Photo: Daniel Goodman / Business Insider
Investors had a lot to digest this week. There were downgrades in Europe. There were offerings from Silicon Valley. And there were stunning revelations from one of the world’s most revered banks.In the end, markets headed lower for another week, with the S&P shedding some 4 per cent.
This week, analysts offered some progressive ideas regarding equity valuations, the crisis in Europe, leading Chinese indicators, and the gold trade.
'I don't think that there has ever been an IPO where investment bankers have had more information (from private share market prices to institutional investor feedback) to work with, when pricing the stock, than this one. I would be very surprised, if the stock were overpriced; the bankers and the company have too much too lose. I would be equally surprised if the stock were dramatically under priced; a pop of 50% or even 25% would reflect very badly on the bankers' pricing skills.'
'There is also an argument that China's import deceleration was largely driven by export weakness. Looking at the type of imports, we noticed that imports of raw materials and other ordinary goods each contributed to the slowdown (at least) as much as imports for processing trade did. The deceleration in real import growth has a substantial domestic component.'
'Some argue that Greece's real GDP would be much lower in an exit scenario than it would be during the hard slog of deflation, real purchasing power would fall, and the real value of debts would rise (debt deflation), as the real depreciation occurs. More importantly, the exit path would restore growth right away, via nominal and real depreciation, avoiding a decade-long depression. And trade losses imposed on the eurozone by the drachma depreciation would be modest, given that Greece accounts for only 2% of eurozone GDP.'
'At the Ira Sohn conference, genius fund manager Jeff Gundlach gave one simple reason for why people should go short Apple: People aren't going to line up around the corner for 'Phone 87.' It's a simple take on a theory that Apple can only do so much to excite people with new products. For what it's worth, right after Gundlach spoke, David Einhorn said he was long Apple and thinks it's one of the most misunderstood stocks on the market.'
'Some worry if Apple share price doubles, it will become a $1 trillion company. Einhorn said he consulted regulation, and there's no limit on $1 trillion market cap. Many mistakenly assume Apple is a hardware company, but it's a software company. Its value comes from iOS, iTunes, iCloud. Future competitor of Apple has to make a product that's A LOT better. 'I believe Apple is software company that monetizes its value from repeated sales of high margin hardware,' Einhorn says. Hard time seeing how anyone rates Apple as below average.'
'Credit spreads with Italy are widening. I recall that the difference between the 10-year German bond yield and the 10-year Italian bond yield once reached nine basis points. That is correct: 9 basis points. The charts start on page 27 of my old book and depict the good old days. That was only 7 years ago. Look at today's pricing vs. the old pricing and play the movie backwards and one can see where this is headed. Things are going to get worse.'
'And there's also a huge group saying that one of the big reasons we have this huge balance of trade deficit is because we buy all this gold and put it in the closet. Let's stop that. Now if they did that it would be devastating for gold. Gold would certainly go down 40% - 50% from its top. I doubt they would do anything that dramatic that quickly, if Europeans suddenly said they were going to dump their gold, or if they were forced to, that too would put a big drop on gold.'
BREMMER: Paul Krugman Doesn't Actually Think Europe Will Implode--He's Just Manipulating People Ideologically
'As for the specifics of Kruman's latest forecast, Bremmer could barely restrain his criticism, calling the famed economist and columnist 'disingenuous.' 'Krugman is a very smart guy and he knows better than to manipulate people ideologically,' Bremmer says. 'The notion the eurozone is going to suddenly implode? No CEO with real money on the table today in the U.S. investing in Europe actually believes that. It's not actually credible.' '
'All this puts Greece's eurozone partners in a very difficult position. Absent an urgent and imaginative response, they face a lose-lose situation: they lose by disbursing more good money after bad and see that too evaporate with no sustained benefits for Greek citizens and their European counterparts; or they lose by not disbursing and accelerating Greece's slide into chaos, with unpredictable consequences for Europe and the world economy.'
'Ian Shepherdson, chief U.S. economist for High Frequency Economics, said that housing starts would not continue to rise quite so strongly in coming months. New construction has been lagging behind the number of permits builders have pulled in recent months. April's increase was a case of catching up, he said.'
'Save havens do not fall 7% in two weeks as gold in dollar terms has done. Save havens do not fall 3.6% in two weeks as gold in EUR terms has done. Safe havens are safe. Safe havens are stable; gold is not safe and certainly it is not stable and to think otherwise is to learn a very serious lesson in the course of the past two weeks.'