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Is an 'Apple Prime' the Answer to iPhone Troubles?

Is an 'Apple Prime' the Answer to iPhone Troubles?

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09 January 2019



Video commentary for January 8th 2019



Eoin Treacy's view

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: Wall Street close to the first area of potential resistance, Europe steady but still underpeforming, China unimpressive. High yield spreads rapidly unwinding oversold condition but also now at first area of resistance. The big question is where is the next source of liquidity going to come from.



Junk Reversal Points to Shifting Market Structure

This article by Sebastian Boyd for Bloomberg may be of interest to subscribers. Here it is in full:

The whiplash reversal in junk-bond spreads underlines the treacherous nature of markets at the moment. It's hard to find precedents for a reversal of sentiment on the scale we saw in the last couple of sessions. It's possible that the scale of the shift is justified by either the jobs data or Powell's put, but it seems likely that the Street's reduced capacity for making-markets is exaggerating the swing.

The last time we saw a two-day decline in U.S. high-yield spreads of this magnitude was in 2009, but that was in the context of a longer rally. There was a similar turnaround in late 2000, but in retrospect that just looks like a blip on the chart. The index in those days was less than a quarter of the size it is now and more susceptible to events in individual names.

It's not a lack of flow. Yesterday's volume of high-yield corporate trading was 67% above average, according to Trace data.

But trading isn't the same as liquidity. Market-making desks have much less capacity for assuming risk than they did before the crisis. They were never much help in a full-on panic, but if market-makers took down fewer bonds in the sell-off that would leave them less able to react when the market turns around. So, you can have a market in which too much money is scrambling after too little paper.

It's possible the culprit might be the growth in popularity of junk ETFs like HYG and JNK, but the assets in those two funds have fallen by one-third from the peak in 2017. Or you could just blame quants and algos. They seem to be the go-to scapegoat for everything hard to explain in the markets these days, just ask Cliff Asness (sarcasm alert).


Eoin Treacy's view

Credit leads the stock market. Bond managers’ primary concern is default probability. Bonds don’t pay more if a company does well. Instead, the price of the bonds may rise which reduces their allure for new buyers on a yield to maturity basis. Unlike stocks, bonds have a clear end date, by which either gains have to be locked in or the issue redeems at par. That means bond investors are much more alert to credit conditions, default rates and the factors that can influence them which tend to affect bonds before stocks.



Is an 'Apple Prime' the Answer to iPhone Troubles?

This article by Brad Stone for Bloomberg may be of interest to subscribers. Here is a section:

Since then, the hypothetical of a monthly subscription to All Things Apple has assumed an extremely unofficial name—Apple Prime—based on Amazon’s bundle of free shipping, movies, music, photos and various other services. Last week, the notion took on sudden urgency, as Cook sliced Apple’s sales outlook, sending the company’s stock plunging 8 percent for the week and nearly taking the rest of the stock market down with it.

Proponents of Apple Prime are now reading tea leaves and seeing puzzle pieces moving into place. In his note to shareholders last week, Apple’s chief executive officer wrote under the heading of “other initiatives to improve our results” that Apple was working on “making it simple to trade in a phone in our stores, finance the purchase over time, and get help transferring data from the current to the new phone.”

The idea is that instead of paying a cool grand for a new iPhone every year, devotees might pay Apple a monthly stipend for automatic access to the latest device. Apple already has an iPhone upgrade program that costs $37 a month, administered by Rhode Island-based Citizens One. Presumably Apple could then bundle this with access to music, storage, the AppleCare warranty program, and the much ballyhooed but still largely invisible stable of Apple-financed TV shows and films, like an upcoming animated movie. “This is Apple Prime. And it is coming,” tweeted investor and Apple watcher MG Siegler, after reading Cook’s letter.


Eoin Treacy's view

The subscription business model is the tech industry’s answer to the cyclicality which has plagued it since its dawn. By creating products that are essential to modern living they have turned a boom to bust pattern into an easily modellable stream of cashflows that any fundamental value-oriented investor can justify having a position in.



Delay Brexit? Ireland would not stand in the way

This article by Guy Faulconbridge, Conor Humphries for Reuters may be of interest to subscribers. Here is a section:

The Telegraph newspaper cited three unidentified EU sources as saying British officials had been “putting out feelers” and “testing the waters” on an extension of Article 50, which sets out the conditions for leaving the EU.

Brexit Secretary Stephen Barclay denied the report and said London would not seek to extend the divorce while German Foreign Minister Heiko Maas said it was not time to discuss such a course. Ireland, though, said it would not stand in the way if Britain made such a request.

“Certainly from an Irish perspective, if such an ask happens, we won’t be standing in the way on that,” Irish Foreign Minister Simon Coveney told journalists after a meeting with Maas in Dublin.

“If it is the case that at some point in the future that the British government seeks an extension of Article 50, then that is something that will have to get consideration at an EU level,” Coveney said.

Ireland’s economy would be hit hard by a disorderly Brexit and the most contentious part of May’s deal is an insurance plan aimed at preventing a hard border between the Irish Republic and Northern Ireland.


Eoin Treacy's view

May is said to intend to “move swiftly” if her deal is voted down in parliament, as seems likely. The UK is due to leave the EU on March 29th so 80 days from now. One is reminded of Phileas Fogg’s race around the world but perhaps the more appropriate literary comparison is with Don Quixote and tilting at windmills, but this time in the Low Countries.










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