Not sure if any of our readers carry a blackberry smartphone anymore, but I find myself aberrant carrying mine around. More than a year ago, almost everyone I know had a blackberry phone, but today the game seems to have changed as RIM failed to step up to competition and deliver. 2011 is a wakeup call for the once hot smartphone company as it saw its stock price plummet almost 71% year-to date as it missed on earnings, repeatedly lowered guidance and took a beating on its tablet. How bad is the tablet? Well to put it in numbers, during the last quarter RIM sold only 150,000 PlayBooks while Apple sold about 120,000 iPads every day. Moreover, RIM recently announced that it will take a one-time charge of $485 million to account for unsold inventory of its Playbook tablet and yet insisting that it still has a chance in tablets. In terms of smartphone sells, blackberry is still holding up but the real question is for how long? Its obvious its no longer a leading contender, but does it have a chance to come back and lead again?

It’s actually becoming a trend for Apple to keep on blowing away analyst estimates and setting new record sales and earnings. While typically giving out lowball earnings forecasts, with EPS outperforming guidance by 41% on average and revenue 16% higher than revenue guidance, its clearly setting a statement that it’s not your typical second largest company in world. This quarter is not any different than any of the 29 other straight quarters where it reported blowout earnings. Only difference is that it didn’t come out with any new blockbuster products, yet was served well by pushing sales overseas. With its latest preliminary victory in its patent war against HTC and other smartphone rivals, promising pipeline and overseas tailwinds Apple it will only get better. While Job’s health issue is a concern, the company has done a good job in transitioning authority to Tom Cook, Chief Operating Officer, who has been handling business smoothly.

Looking at the Apples revenue breakdown, one can clearly notice that the iPhone has been a major contributor, only concern is that it doesn’t come as a substitute for the iPods going forward.

The above chart shows the correlation over five-year periods between six-month changes in the Dow Jones Industrial Average and the Federal Reserve’s industrial production gauge, a proxy for economic growth. When you’ve got alot of noise, the market becomes very sensitive to the real growth rate and correlation tightens as shown above. Historically, correlations haven’t been this tight since the Great Depression and WW II.

No, I didn’t misspell bald, but the new presidential candidate is too bold for a president. In fact, I think its time the world told Donald Trump, “You’re Fired!” On April 19th 2011, Good Morning America had a very interesting interview with Donald Trump who shared his views on the world and discuss his presidential plans upon holding office. He started off by with the Obama’s “birther” controversy, and then proposed getting tough on Saudi Arabia and seizing oil fields in Libya and Iraq because ” in the old days, you know when you had a war, to the victor belong the spoils.  You go in.  You win the war and you take it.” Trump has not yet declared bankruptcy, but his companies have and I am not sure he’s the best choice for the U.S. at the moment.

Below is the transcript of the interview

Part 1

Part 2

As striking as the title may sound, I am not pertaining in any way that the U.S. government would necessarily go bankrupt, but I cannot conceive investing my life savings in the U.S. government.

By now it should be clear that being a long-term holder of U.S. treasuries is not a good idea. Bill Gross of PIMCO, who runs the world’s largest bond fund, has already dumped all his treasuries holdings, stating that treasuries “have little value” because of the growing debt burden and unprecedented spending by the U.S. government. Warren Buffet, along with other investors are either shifting their holdings to shorter-term debt, or moving to equities and higher yielding corporate debt.

The Fed has been pumping billions by purchasing treasuries, with no clear intention to reduce its soaring deficits, artificially keeping interest rates low with an eye closely monitoring inflation to perfectly achieve the devaluation formula. That is, devaluing the U.S. dollar to service the debt while bond holders lose purchasing power. But have they thought of the future buyers? Who will replace the Fed and buy treasury bonds once inflation kicks in, unemployment still at all-time highs, and investors lose faith in the economic future of the U.S.

 The 10-year treasury yields have come a long way down from a high of 15.8 percent in September 1981 to the low of almost 3%. Today, yields are artificially low and with inflation and uncertainty regarding the U.S. government deficit, investors are starting to question the sustainability of the recovery has been supported by the quantitative easing’s.

In a time where governments around the world were starting to bail out the “too big to fail” and bringing them under state ownership only to take in some of the pain and unleash them back to the world, stronger than ever, the Kuwaiti government decided to take a different stance in 2008 and approve a plan to privatize the state owned, loss-making Kuwait Airways Corporation (KAC).

In May 1979, with the election of Margaret Thatcher, a proponent of privatization, the British Government announced its intentions to sell a minority stake in British Airways.  Eight years later, the government sold 100% of the airline. Unlike Kuwait Airways, between the intention and execution British Airways turned around the company and created real value for its airline carrier, while KAC followed the extend and pretend mentality. Extending the credit, cash, maintenance and huge expenditures and pretend that everything is just fine. For BA, in 1980 King was named as new chairman effective 1981 with a sole responsibility of making the airline more efficient for its eventual sale. Meanwhile in Kuwait, and specifically in 2007 when KAC planned to replace its entire fleet with 30-34 new aircrafts, the motion was prevented by parliament intervention following the announcement of the airlines’ upcoming privatization. Moreover, with the announcement of the privatization, corruption increased and senior officials at KAC starting taking wage increases to exploit inefficiencies in the proposed plan so that their remuneration will be multiplied many times upon retirement with a promised three-year salary lump sum or a move to another public sector job. In fact, in March 2010, the government formed a committee to probe allegations of widespread corruption in the carrier and vowed to refer the findings to the public prosecutor.

Please bear in mind that I am not against privatization, however I believe that KAC has to go through restructuring and a complete operational overhaul before being offered for sale. KAC has failed to generate profits for the last decade even though it enjoyed government subsidies and being the official carrier to all government full fare priced sponsorship. Such subsidies and restrictions on government employees to travel on other airline will eventually subdue. Simply being thrown to the public to deal with will kill the company’s valuation, which some wish to capitalize on.

“If I owned Japanese stocks, I would certainly not be selling them because of the events of the past 10 days or so,” Buffett said. “Something out of the blue like this, an extraordinary event, really creates a buying opportunity.”

Our thoughts are with all those affected by the March 11^th earthquake and tsunami. While events are still unfolding, there is still a lot of uncertainty with regards to the recent events and damage caused by the earthquake. Yet, the main concern is associated with radiation leaks and the event of a nuclear crisis in Japan. Japan’s rush to re-open the stock market has resulted in a lot of panic selling and a closing for a brief period of time might have actually mitigated some of the sell-off effect. The Nikkei 225 fell 17.5% in the three trading days following the catastrophe, wiping some $458 billion of equities. While the Nikkei 225 has regained some lost ground there is a lot of concern going forward with regards to that the disruption in power that will be a drag on economic activity and production as well as nuclear concerns.

Below is a chart the compares the Japanese-quake market reaction to other disasters.

It’s probably the time of year when you are thinking, do I really need a new Apple product? You feel stranded, unable to decide whether you should spend the money and buy the product or save it. But have you ever studied the option of spending the money on the stock of the company making the product?

Kyle Conroy, a computer science student at University of California, Berkeley has done an fascinating study in his blog, where she answers the question “What if I had bought Apple stock instead?” Interestingly, if you had purchased every single Apple product released since November 1997, which is right after Steve Jobs rejoined the company you would have spent $591, 769. However, if you had invested it in Apple stock on the day that each product came out, you would now have $11,120,691.

To be more specific, let us pretend that you happened to have $3299 in 2003 and you were able to buy the Apple PowerBook G4 1.0 17″ (Al). Yet, you decided to not to buy the device and instead put the $3299 in Apple stock, your stock would now be worth $120,251.

While some products where more fruitful than others, Apple has always been riding the curve and redefining design, innovation, and “need”. While keeping in mind that past performance is not necessarily indicative of future results, the study is fascinating and worth testing.

In the financial world, oil is traded on various oil bourses based on different financial terms, chemical profiles, and delivery locations with the three most quoted oil products West Texas Intermediate (WTI), Brent Crude, and the UAE Dubai Crude acting as a gauge for the entire oil industry. Depending mostly on density and sulphur content oil products are categorized and priced. Brent is a waterborne crude, while WTI is a landlocked American benchmark. Historically, mainly due to location and supply-demand factors, Brent Crude has traded at +/- 3 USD/bbl to the WTI Spot price. Whenever price anomalies appeared between the two, arbitrageurs captured the price differential and normalized the spread. The graph below compares the price of WTI for delivery in Cushing, Oklahoma with that for Brent in Europe.

By looking at a long-term graph, you usually cannot differentiate between the prices of the two. However, late 2010 the divergence started to appear eventually reaching over $11/ bbl by the end of January 2011. There has been a lot of speculative reasoning for the sharp price divergence, such as volatile currency movements, demand variation, and political. On February 17^th 2011 the spread reached a record $16.51 reflecting ample stockpiles at Cushing Oklahoma, civil unrest in the MENA region, and unknown future demand of China. With Brent pricing being used to determine prices of approximately 70 percent of traded oil and supply shocks expected to arise from the unrest in Libya one can expect the a spread to persist, but an important question remains and it is that where have the arbitrageurs disappeared?

What began in Tunisia and Egypt with long-term rulers ousted of office by the public has caused a hunger for revolution effect throughout the MENA region. In Morocco civilians marched in hopes of transforming the monarchy into a democracy, in Yemen, Ali Abdullah Saleh promised to undertake political and constitutional reforms, meanwhile in Bahrain peaceful protesters demand ouster of government. However, in Libya as violence escalates and becomes more widespread the aftershocks of the civil unrest are being felt across global financial markets.

Libya, the 12^th largest exporter of oil pumps 1.8 million barrels of oil a day. That’s about 1.8 percent of the world supply at risk. As a short-term shock, with the ongoing violent uprising threatening to disrupt oil exports, oil prices have jumped to the highest levels in more than two years at $96.08 a barrel. However, the long-term effect of the ongoing violence might be detrimental to the global economic recovery as rising oil prices might accelerate inflation.

How important is Libya to the world economy? Well, according to BP Plc’s Statistical Review of World Energy, Libya currently holds the largest proven oil reserves in Africa, roughly 44.3 billion barrels followed by Nigeria and Algeria. Oil and Natural gas make up 50% of the vountry’s GDP and almost 95% of its exports. What is most interesting is Libya’s strong economic relationship to the highly indebted PIIGSter, Italy. Eighty percent of its crude exports are sold to EU countries such as France, Germany and particularly Italy.

Flushed with petrodollars, Libya’s money was invested in Italy while Italian companies have enjoyed ongoing contracts for energy and infrastructure projects in Libya. Some of Libya’s holdings include a stake in Eni, Unicredit, Fiat, Juventus, and many other companies. While Italy is already in its own debt troubles, the situation in Libya only makes it worse.

Going back to the global economy, an important question remains and it is that will Saudi Arabia come to the rescue? Looking at history, Saudis have come to the rescue after the Gulf War when they boosted oil output by 2 million barrels a day, but will they come again?