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With Tech Tanking, Can Anything Save The System?

First it was the banks reporting horrendous numbers — largely, we were told, because of their exposure to recently-cratered energy companies. Now it’s Big Tech, which is a much harder thing to explain. The FAANGs (Facebook, Apple, Amazon, Netflix and Google) own their niches and not so long ago were expected to generate strong growth pretty much forever. That’s why every large-cap mutual fund and most hedge funds (not to mention a few central banks) owned so much of them.

This year’s first quarter was emphatically not what their fans had in mind. Apple, for instance, reported not just a slowdown but a double-digit year-over-year sales decline:

Rotten Apple: Stock plunges 8% on earnings, revenue miss

(CNBC) – Apple reported quarterly earnings and revenue that missed analysts’ estimates on Tuesday, and its guidance for the current quarter also fell shy of expectations.

The tech giant said it saw fiscal second-quarter earnings of $1.90 per diluted share on $50.56 billion in revenue. Wall Street expected Apple to report earnings of about $2 a share on $51.97 billion in revenue, according to a consensus estimate from Thomson Reuters.

That revenue figure was a roughly 13 percent decline against $58.01 billion in the comparable year-ago period — representing the first year-over-year quarterly sales drop since 2003.

Shares in the company fell more than 8 percent in after-hours trading, erasing more than $46 billion in market cap. That after-hours loss is greater than the market cap of 391 of the S&P 500 companies.

Looking ahead to the fiscal third quarter, Apple said it expects revenue between $41 billion and $43 billion — Wall Street had expected $47.42 billion on average, according to StreetAccount.

One area of weakness for Apple in its second-quarter was the Greater China segment — comprising mainland China, Taiwan and Hong Kong. Revenue for that region fell 26 percent year-over-year to $12.49 billion. Previously, that area had posted consistent growth for China.

Twitter managed to grow in the first quarter, but its next-quarter revenue projection came in 10% below Wall Street’s consensus:

Twitter sinks 12% on revenue miss, guidance

(CNBC) – Twitter on Tuesday posted mixed quarterly results and gave sales guidance that disappointed Wall Street, even as its user base grew more than expected.

The social media company reported adjusted first-quarter earnings of 15 cents per share on $594.5 million in revenue. Earnings rose from 7 cents per share in the previous year, while sales climbed 36 percent from $435.9 million in the prior-year period.

Analysts expected Twitter to report earnings of 10 cents per share on $608 million in revenue, according to a consensus estimate from Thomson Reuters.

Shares dropped about 12 percent in after-hours trading Tuesday.

Twitter said it expects second-quarter revenue of $590 million to $610 million, well below analysts’ estimates of $678 million, according to Thomson Reuters. In the company’s conference call, executives downplayed the low estimate, saying it did not reflect sagging interest from advertisers.

The repercussions from tech’s tank are myriad, in part because so many sophisticated investors own so much of this paper. As Zero Hedge just noted:

Wall Street In Pain: 163 Hedge Funds Are Long AAPL Stock

First it was the blow up of hedge fund darling Valeant that crushed countless funds who were long the name.

Then, one month ago after the collapse of the Allergan-Pfizer deal, we showed (one of the reasons) why the hedge fund world continued to underperform the broader market: Allergan was one of the most widely held hedge fund stocks.

And now, following the biggest Apple debacle in years, here is the reason why the hedge fund community is about to see even more redemption requests and underperform the market even more: according to the latest GS hedge fund tracker, at least 163 hedge fund are long the name which has just lost over $40 billion in market cap in the after hours. The good news: it used to be over 200 as recently as a year ago.

Tears won’t be confined to Wall Street however: let’s not forget that none other than the Swiss National Bank is also long some 10.4 million shares of AAPL.

It also won’t be a surprise to find out that the Japanese central bank — a massive buyer of equities which recently began diversifying into other countries’ shares — and the US Plunge Protection Team are on the hook for a few tens of billions here. But stock market squiggles and hedge fund redemptions are a side-show. The big questions are:

1) Can an economy grow when its banks, energy companies and tech giants are all losing ground?

2) Can a hyper-leveraged global financial system survive if its main economies can’t grow?

The answer to both questions is almost certainly “no.” So either something extraordinary (and extraordinarily unlikely) happens to ignite sustainable growth, or the dissolution of the fiat currency/fractional reserve banking/central planning model will begin. Expect developed world governments to do almost literally anything to stop that from happening.

16 thoughts on "With Tech Tanking, Can Anything Save The System?"

  1. Tech is failing
    Banks are not allowed to fail
    OIL drilling grinds to a halt and bankruptcy ensue
    Stock market keeps raising in the face of all of this, because the government thru the CBs and the Plunge Protection Team are still buying stocks. Until there is a panic that sellers can not find buyers then the system will collapse and very dramatically. Unlikely to be allowed to occur for awhile yet.

  2. Speaking of “tech tanking”, Wells Fargo online banking was shut down this morning, giving a message to customers that it was their fault for “changes you made to your account.” After holding for forty minutes, the customer service rep said that it was “an internal glitch”, which means they can’t get a handle on their tech systems or (more likely) it was a hacking but they would never divulge that.

  3. So far (as of 2008 or even 2000) those who trusted the system have been rewarded or at least haven’t lost. Knowing that there are still many more “tools” that financial authorities can use – and that they have every reason to use them – makes me wonder how much longer this can go on. I didn’t think the CBs could pull it off (again) in 2009 but they did, so I don’t know what to think any more. Nobody knows the true limits to all of this unprecedented stuff. What is acceptable today was considered “unimaginable” and “impossible” less than 10 years ago. Is there anything today that is considered monetarily or financially unimaginable or impossible? I don’t think so, and that’s what so bizarre. There are no more reliable concepts to analyze anything.

    1. I trust that Jim Willie and his contacts know more than most. The dollar is based on the fact that it has been the world reserve currency (the petrodollar). This remains true until oil producers only accept dollars or dollar based assets like bonds as payment for oil. This part of the dollar scheme is coming to a close. Russia, China, Iran and others are beginning to take non US currency for oil purchases. This behavior was what got Saddam Hussein eliminated, and the same for Muammar Gaddafi. Assad does not want Syria to become a vassal state to the US, so that is why he was slated for removal.

      Russia and China will be a bit harder to control, and now a large number of states have begun trading in non US currency. So, we have to look beyond US borders to see what happens here in the US. US hegemony and the US dollar are under assault. Will we go to war with Russia and China to force them back into the dollar realm? I doubt it. NATO is already weak and in danger of falling apart. Obviously we can’t go it alone.

      The fraudulent PMs manipulation in the paper derivatives markets have been exposed with the admission by Deutsche Bank to committing fraud, and their willingness to reveal other players in the fraudulent PMs manipulation. China has opened the Shanghai Gold Exchange, for PM delivery only, no paper shuffle to determine the value of physical gold. And, they won’t exchange gold for dollars, as they don’t want any more US fiat.

      No one knows the limits, but I bet we are going to find out what they are pretty soon. The Fed had a number of emergency meetings last week. My guess is they are losing control of the dollar and are strategising about what to do about it. The Fed has few options left. Lower interest rates, raise interest rates, print more money, buy more bonds, buy equities. All these things have been tried here and abroad and nothing is working, is it? All it is doing is propping up the equities markets.

      The banks are failing in Europe, and eventually the contagion will spread to US banks. A grab for the cash in customer accounts is coming. This is how the banks will try to save themselves. This will happen without warning, and we will see capital controls Greek and Cyprus style happening here.

      I think 2016 is the year that things fall apart. We have used the power of the world reserve currency to bully the world to accept US hegemony and power. Those who have been subject to the bully’s stick are beginning to resent it. Dollars may not be welcome for long as too many have been printed and leveraged to unbelievable levels through the derivatives markets. Exiting the dollar in favor of PMs and other hard assets seems to be the right move. When more people begin to understand that, the flight from the dollar will accelerate, turning into a stampede.

      1. I basically agree with everything you say but I still have no sense of the timing. Everything you say has been known for a long time and it doesn’t seem to matter. Besides that, the ironic dilemma with the dollar is that since everybody owns so many of them – directly or indirectly – the fall of the dollar crushes them too, so there is actually a global vested interest in keeping it strong, at least until they can switch out of them, as the standard theory goes, but how long will that take? Furthermore, for that reason and others, the dollar is still the least ugly in the beauty pageant. All the other “lesser” currencies are still breathing, and they should go before the dollar does. The euro, the yen, pound, swiss franc, yuan, etc. You think “nobody” wants any more dollars but try giving them one of those. Heck even PM dealers want dollars! How in the hell is Japan still “respectable”? Unprecedented debt-to-GDP and yet Japanese government bonds pay practically no interest and the yen has actually strengthened of late! You think the US has a big national debt? China has at least $30 trillion and its debt-to-GDP is twice that of the US. Russia sucks, India sucks, Brazil sucks (make that all of south and central America), Europe is sucking wind, Japan is a bug in search of a windshield, Africa is a basket case, and the ME is a pressure cooker, and yet “everyone” knows that nothing bad will happen before the US Presidential election, and they’re probably right, but which one?

      2. “China has opened the Shanghai Gold Exchange, for PM delivery only. And, they won’t exchange gold for dollars” What is that supposed to mean? The dollar is exchangeable for yuan on various exchanges, and the yuan for gold.

        1. It means they have enough dollars (1.3T in T Bills) and they don’t want to accumulate more. China is looking for ways to rid itself of dollars, without massive devaluation of the dollars they hold in the process. It means if you want gold from the SGE, come with a currency other than the dollar.

  4. There are no CB losses. They print the s**t out of thin air. They never have to sell jack, just like the steaming pile of turd mortgages they bought off the dying TBTF banks.

    Why do you think they’re so against an audit? Because, “under the hood”, the digital presses have been supercharged on nitrous and jet fuel, and they don’t want the public to know.

    The PPT is just an excuse for ‘Fed gone wild!’.

    I have no love for Trump, but he might actually give us a peek under the hood. That alone might be worth a win for him.

    There are no markets, only manipulations, and eventually those will fail as well.

    Got gold?

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