The Banking and Strategy Initiative

Chillin' out till it needs to be funded

The Mid-Week Trading Update: Twitter is in the game, bye Silicon Valley! (says New York and CBOE?) – TESLA and Whole Foods are not done yet. TWTR:US, TSLA:US, BMW:GR(BMW:Xetra), GS:US, MS:US, M:US, MMU:US, VEMAX:US, EEM:US, WFM:US

The ELECTRIC BMW i3

No, it isn’t filibustering democracy, the mid-week update comes anytime between Wednesday and Friday, when it is a significant tell on the trend (humanly processing undoubted machine learning and whirring engines of politics, society(the twitterati) and a Mid-West sensibility in your asymmetric information layabout that is New York ( We haven’t been in town irl for ages) and no we are not considering it being called the Friday Pre Open or the Fed Balance Sheet update (Thursday data from the Fed and the Treasury, not the Z1 or the G19)

Tesla and Innovation

TESLA earnings report showed up great performance but also underscored market’s unrealistic expectations from the hyperloop company as it fell despite a prediction for 6000 units till December and 5500 units sold in the September quarter. The great thing is they are still delivering on improving costs led by the Battery pack story. BMW reported a first loss in their Electric car experiment which many strategy followers across the world would have found to be a hooray for real innovation and BMW is still at last as likely to beat Tesla and build that brand with such an honest attempt though the Kodak example of the 90s should serve a s a warning for the luxury auto machine.

Big Banks in the Nauck Dock, Twitter shine the last of Silicon valley

First, true to the name commitment, a word on the extreme predictions in the Nauck Dock. Fritz Nauck, A Director at McKinsey is apparently the corresponding author for the report that hits the mark dead center, but is rather confirming an industry wide trend, long presupposed when the mortgage pile went higher and higher and everyone else knew it was falling apart. UBS and now Credit Suisse have reached the point where supplementary demands have been made by the regulator tht effectivey kills any chance of their Trading and Investment Banking business service and not half of it is because of scandals and Anthrax letters in the mail in London.

Second, we are right and Twitter is so wrong, as it chose to hide critical information including investor stakes sold in the melee and revenues at the big ‘social media’ site were a paltry $168 mln in the latest quarter. The Linked In experiment shows how the business model flip demands real investment and not legacy reordering of ideas or technology and the Amazon success shows how people really believe in reinvestment and in research that delivers innovation. Twitter and other trigger happy Silicon Valley playthings are unlikely t o do anything but repeat the Andreessen episodes(Netscpape) for Web 2.0 and investment bankers know it is time to move on. We love twitter too, but Silicon valley hopes of a free lunch from investors, then investment bankers and then even their “eyeballs’ or whatever else they treat their highly SME geared platforms to are just not making the change fast enough  and the Superbowl and the Sports franchises are much more likely to outsmart them in the coming decade on the exchanges.

More Twitter

Twitter will retain buoyancy as the greenshoe kicks in , underwriters buying the 10.5 mln extra on offer for the first 30 days but follow up bying from institutions are unlikely and the blackout period for post ipo sales for the 200 mln odd shares with promoters and significant investors expires in 90 days. A $25 Bln valuation is unlikely to be sustained and a $10 Bln watermark tested before the twitter model is seen for its true value. The company went with $26 on the IPO and market mechanisms functioned smoothly thru the sale.

The much kicked around Muni-market though is producing a lot of positive churn and though the Houston Astrodome could not be saved in this week’s updates, there are many smaller and higher budgets being given approval and feted by investors.

FX Scandal Called in

Goldman Sachs may have been called in on the FX scandal, but fingers crossed, the sky rocketing fines in this case may not involve the Wall Street specialist to that extent, while London should not escape being burnt for continuing to shout so loud about reform and yet showing up in all the basic breach of trust issues, that seem to never be the case for US business. Also if the Fritz Nauck report recommendation can throw up a cross Atlantic merger a couple of European bBanks would be hapier but such mega mergers are unlikely to be remunerative for the buyer

The evidence from the 1000+  bank failures in the US almost every year points to a more rapid churn but is still much cleaner after the 2008 hocus pocus than London. The rapid fire cleansing in the USA ending with a complee JP Morgan settlement also sets the bar for London’s slow ways. Anyone claiming for developed Financial markets anywhere else in Europe has been burnt worse than the Euro which survived the sunblast in these four years

The Economics, Macro and behavioural

US GDP , pushed up by inventories, survived a big call from imports which rose steeply in the quarter to return the annual run rate of growth to 2.8% and the trade deficit is also steady. the 1.9% rise in PPI from the GDP data uts to rest claims of this data not being tenable and the healthy rate of inflation lays the ground for running up growth rojections again across sectors like Energy and Consumer Discretionary to Banking and Finance and Real Estate under Janet Yellen’s stewardship at the Fed. The rate cut across the pond ahs however trumped the Dollar’s weakness for the time being and even if yields relax to 2.50% after the continuing restoration work on the Economy, there will always be upward pressure on the longer term yields probably meaning a short tail wind for rolling down the yield curve and using the step curve trade to good profits , but that will continue till mid 2014 for banks to circle around the problem on interest rates changing the business dream. Meanwhile China and Japan may get more to add to US Treasuries despite the  opportunity to pressure US as rent falls below a critical 106 level convincingly at 103 and likely will breach 100 to its recent all time low, as supple eases and Aleppo noise though deafening, does not impact Oil supplies

Market Trend and the breakdown in mid market estimates

Whole Foods break down in the markets along with Tesla is also probably a knee jerk reaction to 1750 levels on the S&P 500 and as markets start from 1550 they are likely to close the week positively on the GDP confidence builder. One should keep low expectations from the October Jobs report as well s the Challenger spike show and the ADP payroll report may be a better indicator for the private Non Farm Payrolls number.

Stock picking

Twitter is probably fairly maxed out on its first closing at $44.90 and any further build up in the price should be sold immediately. GS is a great pick for the hibernation months a s the churn in innovation companies continues through February when full year results come. Black Friday rush is on already and the Thanksgiving tide will keep equities pushing North despite such corrections though a return to 1600 on the S&P would not be noticed and real profit booking could in fact lend credence to the celebration at this point

China

And in passing on wishes, might I mention that China’s challenges with growth  “have been confirmed” yet again despite a great October as a third agency started reporting Service PMI data this month, just as HSBC /Markit reported a positive shine on last months ally at 52.9 levels this week. The third agency reported record lows again and continued stresses in the Service Economy. Despite all the stat hoopla in your soup, China continues to pace to a comfortable duble digit growth in retail every month and GDP growth at any cost after a further cut will not drop below 6% even if the Bears are in till FY15

Have a good one!

That, L Randalll Wray (search link) and $29 B

tchah, as i said, Have a good one!

 

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This entry was posted on November 8, 2013 by in Financial Markets and tagged , , , , , , , , , , .

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