Apple's next strategy: Smartbook with games?

Apple has been pretty cozy with Nvidia and from what I can tell, it is readying a smartbook product. However, what could Apple have up its sleeve to distinguish it from the competition? I think an app store that caters to such a market. The games in such a store could utilize much finer and sophisticated graphics (maybe coded in OpenCL, Nvidia's language for its graphics chips)? In essence, it could be the iphone and ipod touch merged into one! Or alternatively, a netbook used as a phone and also for gaming. Apple has been known to make products that are very simple but elegant and I would expect no less from such a device. I would say mid next year would be an ideal time for such a launch. ARM based CPU + Nvidia graphics is my bet for the hardware.

Idea factory: The ultimate smartbook

Hello again. I'd taken some time off from blogging since I was in India and returned just last week.

Very recently, the smartphone and netbook markets have been converging. Qualcomm has in fact coined as term for it - the smartbook...an always ON device that merges the best of both. That got me thinking of what I would like in such a device, and I think I have come up with something different.

• It will be in the formfactor of a small netbook, say 8.9" or so
• It will have a touchscreen for the display like the iphone and cool features for photo editing etc.
  
• The touchscreen will swivel out such that when the phone is closed, you still see the display, thus making it a useful always on device!
• You can either be connected via a bluetooth headset, or talk directly to the device as when video chatting (in fact, this could finally enable video phone calls as well!)
  
• This display can be used as an e-book reader as well
• The brains behind it, the processor, will be based on ARM and the OS will be something like Android. Both of these will enable the manufacturer to reduce the cost of the device and increase battery life dramatically
  
• You will keep this device with you always (or atleast try). While in you car, you can have an optional dock for it, so that it can double as your touchscreen GPS + handsfree command center integrated into the car's audio system
  

Furthermore, carriers could discount such a device as they presently do with the phone we carry since they will be selling bundled packages of 3G/4G internet with it.

Newsletter_042009

Conversation on Mr. Market

I told you so! Actually I didn't but I would have, for sure. As I type this, the stock market is down about 3% from the recent highs. What's interesting is that it is the US markets following the European markets into losses. Is there something they know that investors in the US don't? All this recent talk of green shoots belies the fact that they are growing in a massive pool of toxic waste! So much for the nascent recovery.

For the short term (couple of weeks timeframe) the markets seem to be sorely in need of a breather after the massive 30% run up from early March lows. Moreover, many indicators I have been following tell me that we are severely overbought (CBOE put/call ratio, % stocks above 50 DMA's), and this buying has been done not by longer term investors but by speculators/traders who will dump their positions and even go short if that is what will make them money. As for whether this is the time to short the market, here is my view: please don't! I know it's an adrenalin rush to time the market perfectly and make those couple of hundreds but guess what comes next...hubris, which leads to further losses along the way! I say this from years of trading experience (yes, it has been that long). Rather, exercise patience. This is a race for the long run so at most I'd say sell some longs and hedge others if that is what you want to do.

Critical levels (I will quote these on the S&P 500 since I consider that to be an appropriate index to monitor the broader market)
Below 803 -> Don't just walk, run!
Below 839 -> trouble
Above 856 -> strength
Above 873 -> Man this market has legs

---

Chart of the week: $SPXA50R

As mentioned earlier, I see the market as heavily overbought. One trustworthy indicator is the number of S&P500 stocks trading above their own 50 day moving average ($SPXA50R). When this indicator goes above 80, alarm bells start ringing in my head (similarly, below 20 sets off a different set of alarm bells). As of Friday, this indicator was at 89.6!

For those with a keener eye (hopefully all of you), note the chart below, of $SPXA200R, the number of stocks trading above their 200DMA. This is still at a measly 25.8 meaning that on the shorter term (50 days), although we are very overbought, there is still no "intermediate term" conviction in this advance.

Data showing we are way way overbought

Wow. That was quite an impressive rally. However, at this juncture, although many people think we are headed to 875 on S&P, I would like to submit my thought that we are due for a good correction. A poor jobs report will certainly counter the good after hours RIMM news. And IBM may finally make their Sun takeover public in the AM tomorrow. However, here are some charts that should make you very concerned. Almost every time things have aligned up this way, the markets have fallen.

The above graph is the number of stocks above their 50 and 200 day moving averages respectively. The 50 day moving average number shows a more short term reading. As you can see, almost 80% of stocks are above their 59 DMA. The last few times that happened, we have seen selloffs and this number has dropped way down to under 30.

The above is a graph of the CBOE options put/call ratio. For those who know what that means, very good. Someone in need of an explanation, please comment. The graph is showing that we are as overbought as we were in May 2008. Everyone knows what came soon after. The blue and red lines are the 50 day and 20 day moving average respectively, both of which are similar to that time in May 08.

Tomorrow is the jobs report which will essentially give us direction, but if it is a bad one, better watch out coz the markets want to tank.

The mini-rally; the important events tomorrow

It's been over a month since I last posted. Not sure how many missed reading me but I hope it was atleast a few :)

My prior post seems to have been very clairvoyant. We are now past the snapback rally from S&P 666 to S&P 830, an almost 25% rise in a few weeks! If only I had followed my own post for my personal investing decisions :(

Things happening tomorrow:

• FASB is about to relax mark to market accounting rules. This is very significant for the banks since they can reduce their "reported" losses and improve their capital ratios
• The G20 meeting in which success will be measured by agreement on how to deal with toxic bank assets, new banking regulation and elimination ofd tax havens

Now, as has been oft repeated, it's the reaction to the news that matters. I wonder if the mark to market event is already priced into banking stocks that have rallied 45% since the lows. If not, we will see a surge tomorrow.

As for the G20 summit, the expectations are low and I think there is not going to be much success with the agenda. Reaching a consensus amongst politicians is ridiculously difficult.

So market wise, we stand close to S&P 810 Wednesday evening. If mark to market brings in buyers, I think they could push the market up to 840. However, there are big negative news events to consider as well, the big one being the Friday jobs report. I am looking for a consolidation to S&P 765 where the big decision of the big break will happen. Fasten your seatbelts for some volatile trading to come.

The snap back rally

A number of indicators I am seeing are telling me that we are oversold and due for a bounce. I do not expect this bounce to amount to much, maybe end at around 820 or 830 on the S&P500. Note however that we are in such a severe crisis that it is going to require some kind of external event not already factored into the market to cause this rally. I think some options area temporary repreive from mark to market accounting

• reducing the captial ratios that banks have to have on their books
• some kind of pseudo-nationalization plan that doesn't completely wipe out bank shareholders

Now let me show you some charts and I will post some notes about them for explanation.

The topmost portion of this graph (the SPXA50r) shows the number of S&P500 stocks about their 50 day moving averages. As you can see, in almost all downturns except the most recent one, the market bounced back when this number got to around 15/20. The prior dowwnturn in Sept-Nov 2008 was u

nique in that it was a real freaksow with Lehman collapsing, AIG needing govt. help etc. I think we will see a similar event later this year when the main banks need to actually be nationalized, but not now.

This next image is the S&P 500 relative to its own 50 day moving average. Take a minute to understand what means. It's basically the number of std deviations of the index from its 50DMA. Here again, you see how exceptional the last downturn towards end 2008 was. So, if the present downturn can be considered more run of the mill, we should see a snapback given that we are 1 std. deviation away from the mean.

And finally we have the VIX or the volatility index I have alluded to before.What this is showing me is that we are still expecting very high levels of volatility, but not as high as Nov '08. This shows that this most recent downturn is probably of the routine variety.

The caveat emptor for all this is that if we see a sudden deterioration in the markets, say some country reneging on their debt or another bank going to the woodshed dramatically (my latest concern is with European banks that have made loans in Eastern European countries).

And finally, a quick not on where I see that markets going from here. I really think this is a more severe recession that we had ever imagined and that is going to show up in the markets. But remember, nothing goes down in a straight line and we will bounce around a little before hitting the final bottom which to me lies between 450 to 600 on the S&P 500!!! It may happen late this year or in the middle to end of next year.

The future of the cellphone

A recent article in the Nytimes asks "Can the cellphone industry keep growing?", and kind of leans towards the answer to this question being a no. I disagree. 

Of course, from a pure subscriber growth perspective, unless the world's citizens suddenly decide to make more babies the growth rate will slow down. Apparently, 4 of the 6 billion people already have cellular service. Data is the next big thing for sure, but with data plans costing about 20 bucks a month, I for one would surely not jump for it. 

However, the point to note is that the data plans offered today are over the 3G cellular networks which are inherently more costly especially since they piggyback on the voice networks. Soon, we will see Wimax and LTE being deployed (the pace may be slower due to the economic malaise). We will see almost everything go wireless and be connected to one another wirelessly. Many more forms of entertainment will become interactive instead of passive. 

To embellish my argument, I point you to this article on news.com. It's about a new smartphone from Toshiba that uses the Snapdragon platform from Qualcomm. Check out the specs and be amazed!!! This is of course at the top end of the market. However, cellphone costs are going to keep dropping. Android is an open source OS, hence cost to license = 0 $. Many more companies are jumping into the smartphone space from Dell in the US to Kogan in Australia (note that unfortunately they specced the phone incorrectly and had to postpone its launch). 

I am just getting into the smartphone market but since I don't have to have one, I am at the low end with the Samsung Eternity which does not require a data plan and is available for a mere 50 bucks from Amazon with a 2 year contract. Now I will almost certainly download some games at the least, apart from using the net when necessary.

I hope I have stated my case succintly. I see Apple as THE best positioned company in the US market for integrating the phone, laptop and the TV. I'm just waiting for their next products, not to purchase but to get a feel for where we go from here.

Feb 5th 9:15am: Here's more evidence...the softie also looks like it's going to launch a new phone. Of course Microsoft is not pleased at all the app development going on around Apple's Iphone and wants a toe into the market. Probably with an aquisition (Palm?) it should be better positioned to compete in the space.

Idea factory: Multiple streaming cameras at functions

I was thinking from the perspective of the wedding ceremony and reception...While there will definitely be a photographer

- I'd like people who could not physicall make it also be able to view

- Have multiple cameras and be able to view all the feeds at the same time (like say in a casino monitoring room).

It should be quite feasible since internet cameras can also be purshased for a price. However my idea is to do it with laptops having webcams stationed at vantage points, all of which are streaming their clips over the net. I wonder if there is an app that allows you to view multiple streaming clips simultaneously though.

Upper bound

I am getting more and more concerned about the market action! Apple had a good earnings report so we should see more upside tomorrow. Also, I think Obama will announce some plans this weekend which could give a step to the market. However, from many of my readings, I think we are going to see a max upside to around 890 on S&P, or about 31 on ^BKX (the banking index). The situation is very dire! I think there is going to be a downgrade of UK's rating and within a few months, we will be seeing the American carmakers going under.

I may sound uber bearish, but that's the way I see things unfolding. Intel announced 6000 layoffs and plant closings...Intel is not a company that scales back severely in a downturn and if this economy has them scared and forecasting quarterly losses, my concern only gets amplified. GE may see its rating downgraded and some European banks like RBS, Barclays, etc. are going to start being nationalized. Will we see Citi or Bank of America also nationalized before this is over?

Watch the price action of Intel stock to see where the broader market goes

For the second time in as many months, Intel downgraded their sales and profit expectations for the quarter just ended. It was a whole $2B less than their initial projections from October of last year. Just imagine that! In 3 months, they have had to cut their sales projection by 20%!

Now, why do I think Intel is a bellwether stock? Shouldn't GE play that role, it being a much more diversified company? The reason why I think GE stock does not show how the real economy is doing is because of its large dependence on the performance of their finance operations. This unit single handedly screwed GE's March quarter (of last year).

INTC dropped 6% today after their latest warning, but that takes the stock price back to where it was just a week ago. To me, that makes me think that all the bad news for Intel is factored into the stock price. As it sits right now, it has a very compelling valuation. This is also around the lowest price it was at post the dot com bubble. So have a hawk's eye on the price movement of Intel..with a strong balance sheet and sitting near the top of its industry, if Intel can't pull it off, no one can.