I’d like to start this report off with an excerpt from the last report, which ironically excerpted the one before that – to wit:

Possibly the biggest indicator of past research being of high quality is the ability to regurgitate it in the future as new research and have said research be considered of value, or better yet of extreme value and high quality. With that being said, I’d like all to realize that Our Q1 Report Said It All – Let’s Revisit How We Started That Report…

“Apple Is In Trouble – Plain & Simple!”

Apple has successfully transformed itself from a portable and desktop computer company to a mobile device company, and managed to do so right at the crux of the mobile computing boom. As such, it has benefitted mightily, briefly becoming the largest and most respected company in the world. Alas, what goes up must eventually come down. The largesse revenues and margins gleaned by Apple brought massive competition, and in the case of Google’s Android, business models specialized in gutting the fat margins which caused Apple to prosper. As a result, margin compression ensued, but very few actually saw a sign of it until it was too late (referenceDeconstructing The Most Accurate Apple Analysis Ever).”

This quick traipse down memory lane is quite useful for Apple is now paying for the perceived above average margin displays of its recent past by reaping the extreme margin compression to be seen as it has now full transformed itself into a mobile device company. Again, as quoted from our Q1 report,

“Apple is now paying the piper for its shift into mobile by having its pipeline effectively saturated with mobile products, thus nullifying the margin expansion that the move into mobile products has brought on. Mobile products had higher margins than their desktop/laptop counterparts...

 The entire Apple story can be encapsulated in just two relatively simple charts. The first, found directly below, is profitability. Thus far, only the iPhone has been able to hold some ground but it has slowly been stripped of margin. The iPad business’s profitably is being gouged.

For those who haven’t done so, I strongly recommend that you read the last three Apple research reports. They have been absolutely on the money. Now, on to Apple’s most recent quarter…

Apple Still Has The Business and Financial Press Mesmerized With It’s RDF (Reality Distortion Field)

For some reason when I read management comments and financial statements I seem to see something totally different from Sell Side Analysts and the financial and business press. This is an excerpt from “Business Insider” on Apple’s Q4 earnings results:

Apple’s numbers are out, and they’re good. 

Revenue, EPS, and iPhone sales are ahead of expectations. iPad sales were a little worse than expected, but not too bad. 

The stock initially tanked after the numbers were out thanks to weaker than expected margin guidance. Apple guided to 36.5%-37.5%, which suggests a flat margin despite a new iPhone. 

On the company’s earnings call, it explained why margin was lighter than expected and the stock came roaring back. At last check it was down slightly in after hours trading. 

Apple’s margin will be hit by a combination of factors. It is selling new iPads that cost more to make, new laptops, foreign exchange issues, and most importantly, a $900 million sequential increase in deferred revenue thanks to all the software it is giving away with iOS and Macs. 

On the earnings call, Gene Munster of Piper Jaffray said the real margin would have been closer to 38.5%, and Apple basically confirmed it. This sent the stock climbing. 
Read more: http://www.businessinsider.com/apple-q4-earnings-2013-10#ixzz2jDN1vWa4

Let’s parse this piece by piece.

“Revenue, EPS, and iPhone sales are ahead of expectations.”

Three and a half years ago I released analysis that puts this myth to rest. Apple is one of the most accomplished of sandbagging management. Paying subscribers, reference Apple Earnings Guidance Analysis 08/12/2010

 apple sandbaging1

 

  apple sandbaging3

 

“iPad sales were a little worse than expected, but not too bad. “

I wonder how one defines “not too bad”…

ipad sales miserable and getting worse

“Apple guided to 36.5%-37.5%, which suggests a flat margin despite a new iPhone. “

I’ve warned, and warned, and warned…. 

Apple guided to 36.5%-37.5%, which suggests a flat margin despite a new iPhone. 

Apple hardware costs spiking

On the company’s earnings call, it explained why margin was lighter than expected and the stock came roaring back. At last check it was down slightly in after hours trading. 

Apple’s margin will be hit by a combination of factors. It is selling new iPads that cost more to make, new laptops, foreign exchange issues, and most importantly, a $900 million sequential increase in deferred revenue thanks to all the software it is giving away with iOS and Macs. 

On the earnings call, Gene Munster of Piper Jaffray said the real margin would have been closer to 38.5%, and Apple basically confirmed it. This sent the stock climbing. 

Apple’s margins have been and will be hit harder as I’ve predicted.  This non-sense about the deferred revenue from giving away software and Gene Munster’s “real margin” comments are utter nonsense. Apple’s reported margin IS ITS “REAL MARGIN”! The reason it is giving away its core software products for free is to compete with the entry and the threat of Microsoft’s Surface 2 tablet that comes bundled with a real, the real, office suite – Microsoft Office. This makes it real deal contender in the enterprise, where Office is not on the de facto standard – it is the standard. It also has to compete with Google’s Android who bought Quick Office and is now giving that office suite for free. For those who don’t think that makes a difference, what OS do you think took the iPad from 92% market share in 2010 to 32% market share last quarter?

There is a lot more contained in the upcoming (as in a few hours) Apple analysis for subscribers. Apple will have a very active year next year. The reason(s) is contained in the subscriber only report, in explicit detail, to be released in a few hours. I will update this post with links when it is ready for download. Yes, the truth is now for sale, and in Apple’s case you can get a month of it for $275.

I refer my subscribers to the research documents below for the answers… 

Subscribers, download the Q3 2013 valuation reports (click here to subscribe).

•  Apple 3Q2013 Valuation Update – Retail
  (Technology)
•  Apple 3Q2013 Valuation Update – Pro & Institutional
  (Technology)

 The update from two months ago is also of value for those who haven’t read it. It turns out that it was quite prescienct!

  Apple 1Q2013 update – Pro & Institutional

• (Technology)
•  Apple 1Q2013 update – Retail
  (Technology)

 See also:

 What Sell Side Wall Street Doesn’t Understand About Apple – It’s Not The Leader Of The Post PC World!!!

 The short call – October 2012, the month of Apple’s all-time high and my call to subscribers to short the stock:  Deconstructing The Most Accurate Apple Analysis Ever Made – Share Price, Market Share, Strategy and All

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/rpBq85N1Zxc/story01.htm Reggie Middleton

Now that an October taper is out of the question, bored investors, in a world in which fundamentals no longer matter, are looking forward to the next possible FOMC meetings and potential taper announcement dates, with three specific dates sticking out: December/January, which are really one cluster, and June, as possible announcement dates. Why are these dates important: because while a September tapering announcement would have resulted in a $4 trillion final Fed balance sheet (assuming the tapering proceeded to a full QE halt) before even more QE was unleashed, any subsequent taper dates imply a nice round number to the final Fed balance sheet at the end of 2014: either $4.5 trillion, assuming a January 2014 taper, or $5 trillion if the Fed waits until June to announce a tapering.

This can be seen on the following chart from Bank of America.

BofA commentary:

Markets will be especially focused on the discussion around the timing and conditions of tapering. Our Chart of the day illustrates three scenarios, the first of which is a useful reference despite not actually happening: a September 2013 start to tapering that follows the June “framework” laid out by Chairman Ben Bernanke for a mid-2014 end to asset buying. In that case, the Fed’s asset holdings would have grown to around US$4tn. A January start and a slower pace of unwind results in nearly US$4.5tn in Fed assets, while a June start (and similar slow pace to conclude) yields nearly US$5tn. Those are sizable differences.

Another way of seeing the change in market expectations, is the following chart which shows what the current tapering path looks like.

There is of course an increasingly likely third possibility: forget $4.5 or $5 trillion – with increasing chatter of a Fed that is prepared to unleash NGDP targeting, or as it is better known without its technical term: even more turbo printing in an attempt to unanchor future 2% inflation expectations, the Fed’s balance sheet may just grow forever and ever.

And with every passing day in which the Fed demonstrates a complete lack of concern about the collapsing pool of high quality collateral which the Fed monetizes at an ever faster daily net basis, this becomes the most probable outcome.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/6kApaTLwd60/story01.htm Tyler Durden

Now that an October taper is out of the question, bored investors, in a world in which fundamentals no longer matter, are looking forward to the next possible FOMC meetings and potential taper announcement dates, with three specific dates sticking out: December/January, which are really one cluster, and June, as possible announcement dates. Why are these dates important: because while a September tapering announcement would have resulted in a $4 trillion final Fed balance sheet (assuming the tapering proceeded to a full QE halt) before even more QE was unleashed, any subsequent taper dates imply a nice round number to the final Fed balance sheet at the end of 2014: either $4.5 trillion, assuming a January 2014 taper, or $5 trillion if the Fed waits until June to announce a tapering.

This can be seen on the following chart from Bank of America.

BofA commentary:

Markets will be especially focused on the discussion around the timing and conditions of tapering. Our Chart of the day illustrates three scenarios, the first of which is a useful reference despite not actually happening: a September 2013 start to tapering that follows the June “framework” laid out by Chairman Ben Bernanke for a mid-2014 end to asset buying. In that case, the Fed’s asset holdings would have grown to around US$4tn. A January start and a slower pace of unwind results in nearly US$4.5tn in Fed assets, while a June start (and similar slow pace to conclude) yields nearly US$5tn. Those are sizable differences.

Another way of seeing the change in market expectations, is the following chart which shows what the current tapering path looks like.

There is of course an increasingly likely third possibility: forget $4.5 or $5 trillion – with increasing chatter of a Fed that is prepared to unleash NGDP targeting, or as it is better known without its technical term: even more turbo printing in an attempt to unanchor future 2% inflation expectations, the Fed’s balance sheet may just grow forever and ever.

And with every passing day in which the Fed demonstrates a complete lack of concern about the collapsing pool of high quality collateral which the Fed monetizes at an ever faster daily net basis, this becomes the most probable outcome.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/6kApaTLwd60/story01.htm Tyler Durden

If US consumers were miraculously supposed to regain all their confidence when the government reopened (even if companies completely ignored said shutdown according to the epic jump in the Chicago PMI – the biggest jump in 30 years), so far that has failed to happen based on the latest weekly Bloomberg consumer comfort index, which moments ago hit -37.6 down from -36.1 a week earlier, its lowest print since October 2012. With this drop the index has extended its five-week retreat that accelerated during the federal government’s partial shutdown and has slowed – but not stopped – in the two weeks since. Today the index is 21.3 points worse than its long-term average and 6.3 points worse than this year’s average. And what is more worrisome for The Fed, they have lost “the rich” as the comfort of the highest income survey participants has fallen to its lowest in 7 months – collapsing back to its ‘normalized’ divide with the ‘poor’.

 

The rich just aren’t feeling Mr. Chairwoman’s love anymore:

The CCI, produced for Bloomberg by Langer Research Associates, is based on Americans’ ratings of the national economy, the buying climate and their personal finances. At -68.0, the national economy subindex is little changed from last week’s -68.2, its worst since early October 2012. Consistently the most pessimistic gauge of the CCI, the subindex is 36.8 points worse than its average since late 1985. Forty-two percent call the national economy “poor” – the worst possible rating – the most in more than a year.

While better, the other two subindices are struggling as well. The buying climate subindex is its worst since early June, -41.0. The personal finances subindex, at -3.8 this week, matches its lowest since early December. They’re 12.5 and 14.5 points off their respective averages.

And while traditionally, it was the poor who had the least confidence in the economy, now the rich are catching up too:  The CCI stands at +13.7 among those with annual household incomes of $100,000 or more, in positive territory for 39 weeks straight but its lowest in six weeks. By contrast it’s -69.3, its worst since early September, among those earning less than $15,000; the 83.0-point gap is its largest in three months. The gap also remains vast among those earning less $50,000 (-57.8) vs. those with incomes of $50,000 or more, -8.7.

The details: At -37.6 on its scale of -100 to +100, the CCI has lost a steep 9.5 points since Sept. 22. An unusual 4.4-point, one-week drop in the midst of the shutdown eased to 2.0 points last week and 1.5 points this week – a deceleration that holds out hope the index can stabilize.  As Bloomberg adds, “the CCI’s trajectory is still downward, the future uncertain and history only a rough guide. The index lost 5 points in the first of the 1995-6 shutdowns, then stabilized promptly. In the second, it lost 8 points, half of them in the two weeks after that shutdown ended – then recovered.”

The CCI’s recent troubles represent a significant reversal of fortune. After a run in the -30s to -50s dating to February 2008, it broke into its recovery zone, the -20s, in mid-April, and held there for 17 of the next 19 weeks. It fell in August, then started inching back in September – until the budget battle and resulting shutdown hit.

Some other data show clouds. Retail sales were down 0.1 percent in September. Home prices rose, but at a slowed pace. And the National Association of Realtors’ pending home sales index, a strong correlate of consumer sentiment, dropped 5.6 percent to its lowest since December, its largest decline since May 2010.

Among groups, the CCI is its worst among political independents, -45.7, since mid-September 2012. It is higher numerically among Democrats (-27.2) than Republicans (-29.8) for the first time since late August (before which the index was higher among Democrats than Republicans for a record 75 weeks in a row). Suggesting that bruises from the budget battles may be catching up with the GOP faithful, the index has lost 14.5 points among Republicans since mid-September (when it hit its best since September 2008). Among Democrats, it’s up by a scant 1.9 points.

The stock market, for its part, is usually another correlate of consumer sentiment – but sometimes other forces induce them to part ways, as is apparent now. And when confidence no longer has a reflexive relationship with stocks, run Forrest, run.

The index has dropped among some traditionally advantaged groups recently. Its -33.0 among men is its worst since February, down by 16.5 points since just before the shutdown. That compares with -41.9 among women, much worse, but down by just 3.0 points in the same period. The gap between the two groups is its smallest since early June.

Among those who have been to college, the index, at -26.7, is down by 13.1 points since mid-September. It’s down by just 2.2 points, by comparison, among high-school graduates (to -48.0), with the gap between the two groups also its smallest since summer.
 
The CCI is lowest since at least early April among homeowners (-27.3, vs. -52.3 among renters); among full-time workers (-27.7, vs. -44.6 among those not employed for pay); and married adults, at -32.3, vs. -52.5 among those who are separated, widowed or divorced.

In other words: suddenly nobody is confident… five years into the Fed’s most aggressive wealth transfer plan ever conceived.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/ATH6X-s-wxA/story01.htm Tyler Durden

Sometimes you just have to laugh… Chicago, it would seem, felt not just no bad impact from the government shutdown (that so many asset managers and CEOs have proclaimed as the reason for any slowdown – and the need to avoid a Taper) but it roared to its highest since March 2011. This blew expectations away by the most on record (8-sigma). New orders are at the highest level since October 2004. October’s advance in the Barometer was its biggest monthly increase in over 30 years and only the third time in the past decade the Barometer has risen for four consecutive months. US equities are not happy about this apparent ‘taper-on’ improvement (and have dropped 8 points on the release) – though it appears seasonals are playing a major part.

 

 

and in context – this is an 8 sigma beat:

 

MNI notes however that two reasons stand out for this surge:

1. Half the gains stem from seasonal adjustments, and
2. October is the time when pre-Chinese New Year orders hit

 

 

US equities are not happy at this “good” news…

 

Chart: Bloomberg

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/aMVB5gKCF88/story01.htm Tyler Durden

It was the best of times, it was the worst of times. In a little over 12 hours, the unstoppable glory of all things 2013 dot-com bubble has collapsed over 20% from its highs. After being proclaimed as “cult” by many and a “must buy” by others only last night, the opening bell this morning sees little to no BTFD’ers coming to its rescue (for now)…

 

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/kx0QmfxkjF4/story01.htm Tyler Durden

The “wedge” between ‘market-perception’ and economic reality, that we discussed in detail last night, driven by Merkel’s enabling of Draghi’s excess, has never been more extreme. As Elliott’s Paul Singer noted, things are indeed “wrong and dangerous” when politicians are proclaiming victories, stocks are at record highs, bonds risk is at multi-year lows and yet unemployment rates (most specifically among the under-25 youth of the region) soars back to record highs. A stunning 24.1% of young people across the entire euro-zone is unemployed; Spain (having ‘exited’ its nominal recession) stands at a record 56.5% youth unemployment, topped only by Greece’s mind-numbing 57.3% youth unemployment record (as Greek bond yields hit 3 year lows). France and Italy also hit record highs and Cyprus’ broad unemployment level has exploded from 28% a year ago to 43% now. Amid all of this, Germany’s youth unemployment continues to improve to a 20 year low. Recipe for disaster?

 

 

Data: Bloomberg

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/wtk_0Uk-qf4/story01.htm Tyler Durden

The “wedge” between ‘market-perception’ and economic reality, that we discussed in detail last night, driven by Merkel’s enabling of Draghi’s excess, has never been more extreme. As Elliott’s Paul Singer noted, things are indeed “wrong and dangerous” when politicians are proclaiming victories, stocks are at record highs, bonds risk is at multi-year lows and yet unemployment rates (most specifically among the under-25 youth of the region) soars back to record highs. A stunning 24.1% of young people across the entire euro-zone is unemployed; Spain (having ‘exited’ its nominal recession) stands at a record 56.5% youth unemployment, topped only by Greece’s mind-numbing 57.3% youth unemployment record (as Greek bond yields hit 3 year lows). France and Italy also hit record highs and Cyprus’ broad unemployment level has exploded from 28% a year ago to 43% now. Amid all of this, Germany’s youth unemployment continues to improve to a 20 year low. Recipe for disaster?

 

 

Data: Bloomberg

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/wtk_0Uk-qf4/story01.htm Tyler Durden

This morning, like many other mornings in the last few months, precious metals prices are being pummeled lower in a vertical dumpfest (for no apparent sudden reason other than its opening time). What is ironic about this apparent lack of demand is that around the world, demand is extreme – and is most clearly evident in India, where thanks to government intervention, physical premiums push to new record highs yet do nothing to detract from Indians buying demand (as Reuters reports supplies of the precious metal disappear). Of course, the real reason why gold and silver prices have dropped since 10/28 is that none other than "the world renowned Gartman" went long again…

 

 

Via Michael Krieger of Liberty Blitzkrieg blog,

I first reported on record high gold premiums in India a couple of weeks ago. Since then, the story has become even more interesting as Reuters reports that gold supplies have completely dried up just ahead of major gold buying festivals and despite continued record premiums. While it is clear that Indians are finding a way to buy gold anyway via black markets, this is still a very interesting story to keep an eye on.

More from Reuters:

India has imposed several restrictions on imports of gold, the biggest non-essential import item, to curb a record trade deficit. Gold imports in September fell to 7 tonnes from 162 tonnes in May.

 

Of course, if additional demand wasn’t being met via black markets the price of gold would be far lower than it is.

 

“Still gold is not available, and they are charging $120-130 (an ounce) of premiums,” said Bachhraj Bamalwa, director with the All India Gems and Jewellery Trade Federation.

 

Most of the demand is being met by recycled gold or through unofficial or illegal supply channels, traders said.

 

“Sales have dropped by 50 percent… and everything is happening according to the wishes of the government,” said Harshad Ajmera, proprietor of Kolkata-based wholesaler JJ Gold House.

I’m sure this will all work out just as the government anticipates…

Full article here.

 

but here is the real reason for this…

 

In what has become a neck-to-neck race between the two best contrarian indicators in the world, Goldman's FX antiguru Tom Stolper and, well, nobody's Dennis Gartman, recall that it was October 15 when Gartman infamously told CNBC that " "Gold Is Acting Crappy… Looks Weak… Looks Awful". The logical result was a $100 gold price ramp in the days that followed. So fast forward ten days, to October 28 when Gartman, again on CNBC, intoned his suddenly bullish stance on gold, telling CNBC " that he was now looking at another trade. " That prompted us to quickly note that logical trade to be made:

 

Gartman now long gold apparently. Time to sell it all

— zerohedge (@zerohedge) October 28, 2013

 

And sure enough, after hitting $1360 on the day of Gartman's interview, gold has since tumbled.

It goes without saying that we would urge readers to wait for the author of the "world famous Gartman letter" to start bashing gold again before going all in the yellow metal

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/ZVkYtFdEDA4/story01.htm Tyler Durden

This morning, like many other mornings in the last few months, precious metals prices are being pummeled lower in a vertical dumpfest (for no apparent sudden reason other than its opening time). What is ironic about this apparent lack of demand is that around the world, demand is extreme – and is most clearly evident in India, where thanks to government intervention, physical premiums push to new record highs yet do nothing to detract from Indians buying demand (as Reuters reports supplies of the precious metal disappear). Of course, the real reason why gold and silver prices have dropped since 10/28 is that none other than "the world renowned Gartman" went long again…

 

 

Via Michael Krieger of Liberty Blitzkrieg blog,

I first reported on record high gold premiums in India a couple of weeks ago. Since then, the story has become even more interesting as Reuters reports that gold supplies have completely dried up just ahead of major gold buying festivals and despite continued record premiums. While it is clear that Indians are finding a way to buy gold anyway via black markets, this is still a very interesting story to keep an eye on.

More from Reuters:

India has imposed several restrictions on imports of gold, the biggest non-essential import item, to curb a record trade deficit. Gold imports in September fell to 7 tonnes from 162 tonnes in May.

 

Of course, if additional demand wasn’t being met via black markets the price of gold would be far lower than it is.

 

“Still gold is not available, and they are charging $120-130 (an ounce) of premiums,” said Bachhraj Bamalwa, director with the All India Gems and Jewellery Trade Federation.

 

Most of the demand is being met by recycled gold or through unofficial or illegal supply channels, traders said.

 

“Sales have dropped by 50 percent… and everything is happening according to the wishes of the government,” said Harshad Ajmera, proprietor of Kolkata-based wholesaler JJ Gold House.

I’m sure this will all work out just as the government anticipates…

Full article here.

 

but here is the real reason for this…

 

In what has become a neck-to-neck race between the two best contrarian indicators in the world, Goldman's FX antiguru Tom Stolper and, well, nobody's Dennis Gartman, recall that it was October 15 when Gartman infamously told CNBC that " "Gold Is Acting Crappy… Looks Weak… Looks Awful". The logical result was a $100 gold price ramp in the days that followed. So fast forward ten days, to October 28 when Gartman, again on CNBC, intoned his suddenly bullish stance on gold, telling CNBC " that he was now looking at another trade. " That prompted us to quickly note that logical trade to be made:

 

Gartman now long gold apparently. Time to sell it all

— zerohedge (@zerohedge) October 28, 2013

 

And sure enough, after hitting $1360 on the day of Gartman's interview, gold has since tumbled.

It goes without saying that we would urge readers to wait for the author of the "world famous Gartman letter" to start bashing gold again before going all in the yellow metal

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/ZVkYtFdEDA4/story01.htm Tyler Durden