobil team up to destroy the planet.”

“Pick of Exxon CEO for Secretary of State clarifies why Putin wanted Trump elected: a $500 billion oil deal killed by sanctions,” the sub yammered. Trump, Putin and oil represented “the gravest threat to humanity (and democracy) since the rise of the Axis powers”.

Just one problem. Trump refused to let the deal happen. So much for that conspiracy theory.

Seizing on the potential Exxon deal was an act of desperation. The left was quick to juggle Russia collusion theories, but had trouble coming up with anything that Russia actually got from Trump.

Not only wasn’t there anything like Obama’s Year One windfall of appeasement, but Moscow was getting nothing but trouble. The new National Defense Strategy lists Russia as a major threat. It’s a return to the Republican view of Russia as a geopolitical threat that Obama had mocked Romney for.

The Washington Post, which boasts a new Russia-Trump conspiracy theory every five hours, responded by claiming that Trump’s policy of confronting Russia is exactly what Vladimir Putin wants. “Trump’s strategy pushes confrontation with Russia, and Moscow is pleased,” a Post op-ed declared.

What better evidence could there be that Trump is Putin’s puppet than that he’s standing up to him?

The new Russia conspiracy meme borrows the old Obama spin on Iran and ISIS which accused critics of “playing into their hands” by trying to fight them, instead of appeasing them. It was classic Orwellian spin. “Weakness is strength”, “lies are truth” and “opposition is collusion”. But it said something about the weakness of the collusion reality that the Post was forced to rely on such weak Rhodes-ian spin.

What had Trump done for Russia? Well he stood up to it. And that’s exactly what Putin wants.

The media’s case for collusion comes down to the hacking of Democrat emails. But while having Podesta’s missives exposed to daylight was clearly a traumatic event for the Dems, it’s not exactly up there with letting the Russians have a free hand in Europe. Or letting its Iranian allies go nuclear.

The media has blasted us with headlines about the meeting between Trump Jr. and a Russian lawyer about the Magnitsky Act. But a year later, the Magnitsky Act is doing just fine. There’s been no review. Obama had singlehandedly dismantled the Cuban embargo. If Trump had really wanted to, the sanctions on Russia would be a memory. But instead the sanctions keep on coming.

The media made much of Trump’s signing statement to CAATSA criticizing its intrusion on his authority. Obama had repeatedly made similar objections, though using very different rhetoric, in signing statements to previous bills. When the administration missed the October 1 sanctions deadline, the media again rolled out the conspiracy theories. “The Trump administration is delaying Russia sanctions that Congress demanded,” Vox bleated. The sanctions were sent in the very next day.

The media has come to specialize in spinning conspiracy theories out of process. It’s safer to focus on the trees, because then they don’t have to notice that there’s no forest. But it’s a sign of just how little it has to work with when it comes to real life policy as opposed to the conspiracy theories of its bubble.

“What did Putin want from Trump and what did he actually get?” a Newsweek article inquires. It’s forced to conclude that the answer is nothing. Russia received a whole lot from Obama in his first year. Trump has dealt it a series of setbacks instead. Newsweek concludes that Putin helped elect Trump, but got nothing in return. That would make Putin rather stupid. And no one has yet accused him of that.

But that’s what the current collusion conspiracy theories of the left have irrationally been reduced to. Putin helped elect Trump. And got nothing from Trump for it. Now it’s time to impeach Trump anyway.

Backing Trump never made any sense. Republicans have traditionally been more hostile to Russia. And Trump’s entire pitch was nationalism. Nationalist leaders in small countries might collaborate with Putin, but the nationalist leader of the United States could only end up on a collision course with Russia.

Obama’s first year was a golden period for Russia because he didn’t believe in national interests. Trump does. The left inevitably accuses the right of its own sins. Trump didn’t collude with Russia. Obama did.

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Nonsensical FDA Ban On Vaping Products Faces Three New Legal Challenges

A 2016 ruling by the Food and Drug Administration effectively banned new vaping products from the market unless they undergo an extensive, and expensive, approval process that was designed for traditional cigarettes. The so-called “deeming rule” also prevents e-cigarettes from being marketed as safer alternatives to traditional cigarettes or as a way to help smokers quit.

Lawsuits filed Tuesday in federal courts in Minnesota, Texas, and Washington, D.C., ask judges to overturn that ruling on that grounds that such regulations must come from Congress, or at least from presidential-appointed agency heads.

The decision to force electronic cigarettes and other vaping products to comply with the 1997 Tobacco Control Act is a head-scratcher for a number of reasons—not least of which being that e-cigarettes contain no tobacco. Forcing e-cigarettes to comply with a regulatory scheme devised for cigarettes, one that predates the introduction of e-cigarettes into the marketplace, has hurt vaping businesses and made it harder for smokers to switch from combustible cigarettes to the relatively safer electronic variety, which use a heating element and nicotine-laced liquids. Under the terms of Tobacco Control Act, vaping manufactures and sellers cannot market their products as a more healthy alternative to cigarettes that help smokers quit, despite the fact that study after study has shown that they are.

Steve Green, owner of California-based Mountain Vapors and one of the plaintiffs in the lawsuit filed Tuesday in federal court in Washington, D.C., says the FDA’s rule-change has damaged his business and his customers. Worse, it’s stopped him from being able to share his personal story of using e-cigarettes to kick his smoking habit.

“For years I smoked two-and-a-half packs of cigarettes a day, and it nearly gave me emphysema,” says Green. “Vaping freed me from my addiction and the doctor says I’ve recovered.”

Vaping businesses in Michigan and North Dakota are also part of the lawsuit launched in D.C. Separately, a lawsuit was filed in federal court in Minnesota by a group of four small vape shops in the state and the Minnesota-based nonprofit Tobacco Harm Reduction 4 Life. Joosie Vapes, a vape shop in Mesquite, Texas, filed a federal lawsuit in the state. All three challenges are being backed by the Pacific Legal Foundation, a libertarian law firm, and all three make the same basic argument about the legality of the Food and Drug Administration’s decision to apply the Tobacco Control Act to e-cigarettes.

“Rules that affect the American people must be issued by officials who are answerable to the political process, not by bureaucrats who have no political accountability,” says Thomas Berry, an attorney with PLF. “The Constitution requires that regulations with the force of law must be approved by agency executives nominated by the President and confirmed by the Senate.”

By contrast, the FDA’s deeming rule was issued by Leslie Kux, an associate commissioner for policy, a career civil service employee at the FDA.

The consequences of that rule are significant. Bringing any new e-cigarette products to the market will now require an application to the FDA and the administration’s approval. That process will cost from $182,000 to $2 million for e-liquids and from $286,000 to $2.6 million for e-cigarettes themselves, the FDA estimates. That’s a prohibitively high expense for many potential products, and it leaves bigger companies in control of the e-cigarette market.

Berry says the FDA’s rule also flaunts the First Amendment by forcing vaping businesses to “run a regulatory gauntlet” before being allowed to speak openly about their products. Under the Tobacco Control Act, which prohibits unapproved “modified risk” claims, e-cigarette companies are not allowed to advertise the main advantage of their products—that they are healthier than traditional cigarettes.

The deeming rule survived an earlier court challenge that sought to overturn the 2016 rulemaking on the grounds that it exceeded the FDA’s authority.

While the lawsuits seek the repeal of the FDA’s decision to force e-cigarettes into the Tobacco Control Act’s regulations, the Trump administration could reverse course on its own without input from the courts.

The FDA has an opportunity to recognize that distinction by granting a Modified Risk Tobacco Product application for e-cigarettes, allowing those products to be sold as a better alternative to smoking. As Guy Bentley, a research associate with the Reason Foundation (which publishes Reason.com) noted recently, it’s the “deadly smoke caused by setting tobacco on fire sucking into the lungs that are responsible for the deaths of 480,000 Americans each year—not nicotine.”

Here’s more on PLF’s new lawsuits:

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Mnuchin: “I Absolutely Support A Strong Dollar Over The Longer Term”

Here we go again.

A week after Treasury Secretary Steven Mnuchin unleashed FX vol chaos when he said in Davos that “a weaker dollar is good for us as it relates to trade and opportunities”, which spread to the bond market and most recently to stocks, Mnuchin was on the tape again moments ago, and during a hearing at the Senate Banking Committee in DC., the former Goldmanite said that he “absolutely supports a strong dollar over the long term”, adding that “I strongly support we have a free currency market that we don’t intervene in.”

As for the key issue, namely day to day fluctuations in the USD, Mnuchin said that the short-term level of dollar “is not a concern.”

Mnuchin also said that his comments on dollar in Davos “were blown out of proportion by media” and were in no way “intended to talk down dollar.”

In response, there was a modest knee jerk reaction higher in USD with USDJPY rising above 108.80 briefly, and the BBDXY bouncing but it has been a controlled reaction as the market has learned to ignore the Mnuchin “noise.”

Finally, discussing the upcoming federal debt-ceiling negotiation, Mnuchin says “we are very open to bipartisan solutions to figure out something as an alternative to the current system, which I think many of us would agree doesn’t work very well.”

Good luck with that, especially if the government is shut down in the weeks leading into the debt ceiling X-Date, after which the US government will be officially in technical default.

 

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Deutsche Slams Apple: The iPhone X Price Is Too Damn High

In the latest Wall Street attack on Apple, one day after a report that the company is slashing its iPhone X production in half due to “surprisingly low demand”, today Deutsche Bank writes that Apple’s new IPhone models are too expensive to fuel a so-called “super cycle” and Street estimates for the March and June quarters are still too high.

In a note from Deutsche analyst Sherri Scribner, she repeats that recent datapoints on iPhone sales continue to point to weaker-than-expected demand for the new iPhone models (X, 8 and 8+), which as Scribner gleefully notes “is not a surprise to us” because “we have been arguing since last February, that iPhone demand expectations were too optimistic and that the higher price of new models would pressure unit demand. This appears to be playing out, with numerous Asian supply chain data points suggesting iPhone production plans are being cut.”

Deutsche also makes the point that the market for iPhones is now a “refresh” one, not a super cycle one as the new features in the devices aren’t enough to drive non-early adopters to buy.

Adding salt to the wounds, the German bank claims that iPhone X demand is not living up to expectations, and explains that the 10th anniversary iPhone was expected to drive a strong iPhone refresh this fall, “with July 2017 Street expectations looking for iPhone units to be up 12% Y/ Y in FY-18.”

However, after initial tight supply due to component shortages, our checks of wait times for the iPhone X showed that the phone became more easily available by the end of November and improved through December. In addition, numerous Asian supply chain commentary from Digitimes, Taiwan Economic Daily, Reuters, and Nikkei have suggested that C1Q production build plans have been cut by up to 50% over the past month. Our Asian supply chain analyst Birdy Lu has remained more cautious on build plans, expecting 52M total iPhone units to be produced in C1Q-18, 25M which are expected to be iPhone X. Recent comments from Nikkei are even lower, suggesting total C1Q-18 iPhone production could be only 50M with iPhone X accounting for 20M.

A little history of iPhones and the progression of innovation from Apple, or lack thereof as the case may be in recent years:

Over the 10 years since the first iPhone was introduced, the form factor for smartphones has not substantially changed. Early on, the iPhone saw more significant reductions in weight and thickness with each new iteration, as well as improvements in display, speed, battery life and memory. However, in recent years, these feature changes have been more modest and largely undetectable to most smartphone users, with the average consumer having a hard time distinguishing between an iPhone 6 and an iPhone 8. As a result, we believe smartphone buyers aren’t as compelled to buy the latest phone when it comes out, because their current phone is generally about as good. In addition, the price of the iPhone and other high-end smartphones remains high, with Apple having an average selling price of roughly $650 over the past 2 years, making iPhones significantly more expensive than most televisions and gaming consoles, and about as expensive as many home appliances and an average personal computer.

 

We believe this increasing lack of interest in new phone models is supported by Google trends data. As seen in the chart above, Google searches for each of the new iPhone models released after the iPhone 6 have been lower. The chart shows the relative amount of Google searches for each phone in relation to the iPhone 6, which saw the highest searches (September 2014=100). As seen above, the iPhone 6 had the highest search interest, while the iPhone 6s saw only limited interest when it was announced in September 2015. The iPhone 7 generated more interest, but the iPhone 8 and X both saw lower interest than both the iPhone 6 and the iPhone 7, based on worldwide search data. We believe this data confirms recent Asian supply chain data points that suggest demand for the new iPhone X and the iPhone 8 models are below expectations and that build plans are being cut. Interestingly, recent January searches for iPhone X and iPhone 8 have fallen to only 6% and 7% of the peak levels of iPhone 6 searches, respectively, which is the same as current search levels for iPhone 6 and iPhone 7. The search results are also lower than similar iPhone 6 searches post launch, with iPhone 6 seeing searches at 14% of peak levels 3 months post launch, while iPhone 8 and iPhone X are only seeing searches in the 6-7% of peak levels 3 months post launch. The Google data does not include China, which was a significant driver of growth during the iPhone 6 cycle. However, an analysis of Weibo posts by Reuters suggests that iPhone X mentions in December were only 5M versus posts during the same period for iPhone 6, which were more than 11M. While the iPhone 6 was extremely popular in China, the data suggests that the iPhone X is less than half as popular both globally and in China.

So what happened to the Super Cycle? Good question. For one, Deutsche was never convinced that Apple would see a “super cycle’ in FY-18, explaining the bank’s caution.

Our argument has been that the phones were too expensive to drive massive adoption, consumers are keeping their phones longer because of their high cost, the market is now only a refresh market, and the iPhone X features weren’t enough to drive non-early adopters to buy new phones. We believe these trends are now playing out, and we see risk to FY-18 Street numbers. Apple’s stock saw impressive performance last year, which we attribute to both the  “anticipation trade” for iPhone X demand and the strength of overall markets, which drove passive and ETF purchases of Apple’s stock.

 However, similar to past cycles when iPhone numbers were reset lower, we do not believe shares will be able to continue to outperform as Street numbers get adjusted down.

 

While we expect AAPL’s Dec Q results will be roughly in line, we think Consensus numbers for the March and June quarters remain too high. Thus far, AAPL’s shares have not reflected lower-than-expected iPhone demand, as the stock has been helped by the strong markets and passive investment strategies. However, we expect shares to re-rate modestly lower over the next few quarters as iPhone numbers disappoint.

Numerous Asian supply chain data points indicate iPhone production plans are being cut

Expects AAPL shares to “re-rate modestly lower over the next few quarters”

 

 

 

Apple Is Said to Delay Some iOS Features: Axios
(Bloomberg) — Apple delayed some features to next year to focus on performance and quality issues, Axios reports, without saying how it got the information.
•    Postponed features include refresh of the home screen, in-car user interfaces, improvements to core apps like mail, and updates to the photo-taking, photo editing and sharing experiences
•    Features still to roll out in next iOS update include augmented reality improvements, digital health and parental controls
•    Software head Craig Federighi announced the revised plan to employees at a meeting earlier this month, Axios says
•    Apple declined to comment to Axios
•    NOTE: Jan. 24, Apple Says Health Records, New Battery Features Coming to IPhone

 

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Cryptos Are Getting Crushed Again

Having bounced back from the Coincheck-hack crash, cryptocurrencies are extending yesterday’s ugliness today and accelerating to the downside…

 

Bitcoin is back below the Coincheck crash lows…

 

There are no clear catalysts for this drop.

Deutsche Bank  executives have suggested that “governance” that will legitimize crypto investments could exist in “five to ten years.”

Originally speaking in an interview with Bloomberg on Monday, Jan. 29, Mueller cautioned against current investment in cryptocurrency as only for those “who invest speculatively” while appealing for businesses in the sphere to work together with regulators.

“Once security and the corresponding trust have been created, cryptocurrencies can be assessed and evaluated like established asset classes,” he forecast.

“It’s possible that the required governance will be in existence in five to ten years.”

Deutsche Bank has traditionally taken a bearish view on cryptocurrencies as prices rise, cautioning in December that a major fall in Bitcoin was being “discounted as a small issue” by financial markets.

The lack of volatility in traditional stocks was driving investor interest in more risky assets such as Bitcoin, fellow Deutsche Bank analyst Masao Muraki determined in a note mid-January.

“Now, a growing number of institutional investors are watching cryptocurrencies as the frontier of risk-taking to evaluate the sustainability of asset prices,” he wrote.

Germany continues to fall behind in its treatment of cryptocurrencies at consumer level, providing a stark contrast to initiatives in other countries, such as neighboring Switzerland.

Earlier this month, the country’s central bank director nonetheless precluded comments from UK and US lawmakers at the World Economic Forum 2018 that regulation of cryptocurrency should be a joint international effort.

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As a reminder this early-year weakness in crypto is not unusual…

As CoinTelegraph notes, the lead up to Chinese New Year is one of high spending as people book all sorts of travel and holidays, not to mention buy presents. Thus, just like Christmas and December is a time for spending in the West, January has a similar pattern in the east.

With Bitcoin’s value almost halving from $20,000 in the middle of December to $10,000 at its worst in January, Wallin is both unperturbed or surprised.

“The January drop is a recurring theme in cryptocurrencies as people celebrating the Chinese New Year, aka Lunar New Year, exchange their crypto for fiat currency,” explains Alexander Wallin, CEO of trading social network SprinkleBit, as quoted by Bloomberg.

“The timing is about four to six weeks before the lunar year when most people make their travel arrangements and start buying presents,” he added.

The holiday takes place on Feb. 16; however, the build-up is where people start to spend their money. And with the Chinese population heavily vested in Bitcoin, it has a huge role to play on the movement of the market.

The thoughts are that people have been taking their profits into the build-up of the New Year, turning their Bitcoin into fiat currency to use for gift buying.

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Americans Have Never Been More Confident That Stocks Are Going Higher

The Conference Board’s Consumer Confidence headline measure beat expectations in January (printing 125.4 against expectations of 123.0), rebounding from its December drop.

However, the bounce was once again predicated on ‘hope’ as current situation confidence actually dropped modestly…

“Consumer confidence improved in January after declining in December,” said Lynn Franco, Director of Economic Indicators at The Conference Board.

“Consumers’ assessment of current conditions decreased slightly, but remains at historically strong levels.

Expectations improved, though consumers were somewhat ambivalent about their income prospects over the coming months, perhaps the result of some uncertainty regarding the impact of the tax plan. Overall, however, consumers remain quite confident that the solid pace of growth seen in late 2017 will continue into 2018.”

Consumers’ optimism about the short-term outlook improved in January, following a sharp decline in December. The percentage of consumers anticipating business conditions to improve over the next six months increased marginally, from 21.6 percent to 22.0 percent, while those expecting business conditions to worsen increased from 9.0 percent to 9.8 percent.

However, regarding their short-term income prospects, the percentage of consumers expecting an improvement decreased from 22.7 percent to 20.4 percent, while the proportion expecting a decrease also declined, from 9.0 percent to 7.7 percent.

As a reminder, the yawning gap between exuberant confidence and desperately low savings rates has not ended well in the past…

 

And with more Americans than ever before now confident that stocks will rise in the next 12 months…

What could possibly go wrong?

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