Friday, May 25, 2012

Knighted Jony Ive: current project is Apple's most important and best work yet

Ive was in England this week where he was knighted for “services to design and enterprise.” During the Brit’s visit, he spoke with The Telegraph in a lengthy interview where he was asked if he had to be remembered for just one product, which one would it be.
After a long pause, Ive told the reporter that what Apple is working on right now feels like the most important and the best work they have done. Of course, he can’t reveal what said product is so it’s a sheer guessing game at this point. Possible products could include the new iPhone, the next iPad or even the long-rumored Apple TV.
Ive further elaborates that a large number of products ultimately remain hidden away behind Apple’s walls. He says that it’s often unclear during a project if they will be able to overcome hurdles and create something that lives up to Apple standards. Challenges of this nature happened with the iPod, iPhone and the iPad.
But one of the toughest aspects of his job is not in the design phase but knowing when to walk away from a prototype.
"And there have been times when we've been working on a program and when we are at a very mature stage and we do have solutions and you have that sinking feeling because you're trying to articulate the values to yourself and to others just a little bit too loudly,” Ive said. “And you have that sinking feeling that the fact that you are having to articulate the value and persuade other people is probably indicative of the fact that actually it's not good enough. On a number of occasions we've actually all been honest with ourselves and said 'you know, this isn't good enough, we need to stop'. And that's very difficult."
apple, iphone, ipad, apple tv, jony i

Wednesday, May 23, 2012

Just how many shares Mark Zuckerberg and Peter Thiel sold on May 18?

Facebook Inc. Chief Executive Mark Zuckerberg has sold 30.2 million shares and director Peter Thiel has sold 16.8 million shares of the social-networking company, according to securities filings published late Tuesday. The sales confirm plans detailed in a prospectus before Friday's $16 billion IPO. Zuckerberg sold 30.2 million shares at a price of $37.58 for gross proceeds of $1.13 billion; Thiel sold 16.8 million shares for gross proceeds of $633 million. Facebook insiders had told prospective shareholders of their plans in an S-1 filing last week.

Monday, May 21, 2012

FaceBook IPO: push the price and pull the money

On May 16:

Facebook pushed the price up to convince the early investors to sell more shares. Insiders and early Facebook investors will be unloading more of their shares in the initial public offering, the company said Wednesday, as they take advantage of investor demand.
Facebook said in a regulatory filing that 84 million shares, worth up to $3.2 billion, will be added to the offering.
The entire increase comes from insiders and early investors, so the company won't benefit from the additional sales.
The biggest increases come from investment firms DST Global and Tiger Global. Goldman Sachs is doubling the number of shares it is selling. Facebook board members Peter Thiel and James Breyer are also selling more shares.
Founder Mark Zuckerberg isn't increasing the number of shares he's selling.
The news comes a day after Facebook raised the expected price range for the stock to a range of $34 to $38 per share, up from its previous range of $28 to $35. Also Tuesday, major advertiser General Motors Co. said it would stop advertising on Facebook.
At the high end of the price range, the IPO would raise $16 billion without the overallotment option reserved to meet extra demand. That would make it the third-largest U.S. IPO in history, ahead of General Motors in 2010, according to Renaissance Capital.
The IPO is the most hotly anticipated in years and would value Facebook overall at more than $100 billion.
In a filing with the Securities and Exchange Commission, Facebook said current shareholders are now offering approximately 241 million shares, up from about 157 million shares previously.
Even though Zuckerberg isn't increasing the number of shares he is selling, the additional sales will trim his voting control to 55.8 percent from 57.3 percent. That's because he has voting control over some shares now owned by investment firms, which will be sold in the offering.
On May 18:
What does this tell you?
The key facts are that 43mm shares of Facebook changed hands at $38.00, almost all of them at the bid, and another 28.5mm traded at $38.01, largely at the ask.* I am not really smart enough to interpret – humans and algorithms aware of the stabilizing bid may have thrown in their own bids at $38-even – but my best guess would be that the underwriters have eaten through half or so of the 63mm share Facebook greenshoe in stabilizing the deal at just about $38. So I seem to have lost myimaginary bet that the greenshoe would be exercised in full.
The greenshoe and stabilization are weirdly misunderstood; people cannot get over the idea that it is a prop position for the underwriters, meaning that if the stock reached $50 the underwriters would make a kajillion dollars on their 63mm share greenshoe option, while if instead it breaks through $38 in the wrong direction the underwriters would be long a lot of stock at $38. Nah. Morgan Stanley et al. sold 484mm shares for $38.00 last night, but only bought 421mm from Facebook. That left them with a 63mm short that they were hoping to cover at $37.582 (the price of the IPO and greenshoe to them) but that it sure looks like they’ve mostly covered at $38.00 – $38.01 today.
There are scenarios where the greenshoe and attendant stabilizing can be a prop winner or loser for the underwriters, where for instance they do some stabilizing below the IPO price (buying in their short below where they sold it), or where they use their own money to stabilize while holding some greenshoe firepower in reserve, hoping that the stock will recover and they’ll make money on the prop bet while still being able to exercise the greenshoe. That may have happened here. But in general greenshoes are a nice illustration of banks being long-term greedy, trading the greenshoe on behalf of clients rather than lining their own pockets – which, here, would have involved allowing the stock to break the IPO price and then buying with a $37 handle to cover the greenshoe.
The real prop winners or losers on the greenshoe, though, are the people who signed up to sell into it(page 146): VCs and early insiders like Peter Thiel, Dustin Moskovitz, Sean Parker, Accel Partners and DST, all of whom are missing out on multi-hundred-million-dollar sales and will have to take their chances when their lockups expire in 3-12 months. Given the somewhat scraggly performance of the IPO, they may regret missing the chance to sell now at $38, though they can console themselves with the stupefying amounts of money they made on the shares they did sell (page 141).
For the underwriters, this still looks pretty much like an agency trade, one in which they made $176mm though the chances of clipping the extra $26mm on the greenshoe seems remote. Here’s the split among the top underwriters:
So they’re doing okay. Not entirely to be scoffed at is the fact that, besides placing the stock, they get to trade at least some of it – maybe not quite the way they’d hoped, but still. Those volume numbers above represent a record for an IPO, and mean that each Facebook share outstanding changed hands on average about one and a half times today.** If you take the 573mm shares that traded and assume (unjustifiably but whatever) that average revenues for these trades are 1.5 cents per share, you get about $8.6mm in Street-wide trading revenue for Facebook today – about one-sixth of the way to what SecondMarket made on Facebook in four years. Public equity trading may be a crappy business, but they make it up in volume.
The biggest loser, though, may be Nasdaq, whose hiccups earlier today seem to have sparked an SEC investigation, as all hiccups do. Even worse, they may have taken Nasdaq out of the running for a BATS listing. Because if you can’t execute the biggest IPO you’ve ever done, you … wait … never mind.

Tuesday, April 10, 2012

Bill Gross and options trader agree

Bill Gross has mentioned recently that Ben Bernanke will deliver QE3, and, perhaps, QE4 and QE5. One GLD options trader bets that QE3 will push the GLD to at least $185 by mid-July.

GLD has erased 7% over the last month, and dropped 0.1% to $161.28 on Thursday, as the lack of a third round of Federal Reserve monetary easing damps demand. The ETF is off nearly 13% since hitting $184.59--the ETF's all-time high--on Aug. 22.

"It looks like they are thinking GLD will make a new high around July expiration," said Todd Salamone, director of research at Schaeffer's Investment Research. "It could be someone expecting a breakout and betting on QE3 by July."

The trader set up a strategy known as a "debit spread" on Gold Trust options, according to Salamone, buying 20,000 July $185 calls, while selling 20,000 $210 calls of the same expiration. The strategy, which has a break-even at about $185.70, requires the ETF's shares to jump 15% by July 16.

The trader maximizes profit at nearly $50 million before commissions and fees if the shares rise 30% to trade at $210 by July expiration.

Gold posted a record of $1,925 an ounce in the New York futures market last September, went into consolidation phase and finished at $1,652 an ounce Friday.

 Less than four weeks earlier, gold had tumbled--shedding almost $100 an ounce in a single day--as a statement about the economic outlook from the Fed's rate-setting committee undermined hope for further easing. On Monday, Bernanke gave gold a boost, saying the U.S. labor market was still unstable--a comment some market watchers interpreted as a sign that he had left the door open for QE3.

Thursday, March 29, 2012

Clayton Christensen’s investments

Today, I went to listen to Clayton Christensen’s talk on Growth -- part of special "Power of 10" PARC Forum series featuring 10 speakers on 10 aspects of innovation. He charmed the audience with his self-deprecating sense of humor.

Besides teaching at Harvard, he writes the books. The 2011 "Innovator's Dilemma" received the Global Business Book Award. Importantly, Clayton co-founded four successful companies: CPS Technologies, a materials science firm; Innosight, a management consulting firm; Rose Park Advisors, an investment management company; and The Innosight Institute, which extends his research on health care and education.

Somewhere in the beginning of his talk, Clayton mentioned the astronomical returns brought by disruptive companies in 10 years. I found a few companies in which Clayton's hedge fund Rose Park Advisors invested, according to his interview in December 2011.
athenahealth (NAS: ATHN)
Provides medical software to doctors' offices. The company is becoming a one-stop shop for all of the e-needs of doctors, especially when it comes to insurance filings.

Cree (NAS: CREE)
Manufactures LEDs. 
LEDs last longer and use less energy than traditional light bulbs.
New Oriental Education (NYS: EDU)
Online education in China.
New Oriental is changing the education paradigm in the world's largest nation.

NxStage Medical (NAS: NXTM)
Makes portable dialysis machines.
Dialysis patients don't need to go to the hospital for treatment, which is both more convenient and -- usually -- more sanitary. (NYS: CRM)
Cloud-based software solutions for businesses
Instead of buying expensive software and paying for installation, companies can simply use the programs available on Salesforce's servers.

I don't know when the hedge fund led by hid son Matthew added those companies to the portfolio, or, perhaps, sold already. The returns on all of them for the past 3-5 years is much higher than S&P 500 returns. Whether those companies are the lucky ones among many more unlucky ones, I don't know either.

Sunday, March 18, 2012

Goldman Sachs soap opera

As GS soap opera plays out, here is what I think.

Greg Smith's "Why I Am Leaving Goldman Sachs" parallels Mark Zuckerberg's blog post after Jessica Alona  broke up with him. Mark called her "bitch" in his blog. Glaring lack of Grace.

The guy worked at GS for almost 12 years and took full monetary advantage of GS's culture. Since he doesn't return his bonuses, he is as obnoxious as the rest of GS managers he describes.

Now, what about Wall street at large? 

Part of the financial crisis of 2007-2008 was due to the rating agencies rating risky bonds as AAA bonds pursuing profits and competing with each other for the clients-bond issuers. They, in effect, were taking advantage of the pension funds buying these bonds based on the AAA rating. I asked the head of the research of one of the rating agency about that. He answered that those who buy the bonds have to do their own research. Sounds similar to the Blankfein's response to why GS was selling to its clients the tools which were not appropriate for them. Blankfein said that the clients buy  instruments  with the predefined risk profile to play certain role in their portfolio and that's, in the end, client's decision which instruments to buy.

The broader part of the financial landscape is institutional wealth management based on the model portfolios. The clients are duped to believe that there is scientific prove behind the models. They are not told that the investment theory cannot be proven experimentally, and, therefore, it's not a scientific theory. The wealth management is a huge industry swallowing one third of the client's money over the thirty-forty years of the client's portfolio management.

How exactly is GS different? The level of cynicism?

Friday, March 16, 2012

Roger McNamee talks to Bloomberg West

Roger McNamee is  very refreshing in his critique and guidance. He allocates Elevation Partners VC capital to eight slots and doesn't want to diversify. Diversification minimizes the profits and increases the risk. Apple is the only public stock he ever owned.

He looks for the next enabling technology. Not like Pinterest collecting people's crap. But, like Adobe in the past, now - enabling mobile applications to run.

 Listen up, new entrepreneurs.

Saturday, March 10, 2012

Andy Kessler on the third wave of computing

The clip starts with the two-bedroom house in Menlo Park and close proximity to the Facebook campus, the only property going below one million. Just slightly below. Facebook going public will create a few billionaires and about three thousand millionaires.
CNBC clip from February 07, 2012 talking about Facebook

The world's 100 richest hedge funds in 2010

Here is the link to the Bloomberg report on the top performing hedge funds in 2010 published in February 2011:

We are lucky Jeff Gundlach didn't open his own hedge fund and we can still invest in DoubleLine DBLTX.

The report mentions Gundlach on page 43:

--Three of the top 10 funds made money on mortgage bonds, according to Bloomberg data. The mortgage market is often lucrative for hedge funds because it’s volatile, says Jeffrey Gundlach, chief executive at Doubleline Capital LP, a Los Angeles manager of mutual funds that trade mortgages. “The mortgage market has every single risk,” Gundlach says. People default, banks foreclose on housing loans and the government often changes the rules. “Any market that has risks morphs into opportunity,” he says.--

This was first-ever ranking of the top 100 large hedge funds. Look at the strategy of each ot the top performing funds. Mortgages, gold,  emerging markets and global economic trends stand out. You can pass this link to your friends who were hypnotized to believe that equity value investing is the only way of successful investing and all the global macro funds go bust. Although, why would I care...

Thursday, March 8, 2012

The power of Global Macro. Stock picker lesson learned: watch the credit markets

James Kee, president and chief economist at South Texas Money Management Ltd., says investors should avoid short-term forecasts and focus on the longer-term relationships among asset classes. Kee talked with Bloomberg's Pimm Fox and Courtney Donohoe on Bloomberg Radio's "Taking Stock."
Audio Link (Source: Bloomberg, March 7, 2012)

I noticed two things: 
Talking about long term. Larry Summers' joke is that when people start talking about long term, they want to avoid responsibility.
James Kee's lesson learned. In 2007, bond guys warned James about credit crisis, but he had a dogmatic view relying on company data. Healthy balance sheet, P/E at the level of 1998 were important. He disregarded bearish bond guys. Since then, he watches the credit markets.

Monday, March 5, 2012

S&P bull markets

Next week marks the third anniversary of the current bull market cycle in U.S. stocks. Back on March 9, 2009, a day not easily forgotten in the annals of wealth destruction, the S&P 500 sank to a 12-year low of 676, the bottom of the worst bear market since the Great Depression. Since then, the S&P has more than doubled. In fact, this bullish run in stock prices is in the top 10 in terms of duration (1088 days) and so far has delivered a bigger pop in share price appreciation (102 percent) than the 96 percent gain during the long upswing in stocks that lasted from July 23, 2002 to October 9, 2007—just before the economy and the U.S. financial system became a heaving mess.
Investors for the most part prefer to put their money in bonds and money market accounts rather than stocks. Investors have pulled more money out of  U.S. domestic mutual funds than they’ve put in for five straight years. They withdrew $134 billion last year, according to the Washington-based Investment Company Institute. Trading volume in S&P component stocks, at near comatose levels this year, is down 20 percent through Feb. 21, year-on-year, according to Deutsche Bank.
Illustration Courtesy Bespoke Investment Group

You know things are bad when Wall Street firms such as Blackrock, the world’s biggest asset-management firm, start taking out multiple-page ads in the financial press urging investors to rethink the cost of cash. At a Feb. 29 speech in New York, Blackrock Chief Executive Officer Laurence Fink said: “I have said many times that I would personally be 100% in equities.” Really? Haven't you, Mr. Fink, already invested somewhere in private equity? Like Mitt Romney in Golden Gate Capital? (

I have an advice for you: hire the best bond manager you can get and let him to run the total return fund which has been under-performing its benchmark (
The fund has returned 6.37 percent over the past year, 11.73 percent over the past three years, 4.53 percent over the past five years, and 4.10 percent over the past decade.

Sunday, March 4, 2012

Macro-Monetary Era

 National debt charts and much more...
Click here to see the charts >
(source: businessinsider, Feb 14, 2012)

Gundlach on the signs of the market being ready to pull back

The investor, who was crowned by Barron's as the new "King of Bonds" a year ago, said in an interview that he thinks the recent rally in stocks, which this week drove the Dow Jones industrial average above 13,000 points for the first time since May 2008, has gone too far.
Gundlach, the chief executive officer and chief investment officer of the $28 billion DoubleLine Capital LP, said he is still concerned about the euro zone crisis and deepening tensions in the Middle East.
The United Nations' nuclear agency said on Friday that Iran has sharply stepped up its uranium enrichment drive in a report that will further inflame Israeli and Western fears that Tehran is pushing ahead with an atomic weapons program.
"It's an awfully easy decision right now to not be making further investments in risk assets," Gundlach said.
"The pricing of the market has returned to the levels prior to the scales falling from investors' eyes regarding the global financial crisis, and I really don't think that's appropriate," he said.
The Dow has gained 8 percent since December and the broader S&P 500 index is up roughly 10 percent.
The size of the gain leaves no cushion of safety given all the dangers in the world economy and leaves the stock market as priced for disaster as it was when the financial crisis hit in 2008, Gundlach argued.
"When I look at the pricing in the market today, I see a good chance of downside movement of some significance," he said.
Such predictions reinforce Gundlach's status as a bit of an outlier given the optimism among many in the U.S. markets prompted by some stronger economic figures in recent months.
Gundlach, whose prescient call to buy U.S. Treasuries last year boosted his DoubleLine funds, said he was concerned about "schizophrenic" investor psychology that had flipped to over-confidence because of some stronger economic data and market gains when only five months ago people felt a new recession was imminent.
He said a decline in stock market volume was a worrying signal. Average daily volume on U.S. exchanges last year was 7.84 billion shares but so far in 2012, average daily trading has been 6.95 billion shares.
Gundlach's investment track record has been very strong. Last year, for example, the DoubleLine Core Fixed-Income fund, Gundlach's multi-sector bond fund which can invest in corporate bonds, mortgage-backed securities, Treasuries, and emerging-market debt, posted returns of 11.5 percent.
In comparison, the Barclays Capital U.S. Aggregate bond index - the fixed-income market's equivalent of the S&P 500 index - posted returns of 7.8 percent.
Gundlach's view clashes with that of many money managers, who cite low Treasury rates, strong corporate balance sheets, and worldwide liquidity programs as reasons to allocate money to riskier assets such as stocks.
When asked why few other money managers agreed with his views, Gundlach said: "I'd say that's because the great majority of money managers never say, 'take money out'."
Like Wall Street analysts who "never have a sell signal on anything," managers tend to only go public with buy or hold sentiments, he said.
Investors that concede that the market may not rally further but still expect to earn their high-yield coupon are the biggest red flag to flee the risk sector, Gundlach said.
"That's usually about as negative as the consensus gets, and usually I warn my clients that when you start hearing a predominance of that method of thinking it's about as close as you're going to come to a sell signal."
Coupons for BBB-rated companies hit a record low this week, according to IFR, a unit of Thomson Reuters. CSX Corp (Baa3/BBB) set a record for the lowest 30-year triple-B coupon with its $300 million 4.4 percent deal at just 133 basis points over Treasuries.
Rising oil prices, tensions in the Middle East, and deficit policies to be announced in the U.S. elections in November are just three possible catalysts to burst the rally, Gundlach said.
"When you see volume decline and you see insider selling at a high level, you're already seeing the market showing cracks, and it's already there," he said. He added that positive economic surprises "can only, at some moment, disappoint."
Gundlach also said that worsening government finances in the United States and much of the developed world were "completely unsustainable" but that once politicians tried to really deal with them, there were major risks of a recession.
"You might also at some point have a well-meaning attempt to address this absurd amount of government borrowing to fund the spending outlays. If you do that, you will go into a recession immediately," he said.
Gundlach said a mix of Ginnie Mae and non-guaranteed mortgage-backed securities is "the best fixed-income strategy right now," since the risks of both, when blended, can be positioned to offset each other. This blend can also yield about five percentage points above a generic Treasury portfolio, he said.
"I've been at this game for about 30 years, and what I've learned is that in the world of finance you tend to make money slowly and lose money quickly, and the idea is to not be there when you have potential for downside movement," he said.
(source: Reuters, Feb 24, 2012)

Jeff Gundlach: The Decline and Fall of the Roman Empire

On February 14, Jeff Gundlach hosted a webcast with clients. The title of his presentation: "The Decline and Fall of the Roman Empire." Not surprisingly, Gundlach drew parallels between the U.S. and Ancient Rome. Like the U.S., he noted that Rome had an insufficient tax system and a huge military budget. Like Rome, the U.S. faces "persistence of a destitute underclass," as reflected by the excruciatingly slow job recovery. Gundlach's talk included commentary on the year-to-date performance of markets as well as his outlook for the rest of the year. As usual, Gundlach's presentation has all of the most important financial and economic charts you need to understand the world.
Click Here To See Jeff Gundlach's Presentation >
(source: Business Insider)

Hedge Fund Industry, Markets: Titans at the Table

Jim Chanos, founder of Kynikos Associates Ltd., Jamie Zimmerman, chief executive officer of Litespeed Management LLC, Michael Novogratz, principal at Fortress Investment Group LLC, and Steve Kuhn, head of fixed income trading at Pine River Capital Management LP, discuss the hedge fund industry, the outlook for financial markets and their investment strategies. They speak with Betty Liu on Bloomberg Television's "Titans at the Table." (Source: Bloomberg)