Archives for August 2012

August 2012 - Page 20 of 20 - Money Morning - Only the News You Can Profit From

It's Apple vs. Samsung in a Fight for Mobile (Nasdaq: AAPL)

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The multi-front war between mobile computing rivals Apple Inc. (Nasdaq: AAPL) and Samsung Electronics Co. (PINK: SSNLF) moved into a California courtroom this week.

Brewing for months, the patent trial officially began on Monday with jury selection. Apple is suing Samsung for $2.5 billion in damages, accusing the Korean company of "slavishly copying" both the hardware and software of its iPhone design.

Samsung has emerged as the biggest threat to the iPhone's continuing growth. Samsung sold 50 million smartphones in the June quarter, by far the most of any vendor.

Meanwhile, AAPL reported sales of just 26 million iPhones in its June quarter – a major concern since Apple gets more than half of its revenue and profits from the iPhone.

Samsung has countersued, claiming the iPhone infringes on patents it holds that enable all smartphones to function. Samsung wants a 2.4% licensing fee for each iPhone sold, which would cost Apple a whopping $2 billion per year.

The ferocity of the fight stems from what's at stake. Both want to dominate the rapidly growing market for mobile computing devices — smartphones and tablets.

"This is a cage match for rights to one of the most lucrative markets in the world," Colin Gillis, an analyst at BGC Financial, told the Los Angeles Times. "They're fighting on everything: They're fighting on innovation, they're fighting on price, they're fighting in the courts."

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Investors Look to Fed to Stimulate Stock Market Today

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After another round of mixed economic indicators was released this morning, investors are looking towards the Federal Reserve to rally the stock market today (Wednesday).

Private-sector jobs increased by 163,000 ahead of economists' expectations of 125,000, but down from last month's 172,000. If you remember, last month's number was thought to be a precursor to a great nonfarm payroll report but that number can in at an underwhelming 80,000 jobs.

Investors hope for 100,000 jobs added when July's U.S. jobs report is issued Friday.

Manufacturing continues to slow across the U.S. and overseas, with the latest data slipping from previous months:

  • The U.S Markit PMI index fell to 51.4 from 52.5 in June and the ISM reading was again below 50 with a July level of 49.8. This was the first time the ISM index has been below 50 since the end of the recession in mid-2009.
  • The United Kingdom's measure of manufacturing, Markit/CIPS Manufacturing PMI index, declined at its fastest rate in more than three years falling from 48.4 in June to 45.4 in July.
  • Manufacturing in the Eurozone fell to a three-year low of 44 and two different levels of China's manufacturing hovered around 50. Any reading below 50 signals contraction.

While many analysts do not expect the Fed to make drastic moves such as initiating QE3 the consensus is that they will take some form of action. This might be continuing the promise of lower interest rates through 2015 as opposed to 2014, and a strong hint at further stimulus in the near future.

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Today's FOMC Meeting Too Early for Action

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There is little doubt that the struggling U.S. economy could use some goosing, and the U.S. Federal Reserve is in a position to deliver a good boost.

But, a move isn't likely at the conclusion of today's (Wednesday) Federal Open Market Committee (FOMC) meeting.

While a fresh spate of data suggests new steps from the central bank are warranted, many economists warn that the economy doesn't need immediate action – especially since the prior moves from the Fed haven't been very effective.

Growth has clearly slowed and unemployment remains elevated, but the sluggish pace of the U.S. economy may not be slow enough to compel the Fed to make an impactful move today, and any Fed decisions will be pushed to later in the year.

Today's FOMC Meeting: Not Ready for QE3

The U.S. Commerce Department last week reported that the U.S. economy grew at a paltry 1.5% annual rate in the second quarter, down from 2% in the first. Plus, the Labor Department reported initial jobless claims ticked up in the latest week while the unemployment level remains at a sickly 8.2%.

Fed chief Ben Bernanke maintains that his team is prepared to take further action if unemployment stays high, but he remains vague on what action might be taken.

With the reeling recession in Europe and a slowdown in stalwart China, global growth has been severely dented and is weighing on the U.S. economy. Those factors increase the odds of a third round of quantitative easing (QE3), but the Fed may not pull the trigger Wednesday.

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Try as He Might, Mario Draghi Cannot Save the Euro

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Of all the pyramid schemes that governments and banks have perpetrated in the last decade, the Eurozone debt crisis is the most damaging.

No amount of posturing by European Central Bank President Mario Draghi can change that fact.

The market may like what Draghi has to say about the fate of the euro, but tomorrow's big ECB meeting will change little.  

The massive amount of money Draghi will need to print is far too great for the German taxpayer or the ECB's balance sheet.

Eventually, the Eurozone will break up and drag the global economy right down with it.

In the long run, that will mark the beginning of the recovery, but in the short run it will precipitate a banking and economic crisis that will make 2008 look like child's play.

As investors, we had better be prepared.

Politicians Doomed the Euro

The Euro was a reasonably sensible idea, although without political integration it was always likely to cause trouble.

What's more, the technical side of it was for the first ten years handled very well by Otmar Issing at the European Central Bank.  Issing spent his career in the Deutsche Bundesbank and knew what a decent currency looked like.

However, two decisions taken by politicians doomed the currency.

One was to admit Greece into the union, which to any competent observer was a hopelessly corrupt and uncompetitive economy propped up by giant EU subsidies.

More important, though, was the design of the TARGET (Trans-European Automated Real-time Gross Settlement Express Transfer System) payments system which was replaced in November 2007 by TARGET 2.

As I wrote in an earlier article, it is the secret system that blew another hole in the euro.

Target 2 requires all payments between banks in different countries to go through the national central banks (thus giving those otherwise redundant entities something to do).

Theoretically that's the same system as in the U.S., where many payments are made through the regional Federal Reserve Banks.

However, in the U.S. the larger banks deal direct, and outstanding payments in the regional Fed banks are cleared regularly. What that means is that if Alabama runs a payments deficit with New York, no large balances are allowed to build up.

Conversely, there has been no automatic clearing between the central banks in Europe. This may sound arcane and boring, but I promise you it is not.

These payment imbalances have two nasty side effects.

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