The pre-market news flow was mixed again with a weaker than expected jobless claims number and company sales warnings from Lattice Semiconductor and Nokia. However after a modest open, the market started to go up on rumors that secret Greece polls were showing the pro-bailout Greece party was going to win this weekend. Alexis Tsipras then spoke at a big rally and promised again he would cancel the bailout if his party wins, but vowed to keep Greece in the Euro (have your cake and eat it too).
The market started to roll over in the afternoon, but then got an adrenaline spike higher on a Reuters report saying central banks were preparing coordinated liquidity action if the market shows signs of stress after the Greek elections. After some insane volatility, the market closed strongly up 1.08%.
Nokia’s warning is another one in a long string of recent negative pre-announcements and weak financial results. HTC and Research in Motion are not doing much better with repeated sales misses themselves. In the same vein of other markets like Coke and Pepsi or Visa and Mastercard, it sure looks like the global smart-phone market is turning into a duopoly between Apple and Samsung.
Markets tend to develop into monopolies and/or duopolies over time as the leading companies benefit from the economies of scale in the supply chain and network effects of their products.
May videogame sales were horrendous with software –32% y/y. In the past few months the results have been January –38% y/y, February –23% y/y, March –25% y/y, and April –42% y/y.
The current console hardware generation is getting long-in-the-tooth and the preponderance of cheap new and used quality games available for under $20 is hurting new game launch sales. Moreover people are spending more gaming dollars and time on their iPads, iPhones, and iPod Touches. I don’t see this trend turning around anytime soon as least until Xbox 720 and PS4 launch in late 2013. Wii U later this year looks dead in the water with no killer must have software in the launch pipeline.
With Germany blinking and giving Spain a bank bailout with no additional austerity concessions last weekend and the leaks we’re seeing this week, it’s crystal clear government leaders are petrified about the Greek elections this weekend. I see three scenarios:
1) Greek pro-bailout parties win a decisive victory. The Intrade betting site says there is currently 65% chance of the New Democracy party winning. If this happens, the bailout plan goes through and the can gets kicked for another few months before Greece needs another bailout, but in mean-time EU leaders wipe the sweat off their fore-heads and go “whew!” and they can party the night away at their resort in Cabo, Mexico.
2) Greek anti-bailout party wins decisively. If Alexis Tsipras then actually does what he promised and cancels the bailout on day 1, it puts Europe in a pickle. There would be a real risk of a Greece euro exit as politically it would be hard for Merkel to hand over hundreds of billions of funds with no austerity concessions. It’s one thing to do it for Spain which is too-big-too-fail for Europe, but harder to do it for Greece which is probably in the long-run a black hole.
3) Neither party wins enough votes to form a ruling coalition like the last election. Then we’re back to square one and have to look forward to another election. This isn’t a great scenario either as the country is due to run out of money reportedly on July 20th, although it is unclear if Europe would shut off bailout funds if a government hasn’t been formed yet.
To add even more variability to the markets after this weekend’s Greek elections, the Fed has their meeting on June 19-20 (Tuesday-Wednesday) next week, where they may or may not announce new actions. Frankly I have no idea what is going to happen in the coming days. If you do, let me know.
-Jobless claims 386K vs. 375K est., 377K prior revised to 380K
-CPI –0.3% vs. –0.2% est., 0.0% prior. Ex-food/energy 0.2% vs. 0.2% est., 0.2% prior
-“Central banks are preparing for coordinated action to provide liquidity” according a Reuters source, a senior G20 aide Link
-Secret Greece poll rumors that say pro-bailout party will win Link
-Intrade betting site says there is a 65% chance the pro-bailout party will win in Greece this weekend Link
-Venezuela passes Saudi Arabia to hold world’s biggest oil reserves Link
-Nokia cuts guidance again and announces 10,000 layoffs Link
-Lattice Semiconductor cuts Q2 guidance “continued weakness in the worldwide distribution channel, especially Europe” Link
-U.S. May 2012 videogame sales –32% y/y Link
-Switzerland’s Central Bank urges Credit Suisse to bolster capital Link
-June tablet web-traffic market-share. Apple iPad 91%, Barnes & Noble Nook 0.85%, Amazon Kindle Fire 0.71% Link Link2 Link3