TFN eNews 10/29/2009: Who wins in China’s iPhone roll-out?
Published via e-mail broadcast on October 29, 2009
In today’s TFN eNews:
* Air in numbers
* Most likely to succeed
* Where customers still spend
Dear TFN eNews reader,
Even before the words “ozone layer” symbolized the politically-sanctioned mass hysteria that’s reserved for “global warming” these days, entrepreneurs discovered the bottom-line benefits of air.
Powered by CFTC and compressed in cans, air allowed them to offer less mass with greater volume: Instead of selling a bar of shaving soap that would last 9 months, they could sell 9 cans of foam, each costing the same as the soap. It also worked for soft cheese and whipped cream. Even worthless plastic gunk could now be sold as “Silly String”.
Stimulus incentives have the same effect on national economic growth as air has on soft cheese in a can. They inflate the volume without adding to mass.
Look at the third-quarter GDP numbers released today. According to the Commerce Department, the U.S. economy grew by 3.5% annual rate, the fastest pace since the third quarter of 2007.
“The Great Recession has ended,” the talking heads ululated.
It’s what many a record company said after landing the first hit single with a one-hit wonder.
Because a huge chunk of this growth was created by redistributing wealth from a small group of citizens to a larger group in the form of government handouts. Car sales, for one, contributed 1.7 percentage points to the economy’s expansion in the third quarter.
Greased by “Cash for Clunkers”, this program concentrated the organic growth of car sales that would have happened in the third and fourth quarters of 2009 and maybe even Q1 2010, into a few manic weeks this past summer.
A total of $3 billion was allotted for those rebates. dmunds.com estimates that the government ended up spending about $24,000 each for those 125,000 additional vehicle sales the program created. Not bad, considering a lot of those cars sold went for less than $20K!
Similarly, first-time home purchases in the same period were driven by government tax rebates of up to $8,000 for qualifying buyers.
Which in many areas had the unintended consequence that artificial demand increased the prices for starter homes even beyond the amount of the rebate.
Their effect on GDP growth has thus far not been isolated yet.
As similar programs in Germany and other countries have shown, the effect of such government-purchased growth is temporary: Like the compressed air expanding plastic gunk into Silly String, growth diffuses as soon as the program runs out of money.
*** I note that it took a PR stunt organized by the White House to rekindle the mass media’s interest in flag-draped coffins. Much like peace marches and calls for “exit strategies”, these had fallen by the wayside with the passing of George Bush.
*** To my knowledge, Beijing’s not paying for Chinese consumers to trade in their cell phones for Apple Inc.’s (NASDAQ:AAPL) new iPhone. It will go on sale in China tomorrow. Not that the Chinese aren’t already using iPhones and iPhone knock-offs.
But starting tomorrow, they can do so legally.
AAPL stock was up about 2% today. Increases in share price of component suppliers (Samsung and Sharp come to mind) were small enough to be blamed on the weather.
The greatest beneficiary of AAPL’s China market is Hong Kong-based China Unicom Limited (NYSE:CHU). The company hopes to pillage subscribers from arch rival China Mobile Ltd.’s (NYSE:CHL) 2G network by offering 3G service to users of “gray-market” iPhones.
Curiously, CHL shares did far better today than CHU.
Apple isn’t limited to CHU as a distribution distribution partner for the iPhone in China. China Mobile has indicated they’re still negotiating.
At $13.20, we think CHU may be a good speculation, with about a 20% upside over the next two weeks.
*** Who says consumers are not spending these days? A look at some of the day’s big movers proves that markets misjudged the savings capabilities (or the lack thereof) of American shoppers.
TFN’s chief strategist Andrew Snyder writes today: “Sarah Palin and her sled-riding husband, Todd, will be glad to hear that shares of Artic Cat (NASDAQ:ACAT) are surging today. According to the snowmobile and ATV producer’s second-quarter figures, sales are down, but not as horrifically as they could be. During the last three months, Artic Cat recorded $166 million worth of sales. Down about 18% from last year’s corresponding $204 million.
“But the sales figure is not the catalyst for today’s 15% up-tick. It is the bottom line that is getting the investors’ attention. Thanks to cost control and capital restructuring initiatives, the company managed to increase its margins and post a profit that was just 12% below year-ago figures.
“The $14.8 million profit looks even better when compared to the past three quarters, all of which were deeply negative. Just six months ago, Artic Cat shareholders were forced to stomach a $16.7 million quarterly loss. Today’s news is proof that consumer spending is down, but has made strong recoveries.
“But it’s not just single guys buying fast toys who’re keeping the American Dream alive. Just look at this stock…”
*** Rack up gains of 256%, 678% even 1,894% by January 15 as this natural resource collapses!
Read on… http://www.todaysfinancialnews.com/TST/GAS/WTSTKA01.html
*** Quote of the Day:
“The battle between democratic entrepreneurial capitalism and heavy-handed statism has already been won by the economic freedom fighters around the globe. That’s one reason why the capitalist emerging economies in Asia, Eastern Europe and many parts of Latin America (think Brazil) are challenging U.S. economic supremacy and the American dollar.”
– Larry Kudlow, Creators.com
Recommended Reading:
Snowmobiles and makeup: Consumers are buying again
Today’s Top 3 Financial News Stories:
Bloomberg.com – U.S. Stocks, Commodities Rally as Dollar, Bonds Drop on GDP “U.S. stocks rallied, snapping a four-day losing streak for the Standard & Poor’s 500 Index, after the economy returned to growth following the worst contraction in seven decades. Treasuries dropped and the dollar and yen weakened, while commodities rose.”
MoneyNews.com — Bill Gross: No Fed Hikes for a While “Bond guru Bill Gross of Pimco says that the Federal Reserve will not ‘risk raising rates’ until the U.S. has had a year-and-a-half of sustained economic growth, at a solid, four percent rate.”
APNews.com — Stimulus jobs overstated by thousands “An early progress report on President Barack Obama’s economic recovery plan overstates by thousands the number of jobs created or saved through the stimulus program, a mistake that White House officials promise will be corrected in future reports.”
Cordially yours,
J. Christoph Amberger
Executive Publisher, TodaysFinancialNews.com
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