Michael Baxter

Bull and bear: ECB still in denial, markets in denial over Apple, dare you deny ARM?

Written by: Michael Baxter on June 10th 2013

Category: Bull & Bear, News

Bull and Bear – an optimistic and pessimistic view of investment news. Today’s stories include:  ECB still in denial. ECB policy is a bit like Goldilocks. Scully praises Apple, and reveals plans for wearable devices. ARM’s opportunity and threat

ECB still in denial

Mario Draghi has done a good impersonation of a beer salesman, in particular one working for a certain large beer firm originally from Denmark. The IMF, in contrast, has donned a hair shirt, admonishing itself, and confessing its sins. Not so the grandees in the euro area because they run the best financial policy in the world – probably…

The IMF tried to be tactful, but it is not happy and the TROIKA got the blame. The TROIKA, as you may know, was the organisation charged with saving Greece, and indeed much of the euro area, and was made up of the ECB, the EU Commission and the IMF.

Now the IMF has said that when the bail-out of Greece was orchestrated in 2010, the TROIKA made mistakes. It all boils down to hair-cuts. You may recall that one or two – or perhaps one or two thousand – economics commentators said the plan to rescue Greece was not workable. They said that some of its debt had to be written off, otherwise Greece would be forced into economic depression.

Well it turns out the IMF thought that too, but failed to convince its partners in the TROIKA. It is now apologising for the errors the TROIKA made, and presumably, apologising for failing to convince its partners about the errors they were making.

It did not utter words to this effect, but many are interpreting the IMF statements as suggesting it believes the TROIKA forced a lost year on Greece; a year of unnecessary hardship and suffering.

But what do the powers that be within the euro area say in return? They deny it. They say the IMF is speaking with the benefit of hindsight; that it had no way of knowing at that time that debt write-offs would eventually prove necessary.

So, let’s re-run the argument. Across the UK media, articles proclaiming the woes of Greece, and the errors being made by the TROKA were almost as common as articles blaming immigrants for all our ills, and yet the TROIKA says it had no way of knowing, and that it is easy to be wise after an event.

It must be great in TRIOKA land, a place when everyone is better looking than average, everyone is richer than average, and everyone is above average at everything. It’s a land so far removed from reality that even Ivory Towers might seem like beacons of reality in comparison.

But the key to ensuring you don’t repeat mistakes is surely to admit you made them in the first place. It was said here three years ago that many who control the purse strings in the euro area are in denial; they still dwell there, even now.

ECB policy is a bit like Goldilocks

‘Who has been sleeping in my bed?’ asked the US Federal Reserve. ‘Who has been eating my porridge?’ asked the UK government. The Fed has been filling the world with its newly created money. The idea was to boost the US, but at least some of it has been flooding overseas. Critics say the US money policy was too hot. The US says other countries are benefiting from its money, sleeping – as it were – in its bed.

The UK government was worried about the EU taking its money, filling up its workforce with immigrants, and quashing its institutions with plans such as a financial transaction tax. Eating, as it were its porridge, but the UK economy remained far too cold.

On the other hand, the ECB, euro leaders, and the TROIKA got it just right.

And jumping swiftly from Goldilocks to advertisements for a Danish beer, Mario Draghi entered the debate. He said that monetary policy across the eurozone was “the most successful monetary policy measure undertaken in recent times.” But before he said those words, just to keep the Advertising Standards Authority happy, he inserted the prefix – “probably.”

Well, there is no doubt the ECB reaches the parts other QE programmes cannot reach. You only need to look at the hard economic facts. The euro area booms, with record low unemployment, while the rest of the world is stuck in depression.

It’s the best economy in the world – probably not.

And it is certainly not too hot, but neither is it just right.

Scully praises Apple, and reveals plans for wearable devices

Do you remember John Scully? He is the man who used to be Vice President of Pepsi, was brought in to run Apple, and fired Steve Jobs, only to see the company nearly go bust.

These days Scully is a chastened man. In interviews he only ever seems to talk about Jobs in the kind of tones one usually reserves for describing Gods.

But the point is that Scully is someone who should know a thing or two about Apple, its strengths and weaknesses, and he has had enough time to work out the whys and wherefores too.

In an interview on CNBC, he quoted John Chambers, Chairman and CEO of Cisco, who has said that by 2020 there will be 30 billion connected devices on the planet. See Apple Has Edge in ‘Wearable’ Tech: Former CEO John Sculley . Chambers sees the future as wearable devices – smart watches, for example, or devices that monitor your health calorie and protein intake. To this end, he founded Misfit Wearables, coincidentally on the day Steve Jobs died – and, by the way, Scully seemed very uncertain about Google glasses.

But Mr Scully did say something very interesting. He has chosen to focus on making his products work with the Apple iPhone, and – temporarily at least – not bother with Android. Why? It comes down to technology. He sees the Apple platform as offering the better environment. The argument is as old as the hills – or at least it’s as old as electronic hills. Apple tries to control its hardware, to ensure all software that supports it conforms to certain standards. The Android world, on the other hand, is a loose connection of hardware companies, who are rivals and yet cooperative. Maybe the Android sees more variety as a result, but it also has more bugs, more viruses. Maybe the Android sees quantity over quality.

Talking of Apple, CNNMoney has quoted Sameer Singh, head analyst at BitChemy Ventures, as making rather a good point. “Historical industry patterns,” he said, “show us that as products improve and become ‘good enough’ for mainstream use, it becomes more difficult to create a strong value proposition by making a better product.” It is not a new argument, indeed this column has made similar points in the past, but it was well expressed.

But what Apple is good at is disruptive technology, and if John Chambers from Cisco is right to say there will 30 billion connected devices by 2020, that means an awful lot of disruptive technology between now and then.

Many of the big techs – Apple, Google, IBM, maybe even Facebook, even perhaps Microsoft (let’s emphasise perhaps in the case of Microsoft) – will have plenty of opportunities to grow their business over the next few years, and the markets do not seem to get this – at least they don’t seem to get it when it comes to Apple.

ARM’s opportunity and threat

Whoever the big winners are in the tech wars, one thing is for sure and that is that some companies making energy efficient chips which sit inside these 30 billion connected devices – many of which will be wearable – will do very well.

Of course Intel is trying to move in on ARM’s turf, and of course ARM’s valuation is somewhere up in the stratosphere, but ARM’s potential for serious growth is nonetheless pretty impressive.

Maybe another threat to ARM could come from another British company: Imagination Technologies. The ‘Telegraph’ quoted its boss, Sir Hossein Yassiems, as predicting that within five years the company will have grabbed itself a 30 per cent share of the sector in which ARM is so dominant. And by the way, 30 per cent of a sector that supplies chips for 30 billion devices is rather a lot.

Imagination has bought US chip designer MIPS Technologies. Sir Hossein said: “It’s really unusual to have an industry where one guy has 90pc market share and the reason for it is that the competition wasn’t there fundamentally.”

These views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Tags: 30 billion connected devices by 2020, ARM Versus Imagination, Eurozone repeating errors, IMF apologises, John Scully, Mario Draghi, Misfit Wearables

Filter view