Groupon IPO

Today is the day when Groupon shares will start trading under the ticker GRPN. Demand for shares of new promising companies has been huge and almost all better-known IPOs have seen a significant price pop in the opening of trading. Yet the price pop has attracted lots of sellers and short sellers especially in the case of companies like GRPN or LinkedIn where expectations for profit are usually ahead of the curve causing volatile share price action.

Still I am hoping to get some trading action with Groupon shares. I am expecting the price of GRPN shares to pop in the open since very few GRPN shares are floated (only around 5% of total shares) and institutions are looking for exposure to hot fast growing IT firms like Facebook, Groupon or Zynga. My strategy is to buy into the opening strength and sell when buying pressure slows.

Greek referendum - necessary but risky

Greece announced yesterday that it will hold a referendum regarding the latest bail-out package among its citizens together with a vote of confidence in the parliament. The question asked from the Greeks is whether they want to adopt the latest aid package or not. It is a "yes" or "no" question which makes it a dangerous one. But first I will outline the core of latest bail-out package to Greece:

• 50% write-down of Greek bonds (meaning that current holders of Greek debt will suffer a 50% loss)
• 130 billion euros 
• further austerity measures and reforms including selling of Greek assets, sacking of numerous public workers, raising taxes etc

All this should reduce Greece's debt burden to 120% by 2015. Greece should return to growth from 2013 (its economy will contract about 5,5% this year). 

The announcement was shocking because reforms carried out in Greece are not popular, yet they are important in order to get support from IMF and EU. The reasoning here is that solvent EU members want Greece and other historical big spenders to behave according to rules and promote economic growth. By supporting Greece and other PIIGS (Portugal, Ireland, Italy, Greece, Spain) the EU can push these countries to carry out painful reforms. 

Now Greece has put the latest package to referendum. While it is good for democracy it may not be good for Europe. Recent polls show that majority of Greeks think that bail-outs are bad or probably bad to Greece. This is because there are no people in Greece that aren't in some way affected by reforms and austerity measures. 

"No" in the referendum held would mean that the government would step down and new elections would be held. This would theoretically cause the IMF and EU withhold their support money causing Greece to be unable to pay out salaries for months possibly. Even though I am fairly positive that even then some agreement with EU and IMF would be reached, it will cause panic and market tumble wiping trillions off bank accounts. Would Greece leave the euro then? How would Greece deal with all this euro-nominated debt if their currency would depreciate 50% for example? What would be the effect on Greek economy? Just look at Icelandic example for that matter!

"Yes" in a referendum would be the best outcome of all since the people of Greece would show their support to change what current Greek austerity measures are all about. This would make it easier for the government to carry out reforms and would win the total support of the parliament as well. Let's hope that Greek prime minister Papandreou knows what he is doing. 

Chinese growth, the future of India et al.

China has shown some impressive growth numbers and has passed US this year as the biggest economy in the world. One key elements of China's impressive growth has been undervalued currency which has subsidized exports, investments and together with rising salaries consumption as well. Just look at the chart below (click to enlarge).

The growth components of the developed world is usually dominated by personal consumption which adds up to 80-90% of GDP growth. What happens if the salaries of Chinese workers have risen to a level that makes it financially reasonable to move your factories to India, Indonesia or Vietnam for example? What happens if there is no undervalued currency (due to pressure from inflation or other countries), no massive investments to export sector hence reducing pressure to raise wages as well (reducing consumption)?

One thing is for sure - this trend is good for India and other poor Asian and African countries. This might also be good for Western countries since more people in the world get richer creating jobs in Western countries as well. What kind of changes this means to China is uncertain.

Nassim Taleb (author of Black Swan) on Occupy Wall Street

I have thought about writing on Occupy Wall Street movement for a while but haven't found a good illustration for my point. Occupy Wall Street is a movement which I think has a good foundation of actually changing something and this is because it affects us all. As Nassim Taleb puts it - banking bonuses are like an additional tax for regular people which increases inequality. The main problem with Occupy Wall Street though is the lack of clear and common message. Here's one of my favorite authors Nassim Taleb on Occupy Wall Street (13 minutes but worth to watch).

Apple underreports, slowing growth?

Apple misses by $0.22, misses on revs; guides Q1 EPS, revs above consensus (422.24 +2.25)

AAPLReports Q4 (Sep) earnings of $7.05 per share, $0.22 worse than the Capital IQ Consensus Estimate of $7.27; revenues rose 39.0% year/year to $28.27 bln vs the $29.28 bln consensus, 63% of rev from outside U.S. Co issues upside guidance for Q1, sees EPS of $9.30 vs. $8.97 Capital IQ Consensus Estimate; sees Q1 revs of $37.0 bln vs. $36.64 bln Capital IQ Consensus Estimate. Q4 gross margins of 40.3% vs Street est of 39.9% and 38.0% guidance; 17.07 mln iPhones sold in Q4 vs Street est of ~21 mln; 11.12 mln iPhones sold in Q4 vs Street est of ~12 mln; reports 4.89 mln Macs sold in Q4 vs Street est of ~4.5 mln. "Customer response to iPhone 4S has been fantastic, we have strong momentum going into the holiday season, and we remain really enthusiastic about our product pipeline."

Here's an update of products sold

As can be seen the sale of iPhones has decreased significantly from over 20 million units to 17. Now thinking back this shouldn't be a surprise since Apple reported record sales of its newest model iPhone 4S - they sold 4 million iPhones within one weekend (in October). Customers were probably waiting for the newest model. Just see for yourself how sales of iPads and Macs have increased. Now I can only imagine what the fourth quarter will be for Apple since Christmas is coming. The company themselves gave a guidance of $9.3 EPS vs $8.97 consensus.

The stock price should see some support on 398-400 area since psychologically it is an important level and it is also the area of Fibonacci 61,8 level (if you're fan of TA). Stronger support level should be in the 380-s so if we fall through 400 don't expect any serious resistance until that level.

US debt by presidents

While the chart below presents the share of US debt accumulated by different presidents during their time of governance it is a well-known fact that debt is much more difficult to not accumulate during a recession.

Obama has been in the White House during a recovery from a deep recession while George W. Bush has lead a recession free country most of his time in the White House (recession began in 2007). Maybe it runs in the family since George H.W. Bush didn't encounter a major recession as well?

Then again the debt of US might have more to do with major wars that the US has held. War on terrorism began in 2001 after 9/11 and has cost more than 3 trillion to date (as is been estimated by various sources). At the same time there were no major extremely expensive wars  held during the eighties or the nineties. At least their costs don't reach to anywhere near of the Vietnamese war or the invasion of Iraq and Afghanistan during the previous decade.

All in all the presidents that the US citizens can be "grateful" for their massive debt load involve most importantly the Bush family and Ronald Reagan. What do you think?

Source: Spiegel via a blog

Apple play into earnings?

Apple reports their earnings after the market closes on Tuesday. Current share price is at $419. Let's take a quick look into their performance during the last year. EPS in last four quarters have been growing steadily:Q3/11: 7,79 (consensus 5,84)
Q2/11: 6,4
Q1/11: 6,43
Q4/10: 4,64

Consensus estimate for current earnings is $7,21 a share which is a 55% improvement compared with EPS a year ago. With this consensus estimate Apple has a one quarter forward looking P/E of 15 and a trailing P/E of 16. Apple themselves estimate a $25 billion revenue for previous quarter with $5.50 EPS but don't be misled by that. They have done that for the past year and it's dangerous to take this guidance seriously (if you're planning to short).

I am fairly positive that Apple is going to deliver results that are above estimates. iPhone and iPad sales have not slowed down (see graph below).

iPhone is the product with the biggest profit margin as well as far as can be understood from their previous Q-10 filing. During the previous quarter Apple launched their new OS - Lion as well as some improvements on Macs. Looking at the news flow in the previous quarter I'm fairly certain that we will see Apple topping the estimates. By how much and how the markets will react this is the question.

From a technical point of view I would be surprised if Apple didn't reach a new high in at least somewhere around the 430 area before the earnings.

All in all I will probably take a position and hold at least until the earnings.