Smash and Grab

Maybe we’re making this whole investment caper too complicated. You can analyse interest rates and currencies. You can talk about sound money and fair value. And you can look at technical trends and fundamental factors. But in the end, maybe we should just all buy Apple stock and quit while we’re ahead.

The stock of Apple Inc. is up 72.79% year to date, in US dollar terms. Apple joined club 700 in after-hours trading on the NASDAQ. Earlier in the day it told analysts that it sold two million units of its new iPhone 5 in the first 24 hours after releasing the product. Analysts are expecting around 7-10 million units to sell in the first seven days.

You can’t directly connect iPhone sales with more government money printing. In that sense, it’s a refreshing change of subject. And Apple’s thinner iPhone 5 is a reminder that there’s a kind of feedback loop between technology and commodities. Technological innovation often leads to new demand for obscure and hard-to-find commodities.

The previous version of the iPhone is 9.3 millimetres thick. The new one will be just 7.6 millimetres thick. The screen isn’t just thinner. It’s bigger and better too. By better, we mean it’s not just cooler, but it integrates the touch sensing layer of previous phones with the LCD display. Apple even secured a patent for the innovation. You can see what we mean below.

Touchscreen devices work on the principle that when your finger (the big semi-circle in the image above) comes into contact with the surface of a tablet or smartphone, it changes the ‘state’ that surface is. Usually, it’s a change in the electrical state that your finger generates when you touch the screen. Integrating the touchscreen layer with the LCD display allows Apple to make the phone thinner.

A thinner phone means all those hipsters who wear skinny jeans won’t look so ridiculous when they walk down the street. You won’t be able to see the outline of their phone in their front pocket as they look tragically cool. Beyond cool, this a reminder all successful innovation is about meeting the wants and desires of the consumer. The biggest, most reliable profits don’t come from gouging your customer, but from giving him exactly what he wants.

It’s a stretch, but you could say the new iPhone is part of a bigger trend in the world where there’s less mediation between you and reality. Mobile phones are cameras…tape recorders…word processors…and radio towers all in one. A smart phone makes everyone a journalist and everyone a witness.

If you do happen to pre-order a new iPhone, it will allow you to monitor, in real time, the next battle in the global currency war. Keep your eyes on Japan for that. The Bank of Japan meets today. The Yen is approaching levels against the US dollar at which the BoJ has intervened in the past.

We asked the Slipstream Trader, Murray Dawes, if past BoJ intervention in the Yen has corresponded with an Aussie dollar rally. Our thinking was that an Aussie dollar rally might translate into an Aussie stock rally. Murray toggled a few keys and brought up the chart below (one of about 40 that are constantly on display on a large monitor at his desk).

Beating Back the Tide of a Rising Yen

Click here to enlarge

The Fed’s knee-capping of the US dollar last week led to the Yen breaking out of a trading range. It’s headed back to the dangerous level where the BoJ intervenes to keep it weak and keep Japanese exports cheap. But it’s been hit and miss in the past as to whether the Aussie dollar benefits when the BoJ sells Yen.

In this case, there are no hidden patterns in past market behaviour that give you any clues about what could happen next. But the more useful way to think about it is what Japan is really trying to do by weakening the Yen. It’s trying to do exactly what the US is doing. In fact everyone is trying to do exactly the same thing.

This is what happens in a currency war. When an economy runs out of growth – because it ran up huge debts chasing a bubble in real estate or stocks – it tries to borrow growth from its neighbours. If you can’t sell things to your own people because they’re too poor or too broke, sell them to people who have more money or better credit.

The trouble today is that the whole world has been borrowing growth from the future through credit for about thirty years. All this Keynesian ‘bringing forward’ of demand has robbed the future of its savings. The result is a giant private sector debt which will take years to pay down. Governments have stepped into the demand breech and tried to fill it up with IOUs.

You know this already, so we won’t belabour the point. But the hopelessness of the situation probably explains the escalation in tempers and geopolitical tensions. Nations are fighting over a smaller and smaller growth pie. What they can no longer share they may choose to try to steal through currency manipulation. And failing that, they’ll either smash and grab or simply smash.


Dan Denning
for Markets and Money

From the Archives…

Be Very, Very Scared
14-09-2012 – Greg Canavan

How QE Favours the Rich
13-09-2012 – Bill Bonner

To the Barricades!
12-09-2012 – Dan Denning

The Power of Pork
11-09-2012 – Dan Denning

Waiting on Beijing
10-09-2012 – Dan Denning

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

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