Wednesday, May 1, 2013

Where did all the money go?

 An easily understandable article about where the money goes in a bust cycle. I have had this conversation so many times with people that the cash does not disappear as individual's are not sitting on the beach in the Hamptons using 100 dollar bills to keep their fire alight. Aivars Lode

WHEN share and house prices collapsed in 2008, Buttonwood’s father-in-law asked what happened to the trillions of dollars of wealth that had disappeared. Uninsured Cypriot bank depositors are asking the same question about the money that is likely to vanish from their accounts. The answer to both questions is remarkably similar.
First, those equity and property prices. In a free market, like an auction, prices are set by the marginal buyer and seller. If there is an imbalance between willing buyers and sellers (as there was in American, Spanish and Irish housing in the middle of the last decade), then prices will rise sharply. The average homeowner feels wealthier as a result.
High house or share prices, relative to personal incomes or profits, represent a bet that the good times will continue, and that incomes and profits (and cashflows in the form of dividends or rents) will rise significantly in future. When that bet proves wrong, the wealth disappears.But only a small proportion of the housing stock (or of equities) trades on any given day. The price set by marginal buyers and sellers is not the price that could be realised if all owners of the asset in question tried to sell their holdings at the same time. In such a moment, there will be more willing sellers than buyers, and prices will plunge.
Now to the banks. When a customer deposits money, a bank must do something with it: buy assets or lend it to businesses. That is the banking system’s economic function; it transforms short-term liabilities (deposits that can be instantly withdrawn) into longer-term loans. Banks have always been at risk of two things: that the loans will not be repaid, and that customers will want to withdraw their deposits faster than the bank can turn its assets into cash. Until the 1930s bank failures, and the resulting losses to depositors, were a recurring problem.
Depositing money in a bank therefore amounts to a bet that the bank will lend its money wisely, or that the economy will be strong enough for bank loans to be repaid, and that confidence in the banking system will be maintained. In the modern era bank customers have tended to regard this risk as negligible, thanks to a combination of deposit insurance and governments’ willingness to rescue failing banks. But in many countries the banking sector has grown so large, relative to the economy, that few governments could plausibly guarantee all their system’s deposits. In such circumstances bank customers, particularly uninsured depositors, are in effect relying on the governments of other countries to bail them out in times of trouble—a risky proposition.
So what happened to the Cypriot banks? It is understandable that Cypriots are angry, particularly as the initial proposal for a bail-out hit insured depositors as well as uninsured ones. The process was handled badly.
Some Cypriots also see the eventual deal as “theft”; if so, where did the money go? Relative to the initial proposal, insured depositors have benefited at the cost of the uninsured, and most people think that is quite right. Some depositors may have withdrawn their money before the crisis. But by far the biggest loss suffered by the Cypriot banks relates to their investment in defaulted Greek government bonds. Technically, Greek taxpayers gained from this default, but the Greeks are overwhelmed by their debts and have suffered austerity and mass unemployment. They are hardly winners.
Can “the troika”—the European Union, the European Central Bank and the International Monetary Fund—be classed as burglars? They are lending €10 billion ($13 billion) to the Cypriots to recapitalise their banking system, money that comes from the taxpayers of Europe and the rest of the developed world. Many of those taxpayers live in countries that are also suffering from austerity; none of them has been asked to assent to this loan, which (like any other debt) might not be paid back. They too have hardly prospered from this process. Should they have guaranteed all bank deposits, insured and uninsured? Perhaps in future the EU will do so, although it is doubtful that politicians will risk putting this idea to voters.
When a country takes on debt, this is a bet that the economy will grow fast enough for the money to be paid back. If it does not, someone must lose, either through outright default or by having the savings inflated away, resulting in a loss in the purchasing power of their money. Where did all the money go? It went with the growth that never materialised. The Cypriots will not be the last to suffer.

Monday, April 29, 2013

You hear that, Mr Cook? Samsung's profits have gone UP


Samsungs profit surges however they say that the profit next qtr may be down because of cheaper units what does that mean for apple? Aivars Lode

Remember when Apple's used to do that?

Samsung Electronics is toasting a massive hike in its Q1 profits fuelled by sales of smartmobes and tabs but warned cheaper kit flooding the market may "dampen" its next quarterly numbers.
Sales for the period ended 31 March climbed by 16 per cent to 52.87tn won (£30.7bn), boosting operating profits by 50 per cent to 8.78tn won (£5.1bn) and net profit by 41 per cent to 7.15bn ($6.4, £4.16bn).

The South Korean firm's figures make for uncomfortable reading for Apple CEO Tim Cook as his company's fortunes start moving in the opposite direction.
The IT and Mobile Communication Divisions saw sales bounce seven per cent year-on-year to 32.82tn won (£19bn). The firm said "sound sales" of the Galaxy SIII and Galaxy Note II devices "aided" profit margins.
According to the Q1 numbers from Strategy Analytics, Samsung seized 33 per cent of global smartmobe market share, almost two times higher than Apple's Jesus Phone.
In a canned statement, however, Samsung said "we may experience stiffer competition in the mobile business due to expansion of the mid- to low-end smartphone market".
The quarter "proved trying" for the PC business - the company is not alone here - and the global expansion of LTE networks lifted earnings for the Network Business by upping supply of 4G wireless gear.
Samsung reckons its tonic for "lacklustre" PC demand is to shift the product mix to mid- and high-end configurations.
The Display division reported sales of 7.11tn won (£4.13bn), down eight per cent on the last quarter: "The global economic slowdown affected consumer spending amid weak seasonality".
"Samsung saw the average selling price of LCD panels decline in the upper single-digit percentage range," it added.
The semiconductor division, including memory and systems LSI, saw sales fall eleven per cent to 8.58tn won (£4.98bn). PC DRAM declined for obvious reasons but mobile DRAM for smartmobes and tabs remained stable.
"Prospects for the PC DRAM market are uncertain as tighter demand and narrower market size weigh on suppliers," said Samsung.
The Consumer Electronics division reported sales of 11.24tn won (£6.5bn) with TVs showing modest growth on a year ago.
Samsung's spokesman said in the statement: "Although market uncertainties from the European crisis and the slow global economic recovery are still lingering, we expect to increase R&D spending for strengthening our competitiveness ahead of planned new product launches". ®