Securities Fraud; Food for Thought?

Here are some quick thoughts on the findings of the securities fraud modelling research project I aided. I unfortunately do not have the rights to publish the results here, but here are my comments on what was found.

The ‘Fraud Triangle’ theory of Donald Cressey, who was a notable American criminologist, states that fraud needs three components in order to occur:

Motivation, Opportunity, Rationalisation.

The methodology blended that framework with a multinomial latent dependent variable model accounting for the partial observability of fraud; in all incidents of detected fraud, only the joint probability of a fraud being detected AND committed can usually be ascertained; the statistical and theoretical method used tried to account for separate factors influencing the unobservable process of fraud commission. Briefly, the following patterns were found:

• Motivation for the unobservable commission of fraud is often provided by equity-based compensation for insiders.
• Opportunities are most often presented during: IPOs or equity-financed M&A activity; upward trends in the business cycle; and with corporations having multiple headquarters internationally.
  • So equity securities provide a substantial number of contributing factors.
    • Any equity-based transactions involving a firm where insiders have reasonable equity-based compensation incentives should attract greater scrutiny from analysts, investors and regulators.
    • This should be especially true during equity market booms accompanying a business cycle up-trend.
  • More scrutiny should be given to international firms with multiple headquarters, which requires greater cooperation between financial regulators globally.
    • A global financial fraud investigation body should be established by the likes of the World Bank, the IMF, or the UN.
• Rationalisation is all to do with avoiding detection once fraud committed AND the belief that temporary misfortune in earnings performance is the cause. Importantly, the belief that all ‘temporary’ illegal activities can be resolved once the situation improves appears relevant.

Factors can generally be classed as contemporaneous (at the time of commission), ex-ante (before the event), or ex-post (after the event). There exists a feedback loop relationship, where ex-post factors whose effect on ex-post detection can be predicted will affect the ‘unobservable’ probability of committing fraud in the opposite direction. This is likely a multiple time-period game (as in it can be explored using game theory), where the players are insiders, and monitoring agents who are not necessarily external.

Curious to know more? Get in touch (my details are on the ‘about the author’  page), or leave a comment.

Hiatus Announcement.

Hi all,

I’m temporarily taking a hiatus from markets, economic, and technology news blogging to aid a research project on securities fraud. I’ll be back in action late next week. Until then, bonne chance!

Sherif.

Markets & Economic News: 30 Jan to 08 Feb.

Hope you all like the new format!

Wednesday 30/01/13:

ASIA:

• Nikkei higher 2.3%; Shanghai Composite higher 1.0%; Hang Seng higher 0.7%.

USA:

• Dow lower 0.3%; S&P 500 lower 0.3%; NASDAQ lower 0.3%.
• U.S. American Eagle silver coin sales rise to all-time high of 7.1 million ounces in January. This is likely on currency devaluation war fears.
• U.S. Q4 2012 GDP contracted 0.1%, below 1.1% growth expectations, according to U.S. Bureau of Economic Analysis data. Allegedly, the 6.6% fall of Government spending overall caused the subtraction of 1.3% points from th Q4 growth rate; this drop was allegedly caused by a 22.2% drop in defence spending.
• Personal consumption, allegedly the most important factor of GDP, grew 2.2%, beating the 2.1% expectation; this increase was allegedly driven by a 13.9% growth in durable goods consumption.
• The U.S. FOMC stated it would not change the Fed Funds rate and would continue its asset purchase program of Treasuries and mortgage-backed securities.

EUROPE:

• EUR/USD higher on 3-month ECB long-term refinancing operation (LTRO) auction results, confirming that Eurozone banks are reducing their dependency on the ECB, suggesting tighter monetary policy in future.
• Spain’s Q4 GDP contracts 1.8% from the previous year, more than 1.7% drop expectation.

EQUITIES:

• Amazon reported earnings, revenue and profit guidance below expectations; share closed at all-time high however due to increase in profit margins.
• Chesapeake Energy CEO, Aubrey McClendon, who was steeped in a financial controversy in 2012, to step down in April 1, citing differences with board of directors; shares up over 10% on news in after-hours trading.

—
Thursday 31/01/13:

USA:

• Dow at 13,860 lower 0.3%; S&P 500 at 1,498 lower 0.2%; NASDAQ at 3,142 lower 0.0%.
• Initial jobless claims rose to 368k from 330k a week ago, disappointing expectations of 350k.
• Allegedly, markets expected seasonal factors to disrupt jobs numbers and so ignored the shock.
• Chicago PMI up to 55.6, beating 50.5 expectations; this is mainly due to the employment sub-index which jumped this month to 58.0 from 46.8 last month, the largest gain since February 2002.

—
Friday 01/02/13:

ASIA & PACIFIC:

• Nikkei higher 0.5%; Shanghai Composite higher 1.4%.
• China’s January PMI fell below expectations to 50.4, but the China HSBC PMI jumped to 52.3, a two-year high. This is allegedly due to the HSBC number weighting SMEs more heavily than official numbers, giving an allegedly more cyclical picture.
• Australian January PMI fell to 40.2 from 44.3 last month; this was led by contraction in new orders and production, with respondents citing soft demand, weak confidence and a strong AUD.

USA:

• Dow at 14,009 higher 1.0%; S&P 500 at 1,513 higher 1.0%; NASDAQ at 3,179 higher 1.1%.
• U.S. January jobs added 157k non-farm payrolls; December NFP were revised up by 41k and November NFP was revised up 86k.
• U.S. University of Michigan consumer confidence index shocked up to 73.8 above 71.5 expectations; gains were driven by the economic outlook sub-component of the index which rose to 66.6 from 63.8 last month.
• The U.S. ISM manufacturing index shocked up to 53.1 in January with all five sub-components being bullish.

EUROPE:

• Eurozone January PMI rose to 47.9 from 46.1 last month; Spanish PMI rose to 46.1, Italian PMI rose to 47.8 and German PMI rose to 49.8; French PMI dropped to 42.9 from 44.6 last month.

EQUITIES:

• Fourth largest Dutch bank, SNS Reaal, nationalised after bank run left it insolvent; the Netherlands government to inject EUR 3.7bn capital in the bank alongside EUR 6.1bn guarantees and loans.

—
Monday 04/02/13:

ASIA:

• Nikkei higher 0.6%; Shanghai Composite higher 0.4%; Hang Seng lower 0.2%.
• China January non-manufacturing PMI up to 56.2 from 56.1 last month; Chinese manufacturing SMEs appear to be leading growth recently.
• Japan’s monetary base increased 10.9% in January, year-on-year, down from 11.8% growth last month; overall money growth missed expectations of a 13.2% expansion.

USA:

• Dow at 13,880 lower 0.9%; S&P 500 at 1,495 lower 1.1%; NASDAQ at 3,131 lower 1.5%.
• U.S. December factory orders grew 1.8%, below the 2.3% expectation.
• The U.S. Fed’s Senior Loan Officer Opinion Survey stated that a modest fraction of domestic banks reported an easing of standards across major loan categories over the past three months on net.

EUROPE

• European share indices sell-off over political stability fears in Spain and Italy, with Spain’s PM Rajoy in a corruption scandal and resurgence of Berlusconi’s party ahead of Italian elections.

—
Tuesday 05/02/13:

ASIA & PACIFIC:

• Overnight trading: Nikkei lower 1.9%; Hang Seng lower 2.3%; Shanghai Composite higher 0.2%.
• China’s January HSBC services PMI rises to 54.0 from 51.7 last month.
• The People’s Bank of China injected $72bn into money markets ahead of Chinese New Year celebrations in anticipation of higher money (liquidity) demand by consumers (and therefore their banks).
• The Reserve Bank of Australia leaves their benchmark interest rate unchanged at 3%; the RBA stressed that a declining inflation and employment situation could lead to more quantitative easing, but this is unlikely given the pick up in economic activity in China.

USA:

• US session: Dow at 13,979 higher 0.7%; S&P 500 at 1,511 higher 1.0%; NASDAQ at 3,171 higher 1.2%.
• The January U.S. ISM non-manufacturing (services) index fell to 55.2, higher than the 55.0 expectation however.

EUROPE:

• The January composite Eurozone services PMI rose to 48.6 from 48.3 last month, suggesting a possible slowing of services sector contraction; the picture individually is mixed as Germany’s services PMI rose to 55.7 from 55.3 last month but Italy’s services PMI contracted at an accelerated rate, falling to 43.9 from 45.6.
• January U.K. services PMI is higher at 51.5 from 48.9 last month, suggesting that the services sector crossed into expansionary territory over January.

EQUITIES:

• UBS reported a $2.1bn loss in Q4 following LIBOR scandal fines and costs incurred from job cuts. Allegedly, the wealth management business is expected to have underperformed which may lead to earnings downgrades.
• Toyota, one of the world’s largest automotive manufacturers, saw profits rise 23% in Q4 2012 and expects its fortunes to continue, with raised forecasts for 2013 given the depreciating yen. Net profits are 10% higher at JPY 860bn from JPY 780bn. It expects to manufacture 8.85m vehicles this year, up from prior estimates of 8.75m units.

 

—
Wednesday 06/02/13:

ASIA:

• Overnight trading: Nikkei higher 3.7%; Shanghai Composite higher 0.1%; Hang Seng higher 0.5%.
• Bank of Japan Governor Masaaki Shirakawa to step down on March 19; this is three weeks earlier than his term is scheduled to end. This allegedly helped the Nikkei higher as investors expect his replacement to take more radical monetary policy measures.
• December Australian retail sales fell 0.2%, less than the 0.3% fall expectation.

USA:

• U.S. session: Dow at 13,986 higher 0.0%; S&P 500 at 1,512 higher 0.0%; NASDAQ at 3,168 lower 0.1%.

EUROPE:

• December German factory orders rose 0.8% ahead of 0.7% expectations; Euro area orders surged 7% while domestic sales showed a 1.2% contraction, showing that while services may be recovering in Germany, goods-based business appears to be recovering elsewhere in the Eurozone.

EQUITIES:

• Disney Q4 2012 earnings and revenues slightly above expectations following the closing bell. CEO, Bob Iger, stated ABC and ESPN were affected by soft ratings in Q4 but have rebounded.
• NASDAQ is in talks with the SEC regarding a $5m settlement over the Facebook IPO scandal. NASDAQ has also offered to pay $62m to investors who were affected and lost money on Facebook IPO trades.
• Liberty Global, the international cable provider, announced a deal to acquire Virgin Media, the U.K.’s second largest cable company by subscribers for $16m in cash and equity; the move is expected to challenge BSkyB, and the ability of Rupert Murdoch’s News Corporation’s ability to earn on its equity stake in cable provider BSkyB.

—
Thursday 07/02/13:

ASIA:

• Overnight trading: Nikkei lower 0.9%; Shanghai Composite lower 0.7%; Hang Seng lower 0.3%.

EUROPE:

• German industrial production grew at 0.3%, beating the 0.2% expectation.
• U.K. industrial production grew 1.1% in December, beating the 0.9% expectation; manufacturing grew 1.6%, beating its 0.8% expectation.
• The ECB is unlikely to approve the plan by Ireland to liquidate formerly nationalised Anglo Irish Bank, according to a report by Bloomberg; the implication is that Ireland will not be able to reduced its debts owed to the ECB through the move. Obvious which way this one is going to go really.
• Incoming Bank of England Governor Mark Carney gave a 3-hour testimony before the U.K. Treasury Committee about flexible inflation targeting being the best monetary policy tool available. He also stated there were merits to providing “Fed-style” nominal GDP targets, with many ‘theoretical’ advantages when the repo / inter-bank lending rate is close to zero, preventing use of that policy tool for expanding employment.
• The Bank of England’s interest rate is left unchanged at 0.5% with no expansion to its £375bn asset purchase program, as expected.

—
Friday 08/02/13:

ASIA:

• Overnight trading: Nikkei lower 1.8%; Shanghai Composite higher 0.6%; Hang Seng higher 0.2%.
• Japan’s current account deficit widened in December to JPY 264.1bn from JPY 222.4bn in November. Economists expected it to shrink to JPY 144.2bn. This is its smallest current account surplus since 1985. Clearly the depreciating JPY is yet to affect net exports the way the Japanese government and the Bank of Japan would like it to.
• Chinese exports rose 25% YoY in January, with YoY imports growing 28.8%; economists state the unexpected results are the result of the seasonal effect of Chinese New Year.
• Chinese consumer prices rose 2% YoY in January, down from 2.5% YoY inflation in December, as expected. Allegedly, seasonal effects from Chinese New Year will only subside to give ‘clean’ data in March; as with all statistical claims, treat it with scrutiny.

EUROPE:

• German exports grew 0.3% in December, lower than the 1.4% growth expected, but still above the 2.2% contraction in November. German imports surprised by contracting 1.3%, lower than the 1.8% growth expected by economists. The German trade surplus narrowed more than expected to $16.1bn or EUR 12bn. Clearly, economists are overly optimistic about the recovery prospects of Germany, which has shown fragility with its latest statistics.
• E.U. leaders introduced the first ever spending cuts to the E.U. 2014-2020 budget, with British PM David Cameron’s proposition of a British referendum on E.U. membership allegedly being the driving factor. For Cameron, the issue of reducing real-terms EU spending was non-negotiable in his party, the Conservative party, which forms part of the U.K. government coalition.

USA:

• The December U.S. trade deficit shrank 20.7% to $38.5bn, beating economist expectations of a contraction $48.6bn deficit; this is the third-largest swing in the U.S. trade balance in history. Clearly the depreciation of the USD thanks to Fed monetary policy is helping net exports; this is likely building the case for other central banks to follow suit and may bring on a more explicit currency war.

EQUITIES:

• LinkedIn posted better-than-expected results in Q4 earnings and sales following the closing bell. Pre-market trading has pushed the shares 10% higher on robust earnings guidance above analyst estimates for Q1 2013.
• Moody’s is expected to post EPS $0.68, but its shares have fallen over 17% since Monday on news that the U.S. Department of Justice filed a lawsuit against Moody’s rival Standard & Poors, and news that the DoJ is considering a similar move against Moody’s related to mortgage fraud that contributed to the financial crisis.

Markets & Economic News: 25 to 29 January.

Friday 25/01/13:

• Nikkei up 2.88% on a 32-month closing high on 2.5 year low in JPY/USD.
• German business confidence climbs to 104.2 from 102.4 in January indicating a recovery (probably led by exports to China).
• U.S. Federal Reserve balance sheet hit the $3TN mark for the first time during open-ended asset purchases of Treasuries and mortgage-backed securities as a part of QE.
• The European Central Bank stated 278 financial institutions would repay the second tranche of its 3-year loans next week worth EUR 137.2BN.
• Procter & Gamble reports net income doubling to $1.39 per share and expects 2013 earnings to be $3.97-$4.07 per share.
• Microsoft reports earnings of $0.76 per share with sales revenue in line with expectations. Starbucks reportes earnings on $0.57 per share and sales revenue fell slightly below expectations; sales grew most in China/Asia Pacific at 11% growth.
• The U.K. economy contracted 0.3% quarter-on-quarter in Q4 leaving the nation on verge of a ‘triple-dip’ recession.
• Core Japanese consumer prices decreased 0.2% year-on-year in December falling for the 7th time in 8 months; the Bank of Japan will have to do more to reach its 2.0% inflation target.
• New U.S. home sales fell 7.3% in December to 369K under expectatons of 385K although the November number was previously revised upwards showing some uncertainty in the U.S. housing market recovery.

Markets:

Dow: 13,895; +0.5%
S&P 500: 1,502; +0.5%
NASDAQ: 3,149; +0.6%

—
Monday 28/01/13:

• Hang Seng up 0.4% and Shanghai Composite up 2.4%; Nikkei down 0.9%.
• Chinese industrial earnings growth fell to 19% year-on-year in December from 22.4% in November. Quarterly figures showed that Q4 earnings growth was 20.4% up from 1.0% in Q3.
• German 1-year government bonds sold this morning with a positive yield; the immediate dip below par value in the market for these bonds indicates that investors are preferring riskier investments for the 1-year time horizon. During the height of European sovereign debt default worries, these bonds were trading above par given the high demand for ‘safe-haven’ assets with low risk.
• Toyota again became the world’s largest auto maker today by sales, with global sales growth of 23% pushing sales to 9.75M units in 2012, beating General Motors’ 9.29M units in 2012.
• Egyptian President Mursi declared a state of emergency in three cities near the Suez Canal to last for a month following violent protests that left 49 people dead last week. Additional protests resulted on Sunday.
• Caterpillar beat Q4 estimates on earnings and revenues at $1.91 EPS and $16.08BN in sales. The firm expects $7-9 EPS in 2013 versus the consensus expectation of $8.54 showing that management are confident in the year’s demand for their goods mostly used in construction. The company is a bellwether for construction/housing market performance worldwide.
• Durable goods orders rose 4.6% in December, beating 2.0% increase expectations but non-defence capital goods shipments excluding aircraft only rose 0.3% which was under 0.8% increase expectations.
• Pending home sales unexpectedly fell 4.3% in December which was greater than expectations by economists of no change; this was allegedly the case because homes under $100K were in short supply rather than there being a demand shock.
• The U.S. Dallas Fed manufacturing index climbed to 5.5 beating expectations; the gains were led by increases in new orders, capacity utilisation and employment.

—
Tuesday 29/01/13:

• Nikkei up 0.4%; Shanghai Composite up 0.5% now officially in a bull rally.
• Spain and Italy equity markets down 0.6%.
• U.S. Federal Reserve FOMC begins its 2-day monetary policy meeting today; credit markets are tense over concerns that the U.S. Fed may begin to withdraw its asset purchases.
• Ford reported $0.32 EPS beating $0.25 EPS expectations and $36.5BN in revenue beating $33.03BN expectations; new car purchases can be considered a leading indicator for consumer confidence and pre-tax profits for Ford were at a decade’s record level, being driven by a boost in F-Series pick-up truck sales in North America.
• Yahoo reported earnings after the bell on Monday of $0.32 EPS beating expectations of $0.28 EPS and revenues of $1.22BN beating expectations of $1.21BN although search revenues grew 14% display advertising revenues declined 5%.
• Anglo American, the global mining giant, announced a $4BN write-down on its iron ore mining project in Brazil after uncontrolled costs and delays; other mining companies are expected to issue similar write-downs as they have dealt with similar issues.
• Japan’s small business confidence index rose to 44.3 from last month’s 43.8 reading; Japanese manufacturing confidence rose to 41.1 from last month’s 40.7; non-manufacturing confidence rose to 46.9 from 46.4 the previous month.
• The Reserve Bank of India cut interest rates to 7.75% from 8% while lowering the cash reserve ratio to 4% from 4.25% in order to spur growth stating that it had limited policy space to do so; the central lowered its March inflation forecasts to 6.8% from 7.5% highlighting a slowdown of growth in India.
• The Case-Shiller home price report showed that prices rose 5.52% in November, in line with expectations, suggesting that the U.S. housing recovery is persistent.
• The Conference Board’s U.S. consumer confidence index dived to 58.6 below expectations of 64.0 allegedly due to consumers factoring in payroll tax increases; this indicator gives a mixed picture of consumer confidence when considering Ford’s record sales in Q4.

Tech Industry News; 24th to 28th of January.

Microsoft earnings and revenue in line with expectations (24/01/13):

Revenue was $21.46BN vs $21.53BN expected. EPS was $0.76 vs. $0.75 expected.

Windows division adjusted non-GAAP sales grew 11% year on year to $5.3BN. The sales growth overall mostly came from the Windows and Server & Tools divisions while revenue for the Microsoft Business Division and the Entertainment and Devices division was down in 2012 from 2011 numbers. Generally, the three months ending December 31 2012 numbers provided a better picture than the six months ending December 31 2012 numbers; the latter suggested overall revenue and earnings contractions over H2 2012 relative to the previous year.

—
Google allegedly working on a ‘smart watch’ (24/01/13):

I dislike commenting on these kinds of rumours. My personal opinion is that unless existing smart-device lines are declining in profitability or they have peaked in profitability, per unit, then there is no incentive to cannibalise sales and earnings with new, untested products that require an intensive amount of investment and time to bring to market properly.

Still, the full story is here [http://read.bi/YsRJqb].

—
Verizon allegedly to stock high-end Nokia Lumia phones in 2013 (24/01/13):

The U.S. carrier will offer a device with similar specifications to Nokia’s Lumia 920; the handset is codenamed ‘Laser’ and is set to début alongside the device codenamed ‘Catwalk’ which also has similar specs to the Lumia 920 but has a lightweight aluminium body.

—
Huawei is top third smartphone manufacturer by unit shipments in Q4 2012 after Samsung and Apple (24/01/13):

This is according to data from IDC. It places ahead of Sony and ZTE with a 4.9% market share, but is still massively behind rivals Samsung (29%) and Apple (21.8%). Researchers from IDC’s mobile team stated that the focus of Huawei and ZTE on mass-market phones and their efforts to push the envelope with their industrial design and app experience has led to their increase in global market share, reshaping the layout of the global smartphone market.

—
Samsung drops on profit-warning stating stronger Korean Won and high-end smartphone market saturation (25/01/13):

The share dropped 2.5% in the Seoul trading session following worries aired about its continued earnings growth given that sales growth is now mostly to be found in the lower margin low-end smartphone segment in nations like China. This is a very real issue that will force other manufacturers like Apple to adapt or die given the high-end smartphone market saturation and the slimming possibilities of continue growth there. A stronger Won cut operating profits by 360BN won in Q4 by damping earnings from China and Brazil. Samsung’s consumer electronics unit which makes televisions and home appliances posted a 740BN Won operating profit in Q4 which beat the same quarter results in 2011 of 540BN Won showing that there is growth for Samsung in these high margin areas despite likely declining sales in high-margin high-end smartphones in the future; other highly profitable areas such as semiconductors continued to produce growing operating profits however, up 8.4% to 1.42TN Won. Samsung’s overall Q4 operating profit was 8.84TN Won.

—
New app, AirMobs, allows users to ‘lend’ data usage to other smartphone users which they can then redeem later (26/01/13):

This could be very big news if it takes off because of the added flexibility it gives the market for data usage globally.
The app has not yet been released on Google’s Play store for fear of backlash by mobile carriers.

Full story at NewScientist [http://bit.ly/XdhWUF]

—
Facebook launches conversion tracking software on Tuesday (27/01/13):

This is a big deal because while Google has long had conversion tracking features in its advertising products which show advertisers exactly how an ad click has converted into a sale, Google’s product can only give aggregated data on conversion; Facebook’s unique identifier for each user of its social network allows for a greater depth of click- to-sale conversion analysis.

Full story here, although it is a bit long-winded [http://read.bi/XGQjl0]

—
Apple devices lose popularity to other high-end devices in Hong Kong and Singapore (27/01/13):

According to data from StatCounter, traffic collected from 3 million websites suggests that Apple’s share of mobile devices in Singapore declined from 72% in January 2012 to 50% this month while Android devices are up to 43% from 20% year-on-year this month. In Hong Kong, Apple devices are down to 30% market share, down from 45% a year ago while Android devices account for almost 66% of traffic on the 3 million websites surveyed by StatCounter. One theory for this is that the ubiquity of iPhones and iPads has made them lose their cool factor with richer, more fashionable residents of Hong Kong and Singapore, much like Louis Vuitton bags… Another potentially silly, but actually pretty valid theory is that larger screens on competitor devices like Samsung’s Galaxy SIII allow Chinese speaking consumers to write complex Chinese characters on their screens when communicating, alongside allowing
better mobile viewing without being as cumbersome to carry as a tablet.

—
China considering end to 13-year video game ban (28/01/13):

The source is the China Daily newspaper which featured the story on Monday; shares of Japanese companies Sony Corp and Nintendo Co Ltd. have surged on the news by 8% and 3.5% respectively. The speculation comes following the certification of Sony’s PlayStation 3 console as not harmful for children’s mental and physical development in November. Note, this is still a rumour, but one that the markets seem to believe as credible; a lift of this ban is inevitable as China begins to slowly liberalise and open itself up to more international trade (read: importing), but
the political situation with Japan is tense over the territorial dispute over islands in the East China sea and thus covert trade barriers like this one (yes, I do believe it is a trade barrier) may take a while to be lifted fully.

—
Amazon tablets dominate the Android tablet market with Kindle Fires in the U.S. accounting for 33% of all Android tablets globally (28/01/13):

The data comes from mobile app analytics service ‘Localytics’; the U.S. is itself the world’s largest tablet market with 59% global market share, suggesting that Amazon Android tablets are the most owned Android tablets worldwide; something that will likely factor very heavily into the success of Amazon’s plans to become prominent digital media distributors, which will happen once Apple loses the foothold it has in the tablet market. The data from Localytics shows that Amazon tablets are well ahead of Google’s Nexus 7, Samsung’s Galaxy tablets and
Barnes and Noble’s Nook tablets in terms of U.S. and likely global market share. Amazon’s tablets are yet to launch in China, which is a massive growth market; my prediction is that growth in the tablet space will also come in at the lower price-point range which could work very favourably for Amazon.

—
Yahoo’s top lawyer in Mexico has left for Google (28/01/13):

This is the latest turn in Yahoo’s Mexico-based legal battle with Worldwide Directories over contracts the former allegedly reneged on. Maria Andrea Valles, Yahoo Mexico’s general counsel has updated her LinkedIn profile showing that she has just joined Google as a corporate counsel. Google confirmed the hire. It is unclear whether this will materially affect Yahoo’s chances of winning the court case in Mexico in which it could pay a settlement of $2.7BN, but one has to wonder if this is a stealth-move by Google to damage a potential rival’s return to form.
Yahoo’s CFO stated that Yahoo “made no accrual” in Q4 for expected settlements however.

Markets & Economics; 23rd [update] to 24th January.

Wednesday 23/01/13:

UPDATE: The Dow & S&P 500 are closing near all-time highs:

• Dow: 13,779; +0.4% — All time high 9/10/07 at 14,164; possible resistance level.
• S&P 500: 1,494; +0.1% — All time high 9/10/07 at 1,565; possible resistance level as profit taking is likely to ensue.
• NASDAQ: 3,153; +0.3%
• Technical and Fundamental analysts seem in agreement about a bullish year for U.S. equities on a tailwind of economic growth and DJIA, Dow Transportation Average indexes as indicators (although if they are moving in opposite directions it suggests a fragile rally).
• The House of Representatives passed the debt-ceiling bill which suspends the debt ceiling until May 18.

—
Thursday 24/01/13:

• Asian markets: Shanghai Composite down 0.79%; Nikkei up 1.28% on HSBC Flash PMI for China reaching a 24- month high of 51.9, boosting shares with exposure to the country.
• Apple disappointing results and 9% after-hours session loss expected to weigh on the Nasdaq.
• French flash manufacturing PMI fell to 42.9 in January and the composite output index dropped to 42.7 showing deeper contractions wherease German contraction slowed with manufacturing PMI climbing to 48.8 but with the German composite index climbing to 53.6.
• Japanese exports fell 5.8% year-to-date in December and imports were up 1.8% showing a growing trade deficit, which came in at JPY 641.5BN but 2012 overall had a record trade deficit of JPY 6.93TN for the island nation whose currency has been appreciating relative to the USD and EUR.
• Q4 under 25 unemployment in Spain was 59.8%, with overall unemployment at 26% according to the Spanish Institute of National Statistics, showing that the young unemployment situation is becoming particularly worse and it may soon lead to long-term structural unemployment in the Spanish economy.

Tech Industry News; 23rd and 24th of January.

Apple tanks on disappointing iPhone sales (23/01/13):

Institutional investors were looking for 50M iPhone sales in Q4, instead they got 47.8M. After-hours trading hammered AAPL as concerns sink in about Apple’s ability to grow sales further despite record earnings.

Revenue at $54.5BN was short of $54.58BN expectations. EPS beat expectations at $13.81 versus $13.34. Gross margin disappointed at 38.6% versus 39.5% expected, probably the biggest worry over Apple’s continued high profitability of their products (this is likely due to supply chain issues increasing costs rather than downwards competitive price pressure). Only iPod sales beat expectations at 12.7M versus 12M expected. The majority of Apple’s sales revenue comes from its iPhone first, then iPad followed by its iPod products, showing the declining contribution of Macs to the tech giant’s bottom line.

—
Netflix rallies 40.20% on crushing earnings estimates (23/01/13):

Q4 numbers are:

Sales: $945M versus expected $934.5M
EPS: $0.13 versus expected -$0.13

An additional 10M global streaming members were added last year bringing its total to 33M global, with 27M members being U.S. based consumers. Q4 added 2.05M subscribers domestically and 1.81M internationally, while domestic DVD subscribers fell to 0.38M, showing the direction the content rental industry is taking is clearly streaming; the firm expects Q1 domestic DVD subscriptions to fall to 7.6M from 8.05M.

The firm invested a lot to expand international operations to have access to a total of 40 markets but was still able to generate profit; it expects a declining loss in its international markets. Netflix estimates that its domestic streaming will bring a larger profit contribution than its DVD subscription business for the first time ever. In terms of content availability, Netflix’s own position is that they have rights to the top 100 demanded movies and TV shows whereas Amazon Prime only has rights to 73, HuluPlus only has rights to 27 and Redbox has rights to only 12.

Netflix is a very strong company, its user experience and multi-device availability beats competitors’ offerings but Amazon could and likely will be a very serious competitor in the near future.

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Nokia Q4 results improve on a poor Q3 2012 (24/01/13):

Results came in at $584M operating profit on $10.7BN net sales beating last quarter’s $754M operating loss on $9.49BN net sales. Lumia device sales were at 4.4M up from th 2.9M in Q3 2012 showing growing demand for the Windows OS operated devices. Smartphone sales were 6.6M, down from 19.6M the previous year an dfeature phone volumes were up 4% quarter-on-quarter but down 15% year-on-year, reaching 79.6M units. Asha smartphone sales were at 9.3M units, outperforming the Lumia range and bringing actual total smartphone sales to 15.9M.

The company’s gross and net cash positions have improved in Q4 from Q3 although Nokia will not be making dividend payments for 2012 to investors because it hopes to have money on hand for acquisitions and to support its liquidity and likely its ability to gain debt finance access given that liquidity.

The company has been cutting costs and raising funds by slashing jobs, including a recent announcement of 300 jobs globally in IT with a further 820 to be outsourced, selling off its luxury phone brand Vertu and its Espo headquarters to Finnish firm Exilion for EUR 170M. Whatever Nokia is doing, its clear that it wants to have cash and debt capital market access this coming year to help it seize market share from a floundering Apple.

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Google released information about a new image search function to be implemented over coming days (24/01/13):

Read the story here at Mashable [http://on.mash.to/UZ5Tut]

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Silicon Valley has officially reached the economies of scale and scope in technology entrepreneurship that London has for finance (24/01/13):

Start-ups are flooding in from other countries like Russia, Germany, Australia and Japan to gain access to venture capital and other finance sources from the densely concentrated cluster of investors in Silicon Valley. Overseas incubator programs have largely boomed due to the declining cost of web-based servers and data storage. While there is arguably a saturation of incubators in the area, international incubators believe they fill a niche by providing access to markets that are not saturated with technology start-ups, and they likely provide a type of diversification by way of different approaches and ideas being brought on-board by overseas entrepreneurs.

Full story over at the WSJ [http://on.wsj.com/148A3jW]