Category Archives: Eurovision

The Beginning of the End of the Euro Crisis?

Baruch has been a student of the wondrously dysfunctional Greek
political system long before it became fashionable, and is surprised at the
sudden relevance of what he had always thought to be rather interesting, but
not particularly useful. No longer – Greek politics is currently at the centre
of the world. What is upsetting, however, is that most everyone inside and outside Greece seems to disagree with him about what happened last week. Far from being a calamity exposing the weaknesses of the latest bailout package, Baruch thinks the ramifications of the call by Papandreou for a referendum are deeply positive. Merkel and Sarkozy, and the rest of us, should actually be grateful to him for heading off in Greece what is frankly the
biggest risk Europe and the global economy faces – political risk; specifically
“austerity ennui” on the part of the population, and pandering politicians
eager to exploit it.

Baruch is also unamused by the people who are watching what appears
a train wreck with barely disguised glee, rubbing their hands in anticipation
of the Euro’s supposedly imminent demise, starting of course with the ejection
of Greece. Your celebrated correspondent has no particular love for the common
currency, not least the silly name (“Euro-“ is a prefix, he has always thought),
but once in, the likely costs of leaving are so awful as to make it imperative
to stay in. In the case of Greece, were it to drop out of the Euro, we would be
talking about the instant impoverishment of a modern democracy, whose citizens’  life savings would be wiped out (apart from the  very rich who are able to have accounts abroad, take that, Gini co-efficient!) and the bankruptcy of every exporting enterprise. There would be mass unemployment. Imports such as energy and medicines would skyrocket in price, creating shortages; basic services would likely break down. People would die. It would be less like Argentina, more like post WW1 Germany, or maybe Eastern Europe after the collapse of communism.

Within the living memory of politically active people Greece has fought a bloody civil war, and flirted with fascism. European leaders should probably pause before inflicting this sort of stress on one of the most politically dysfunctional and divided states in Europe, a relatively big fish in the Balkan backwater, itself no stranger to conflict.

Seriously, I wouldn’t want this Pandora’s box opened even
if I was short the Euro, which I am not and which I happen to think may be a
quite bad idea if you want to make money in the near future. Yet never mind the
Eurosceptics who are actually looking forward to it, everyone else seems to be
fairly resigned to it as well. Even clever people. Felix, for instance, sees a “chaotic collapse” of Greece as “inevitable”. Josh Brown cheers him on.

I think the very awfulness of what will happen if Greece is ejected from the Euro in a messy way (and until the treaty is changed there isn’t really another way it can happen) actually makes it more likely that it doesn’t happen. No matter how nasty a generation of austerity may be, it is a walk in the park in comparison with the likely alternative.

And that realisation may just have dawned in Greece last week. Continue reading

iPorn exists! I take it all back

See full size image

(Asian Boobs)

As proprietor of a family site (in the sense that my mum sometimes reads the blog), Baruch is unwilling to show the images of one of the apparently best-selling apps on the iPhone, “ASIAN BOOBS“. Yes, it is Asian soft porn, charming oriental ladies in bras and knickers, in uncomfortable poses; it’s not pictures of vaguely silly people from China. Of course, this gives the lie to Baruch’s contention that there is no porn on the iPhone platform.

Baruch would like to claim this app only exists because someone at Apple reads Ultimi Barbarorum. No such luck.  Baruch’s scribblings on the banality of the iPhone’s walled garden might have forced the iPhone censor to respond in that inconsistent, atavistic manner of all pro “decency” censors through the ages, you would think, by allowing Asian Boobs onto the platform as a sop. But the app has apparently been a best seller for some time before Baruch wrote his post. Baruch fancies Apple have a group of blog flaks somewhere in Marketing whose job it is to influence commentary on prominent sites, or at least to report on Apple-related issues as reported in the blogosphere. The blog flak would take one look at Baruch’s traffic on some blog rating site or something and realise he didn’t have to bother.

(Don’t bother checking Asian Boobs out by the way; the app is rubbish. You don’t even get to see any nipples).

Meanwhile in another threat to Baruch’s Apple-as-victor thesis, as Dear Reader Cash Mundy points out in comments, the Android axis has been going great guns this week, with Android 2.0 launched, the announcement of a lovely Garmin-killing free navigation app from Google, and the launch of the new Motorola Droid (and a host of follow-on machines from other) to peans of praise from the techno-bloggers. Is this the point when the tide suddenly changed, the El Alamein of Apple’s global smartphone dominance?

Maybe. Who knows? I think Android is definitely likely to clean PALM’s clock, and possibly RIM’s too. But while it looks exciting and all, it also looks very fiddly. Do I want “widgets”? Whatever the hell they are. Do I want my phone constantly bleeping at me with the tweets of distant acquiantances I met once in a bar and don’t know how to tell to sod off, do I want Facebook offers of fricking virtual Bonsais and the latest appeal to stop dogs being used as shark bait force fed to me while I am in meetings or trying to play minesweeper? I suspect Android will be a mess; will all the apps work on all the different hardware configs of the thousand different manufacturers in the ecosystem? How will it work with the Verizon app store, the Vodafone store, the Google-hosted app store etc? Will it be as crap as Gmail (Baruch still has terrible problems using Gmail)? Will it actually have porn? And most importantly, will Google be able to pay it the consistent attention it deserves, outside of brief spurts of focus like we got this week? Prioritizing everything at the same time in one’s quest to organise the world’s information must be hard.

My current thinking is that Android manufacturers probably come to dominate the non-Apple part of the market, but probably don’t flatten the trajectory of iPhone adoption. Apple has many things it can do to step on the gas if it looks like someone is catching up: accelerate the end of operator exclusivity, create a portfolio of devices at different price points and/or, worst of all, decide to accept a lower gross margin, a merely impressive 50% rather than the quite astonishing 60% they are supposed to be getting, and cut price.

But let’s hope, as I said, that I’m wrong.

Kaupthinking

Mildly tragic promotional video from Kaupthing Bank, back when Iceland was in the process of leveraging itself into, well, whatever it is now. Forget Lehmans and Bear Stearns, Kaupthing was the real poster child for the debt bubble of the mid Noughties. On Acid.

Baruch has many thoughts about this video. One concerns the regrettable prevalence of infantile thinking in business discourse: “You can. If you Think You Can.” Well, no. Half the time, you probably shouldn’t.

The other idea Baruch has is how smart we think we are (“Thinking Beyond”) at times of great success, when oftentimes all we are doing is cruising for a massively spectacular bruising. Kaupthing was living a charmed life surfing on a wave of debt (“We thought we could grow our balance sheet. And we did. By 500% in 3 years”), confusing audacity and financial nous with reckless growth and easy credit. I met a couple of Kaupthing dudes a  few times. What struck me most was their sense of achievement; they were really proud of being involved in something special. The thought it could end so badly, and basically result in the ruin their country, could never have crossed their minds.

Baruch is having a fine run at the moment, as are the markets. This makes him stop and worry: is he Kaupthinking? Are we Kaupthinking now? I don’t think so; one guesses Kaupthinking properly comes at the end of periods of persistent prosperity, not after periods of existential crisis. That said, the only time we can be sure we are not Kaupthinking is when we are not actually doing very well. This should be a source of comfort, one supposes.

“Kaupthinking is beyond normal thinking”. It should be, but is it really?

HT Lara Hanna Einarsdottir, queen of the Icelandic blogosphere, apparently. And my mate Konrad.

Wait, that’s not supposed to happen

I’ve been busy. And am on holiday, having spent what feels like a week on a plane. That’s why this isn’t a totally timely post, the original story being like, 2 weeks old. But can this be true? Swedish internet traffic dropped 50% at the start of April and hasn’t recovered?

Are the French following suit? Hopefully not (though it is a much kinder way of dealing with piracy than shooting the teenagers involved in the head).

And I was always told “internet traffic always goes up”. File that away with “US house prices never go down” and “safe as money in the bank”.

Baruch imagines it would make the sales reps for Scandinavia at Cisco and Juniper even more unhappy than they were in Q1. That’s probably a few carrier class routers that just got their “sales cycles lengthened”.

Operational Leverage

Fellow Collegiant Ramster doubts Baruch, and writes:

So if the iPhone is such a gamble for Apple, what’s the alternative? Stay out of the phone business entirely?

Ramster also questions whether Apple really needs to go mass market. There’ll be enough fanboys out there, he opines, to create

 . . . a pretty decent sized niche…which leads to the question of scale that you mention. It strikes me that when a few hundred million handsets are being sold per year, a niche market can still hit numbers that would be considered mass market in any other space (e.g. 10s of millions of units/yr).

Well, Ramster, for your first question, there IS no alternative to iPhone for Apple, is there? Other than sitting on the iPod franchise and milking it for cash and managing its decline. But of course that would be a bit of a multiple shrinker.

In that sense I guess is not strictly speaking a gamble, or at least one with any optionality. It just proves that Apple may not have been in quite as strong a position as we thought.

But your second question goes to the heart of the Apple thesis I propound, and is why answering your question is deserving of a post by itself. I fear there is much misunderstanding here.

Let’s do a thought experiment. Let’s say Apple flogs “10s of millions of units/year”: 20m iPhones at USD500 a pop wholesale, which is USD 2 bn in revenues. Say Apple makes a 50% GM (I’m being generous), but has to pay 500m in R&D and 300m in SG&A (these totals may not be enough, they are just illustrative). That means Apple makes USD 200m in EBIT, a 10% margin for Apple. Oh dear. Wailing and gnashing of teeth.

But just sell 5m more units and you make 450m in EBIT, a 22.5% margin. Got that? 20% more units gives you over 100% your profit. Once you cover your cost it drops straight through to the bottom line. Or you can keep the same margin and spend more in R&D or have a cooler ad campaign or build a distribution network in Mongolia or wherever. This is what we call operational leverage. It comes from scale.

Without scale, other people with scale can come in and eat your lunch. Let’s ignore SG&A, even though it’s equally important, and just concentrate on R&D instead. Nokia spends 12 BILLION fricking dollars on R&D per year. And still has a 20% margin. If its R&D was only half as efficient they could outspend Apple’s illustrative business model above by diverting just 10% of that. Not straight away, but over 6 months, over 12 months, you’d see Nokia start to have better features than Apple, in iPhone-like models that are released before Apple’s. Moreover, Nokia would start to offer more variants to fit different tastes and budgets, and extend the business into new customer segments.

Soon Nokia will be selling more units and making more money, free EBIT to spend more on R&D. The advantage thus becomes self supporting, a virtuous circle for Nokia, a more vicious one for Apple. Eventually they have to drop out of the handset market. This is not a fanciful example. This is exactly what Nokia did to Panasonic, Ericsson, Sony, BenQ, Siemens, and Motorola. It’s why they have a 45%+ share, 3x more than anyone else.

And that’s why Apple needs to go mass market.

Eurovision 2008 is an Irony-Free Zone

It is customary to live-blog the Eurovision song contest on this site. It is what Spinoza would have wanted, great European that he was. It won’t mean anything at all to most of you, especially if you are US-based financial people, but then we only really blog for ourselves, so that’s OK. But it should mean something. Eurovision is a great window onto the current state of Europe, into the state of its development, and the mindsets of countries we know hardly at all.

More than that, for us it has largely replaced war. You Americans should try it. Have a geopolitical song contest with North Korea and Iran.

Annoyingly for you if you are interested, I’ll only be able to blog the first part, coz I have to tootle off to  the airport later and pick up a friend, who I will then have to entertain. But I’ll hopefully pick it up later.

First overall impression. Those hoping to sneer at the traditional kitsch of the Eurovision are in for a major disappointment. The songs are really really good! There’s no hopeless Balkan leather clad duffness with whips and over-acting. Even the Albanian entry was good. There hasn’t been a clunker so far, and we’re 12 songs in!! Turkey is on now, and we’re normally treated to something crap, but they are singing a really good rock ballad. I think this is extremely hopeful for our common European future! I feel more likely to support their entry into the EU, this is PROOF they can integrate! Continue reading

Apfel hat Logistikproblem! (probably)

Yo Bento. Explain this, you Apple fanboy. You know I am not a great fan of Apple, nor the iPhone as a business proposition. I think this handset venture will prove an expensive white elephant; I think it blow up Apple stock eventually. I vastly prefer Research in Motion and, until recently, Nokia, as investment ideas.

Everyone is telling me that you can’t get iPhones for love or money in Apple shops in the US, and that indeed, there’s a 5-7 day waitlist. But not to worry, there’s no component issue or supply cock-up, they are just destocking because of the imminent launch of the 3G iPhone. In the words of one inveterate Apple shill:

Folks, we’re in April. May is just around the corner. Same with June [sic]. Apple’s worldwide developer conference is on June 9 in San Francisco. It stands to reason that if a new 3G iPhone is on the way, then why in the world would Apple continue to manufacture and then stock older versions that would just collect dust on store shelves?

 So then today, basking in the warm glow of an absolutely killer RIMM quarter, calculating my vast profits, rubbing my hands and cackling, I see this: in Germany not only can you get an iPhone, absolutely no problem, but now it comes at a special price for you mein Freund. T-Mobile cut the price to 99 Euros with the top rate monthly contract of EUR89/month, and the handset goes up in price by EUR50 for every tariff plan below that.  

The article (which I won’t translate for you) says “there are only 2 possible explanations”, mentions the imminent 3G iPhone launch as one, and then points out what I have been saying all along: the demand has just not been there in Europe. So let’s get this straight: in the biggest, most loyal market for iPhones, in the most profitable channel where you don’t have any payaway and have no rivals in stock, Apple has organised it so there’s no actual stock. In the most sceptical market where demand is lowest, they have so many they need to discount. Hmm. Maybe Steve Jobs just wants Euros, like Jay-Z. Or maybe this handset business isn’t quite as easy as Apple thought. 

There are a few other issues: Continue reading

I am not the only one worried by this

Hey Bento, you remember I posted about the Large Hadron Collider about to fire up at CERN last year? Basically they haven’t been able to switch it on yet because bits of it would have fallen off or something, which cheered me up – at the time I worried that it could cause a total protonic reversal. Now it seems, it’s even worse than that; according to these dudes in Hawaii it will cause a mini black hole right under my bathroom here in Geneva which expands and expands to swallow the universe, or maybe turn the world into a small turd-like lump of “strange matter” shaped like a burrito. 

And what do the CERN scientists say to reassure us? Basically, they don’t know. According to one of them, Dr Arkani-Hamed:

because of the dice-throwing nature of quantum physics, there was some probability of almost anything happening. There is some minuscule probability, he said, “the Large Hadron Collider might make dragons that might eat us up.” 

Fucking hell.

Quants are weird

 

Came upon the most delightfully batshit website, that of Dr Espen Haug, Dolph Lundgren impersonator the co-author with Taleb of the assault on Black-Scholes-Merton option pricing I linked to in my recent history lecture.

I had imagined a tweedy academic with leather patches on his sleeves, someone not at all as interesting as Taleb. Instead Dr. Haug is a rock and roll  — maybe more Kraftwerk — trader-type, who seems to wear sunglasses indoors, and probably at night too. He calls himself “The Collector”, and has been dubbed Derivativens Konge in his native Norway, and seems something of a celebrity. He is a talented cartoonist as well, though his subject matter makes it unlikely he will achieve syndication in, say USA Today. A sample of his work is above, I hope he doesn’t mind. I would not like to see the demise of Quants who are this interesting, but as an avowed non-Gaussian, he should have a longer life expectancy.

Anyway, he linked to us, which shows admirable generosity, if possibly a lack of discernment. I have to say I was not able to follow much of the more abstruse 3D modelling of options “landscapes” on the site, my thinking sort of fuzzed up at that point. It struck me you might appreciate it more, Bento.

Eurovision!! Again.

Finals. The Swiss TV commentator has basically given up. There’s no point, he says during the Spanish entry, having the nice white outfits and the OK song. They’re not from the East. Nice song, Ireland, he says later, and you could’ve won with it a few years ago. Not now.

Swiss TV man’s pessimism is rubbing off. Just what is this Eastern domination thing about? It’s like we were nice people and invited the slightly poorer swarthy neighbours into the country club, and now they’re hogging the buffet. More than that, now they’re serving cepavici and everything seems to be made of plums. Continue reading