This post will be completely different from the previous ones, but still related with markets. As markets went through one of the biggest rallys, and some signs of exhaustion are starting to appear, it’s being difficult to get a clear picture of where are we heading to, so I decided to change a bit. As the header anticipates, the idea of this post is to show some examples of how social networks, specially Twitter, are starting to get involved in the financial world.

Everyone is aware of the effects of technological evolution over the financial system, just by having the possibility of placing a trade in any place of the world with Internet, draws a clear picture of it. But up to now, the biggest changes have been seen in operations or processes. Meanwhile, nowadays, the growth of social networking is affecting the way some investors take decisions.

The best example is StockTwits, a community of investors and traders who discuss and share ideas within a twitter based platform. This idea of joining Twitter users who speak the same “language” began in 2009 and nobody imagined, or at least myself, the growth it would have. It started as a simple site that gathered every tweet referring to a stock or future by recognizing the ticker after a “$” sign. For example, a tweet which contains “$GOOG” (referring to Google) would appear in the live stream of the site. Also, they provide candle charts of stocks, futures, main U.S. indexes and a list of “Top Tickers” which is calculated by the frequency in which the ticker appears. This is what Howard Lindzon and Soren Macbetch made of StockTwits when they first started a year ago. Their “child” has grown to an extent that content is not only communicated by tweets, they have done a completely separated community from twitter. To achieve this, they developed a twitter application specially for the investment community, which provides the user with:

1. Streams of tweets,
2. Possibility of creating streams from RSS feeds,
3. Graphs of every ticker,
4. Web browser
5. Screen for StockTwits Tv,

all within an extremely customizable application. It’s called StockTwits Desktop and you candownload it for free. As you can see, although it uses twitter as the communication service, it’s something completely different which gathers a very specific, but not small, group of people.

Another consequence of the succes of this idea is StockTwits Tv, which I’ve mentioned before. It works as a tv channel, with a daily schedule and the possibility of watching any episode you missed (on demand). StockTwits team is the one responsible for picking the investors who host each episode, with the purpose of offering certain level of professionalism and topic diversification. There are two main and great features that make StockTwits Tv a great tool for investors: On the one hand, it gives the possibility to watch and listen analysis of people all around the world, which is very important taking into account how globalised are markets nowadays. On the other hand, anyone can take profit from interesting, insightful and instructive research given by professionals, for FREE!

At the same time, as StockTwits grew more and more (mainly of users specialized at technical analysis) the community needed to share thoughts not only with words. So a group of Stocktwist users decided to build a site to allow technical analysts from across the globe share their best charts and ideas. This is what Chart.ly is about.

It’s amazing how StockTwits idea has evolved, the importance it has and how it keeps improving constantly. The last big evidence of this success is the Stocktwist plugin Bloomberg has incorporated to their Bloomberg Professional Service.

Another influence of Twitter over the financial “world” is the creation of a service called Pollytrade. This service consists in trading stocks by giving buy/sell orders with a tweet, working in a similar way as the ticker recognition StockTwits uses. The idea consist of sending a tweet to @pollytrade with the ticker and what you are willing to do, once they receive it, they contact the broker and make the trade. When this started it only worked with E-Trade, but as from July 6, E-Trade decided not to process more orders from Pollytrade. I must admit that with all the new regulations it’s not going to be easy to have brokers acceptance, although I think it is a project that has big potential.

These are some examples of how social networking is starting to influence the financial community and I think that it has plenty of things to take advantage of.

In my first post, I stated that I was convinced at Apple’s capabilities for continue growing without Steve Jobs presence. This thought has not changed and somehow the market agrees (↑37% Steve Jobs leave -to- date) In my opinion, the company has reached the commitment and maturity needed to grow by its own, as if Steve Jobs ideas were in each Apple worker. It is understandable that not every investor shares the same feeling, and this difference, is what leads to pay special attention to Apple new releases. This article will focus on what the company has in mind to surprise customers and investors. After releasing extremely successful products, like the iPod and iPhone, the challenge is going to be very tough.

To start with, two months ago, the iPhone 3.0 OS software was released in a developers meeting, where the demonstrations were far beyond expectations. Immediately, rumours about a new iPhone were in every Apple fans web page, as people imagination tried to guess how is going to be. Some say that the company is preparing an iPhone Nano, others are anticipating a thinner, 4 inches screen, 32 GB storage instead of the current 16GB, 256 MB of RAM, FM radio, 3.2 megapixel camera and a digital compass. The last feature is having special attention as rumours of a Japanese supplier (Asahi Kasei) are dumping every forum. Regarding the iPhone Nano, some company executives explained that the idea wasn’t feasible as they are willing to take advantage of the entertainment capabilities (and the App Store), the iPhone has. Nobody really knows what Apple has in mind, but as expectation grows, the company will have to do more to surprise customer, and therefore the market.

The other product many tech specialist have been talking of, is a netbook from Apple. Although Tim Cook has made explicit (in several earnings calls) that he doesn’t see an opportunity in netbooks and that Apple isn’t going to compete in that market. This rumour started after Reuters confirmed that Apple has ordered 10-inch touchscreen for the third quarter of this current year. As a result of these news, last week some web pages reported that Apple is working on a media pad which will be positioned between the iPhone and the MacBook. The idea is to make this tablet available for watching HD movies, as a game device and as an ebook reader. BusinessWeek describes it as “smaller than an Amazon Kindle electronic reader, but its touchscreen is bigger than the Kindle’s”. The main goal is, as they achieved with the iPod and iPhone, define a new category of mobile device. Much has been said in every Apple news page, but as happens with the next iPhone release, expectations are too high for the big degree of uncertainty.

Finally, and just to mention it, Apple fans are expecting the release of Snow Leopard after Worldwide Developers Conference 2009 (WWDC) in June. Some people agree it will be the operating system for all the new media devices from Apple.

From my point of view, the importance of these rumours doesn’t rely in the characteristics of Apple devices or in the possibility of new future releases, but in the expectations that are being created around each product. We shouldn’t forget that it will be the first important news the company has to announce without Steve Jobs as CEO. If the firm doesn’t meet expectations in the next releases, it will arise a discussion where Apple’s resources to continue making successful products will be questioned. Not only this, but people will start wondering about Steve Jobs influence and how much the company will suffer a definite leave. I believe it is very important not to continue fueling expectations because it could be extremely harmful for Apple, the company’s investors and consumers. We need to understand that it’s very difficult to make successful products every year (think about Microsoft, how many successful products they launched in the past 10 years?), although the company is very well positioned for continue being the market leader.

To start with, it is important to imagine and have a clear picture of the dimensions of China’s growth and vastness in every economic and social aspect. For avoiding making it too long to read I will enhance on three indicators I consider the most significant. On the one hand, I want to focus on the projected China’s economic and population growth:

As we can see in the projections, China will continue to grow at a high and sustained pace (year GDP growth of 10%) and its population will start growing at a higher rate than it did in this decade. What is important about this data is that as population continues growing the country will continue to need huge supply of food from other countries. If population reaches 2025 estimates (260 million more) the country will need to increase its food demand 21%1. The economic growth shown in the graph will help China’s wealth for obtaining the food they need, by producing more efficiently and increasing imports from other countries. For making this information relevant and related to the meat market, is important to enhance that China’s population way of living are starting to change. First of all, because they have higher incomes (a new middle class is starting to appear), which allows them to afford more expensive things, as meat. Second, they are aware that meat is one of the best foods for making their children grow stronger and healthier. Third, many of them are starting to like eating meat.

With this data it stands to reason that in the near future, there will be an important expansion in the meat market, lead mainly by China, which will benefit the smartest countries. Related to this, one of the countries which is trying to increase its market share is United States. Forecasts from the U.S Meat Export Federation shows that in 2010 there will be a jump in beef exports to China, reaching 60,000 metric tons per year.

I believe it is clear why I am optimistic in investing somewhere in the meat market. I doubt wether it is the right time to make the decision or not, although it depends where are you planning to invest. Since the possibilities vary from investing in a farm with the purpose of breeding the cattle to buying some shares from an ETF that tracks livestock (AIGL, COW). It all depends in the risks the investor is willing to take. Taking the first option requires living in a country where you can breed good quality cattle, having a year without any climate effect (flood or drought) among other external factor that increase business risk. The second option will give smaller returns but, at least, allows everyone to take a share in this growing market. As I mentioned before, the opportunity exists in every part of the supply chain: The producers, who breed the cattle till they sell it, the firms responsible of carrying the cattle to another country (China could ask for livestock instead of processed meat), buying shares from big cattle producers (Tyson Foods – TSN, Sanderson Farms – SAFM), or from ETFs related to the business. It all depends on the investor.

After market closed on Thursday 24, Google has released earnings which produced mixed sensations among investors. On the one hand, it was the first time in its history that the company had an earnings decline. On the other hand, due to the world-wide recession, investors were expecting an even highest drop. So I would try to argue why Google is a great company with very strong fundamentals and try to highlight why this earning drop occurred.

Lets start with the conference call, Eric Schmidt (Google CEO) announced quarter sales of $4.22 billion which represents 24% increase over year-ago revenue of $3.39 billion. Moreover, it was above analyst expected (4.12 billion). So if Google’s core business beat expectations, why they announced their first decline? The answer to this comes from the company’s investments; Google had to charge the profit in 1.1 billion from the results of the company’s stake in Time Warner AOL. I think the earnings release is very interesting as it shows that Google’s business can survive recession, although investors will have to be aware for the company’s external investments.

I want to focus a little bit on Google’s business future. Although this severe crisis will affect online advertising, there are many reasons to think it will not suffer as much as other core business. First of all, advertising on the web has become an essential part of marketing for every company looking for customers. Taking into account the situation in which several firms are going through, they will go desperately searching for clients, and one of the most effective (is not so expensive as TV or newspapers)ways to do this, is by online advertising. Another important issue I think it’s worth to talk about is Internet penetration in the world. As we can observe in the graph,there are two relevant data to focus on: Internet’s penetration in Asia is 15.3% and in the world is about 21.9%.

Both penetration rates are showing the potential growth Internet has in short and middle term. This is enhanced by two important factors: some emerging countries start showing sustainable growth which will lead to technology improvements (Internet being one of them); this emerging countries (China, India, Brazil) have an enormous percent of world total population. It means that many people will be able to acces the Internet in the next years, making it an interesting, strong and promising business.

Someone could argue that this information has no sense since Google has 20% of market share in China (vs 62% Baidu). But by doing some calculations you can see how much does the 20% of China represent in terms of people surfing the Web.

Finally, I wanted to show you a graph that represents how market share of searches has evolved in the United States, which clearly demonstrates why Google continues and will continue being the best in its business. As we can see, Google beats 75% of USA market share, meanwhile Yahoo seems to have no response to its drop in a business which promises expenditures in online advertising of $12.5 billion.

To conclude, I think Google has very strong fundamentals to keep growing although the world is going through one of the worst crisis ever. The only thing investors will need to watch is how Google invests externally.

Apple Store NYC

It is understandable that investors freak out when some news concern about Jobs continuity in Apple, since past experience demonstrates he is the main reason why the company has been growing at such a rate. (For those who don’t remember, Steve Jobs was fired from the company he created and after 10 years he was reincorporated after Apple bought his company NextSteps). But I think there are some issues that are being exaggerated. First of all, Apple today is a much more developed and stabilized company that knows people needs and takes the maximum profit of it. With this I want to enhance that I believe nowadays Apple has achieved such succes that will make the company grow on its own. I believe Steve Jobs has chosen and is surrounded by an excellent team who will be able of encourage the company to greater growth and succes. That’s why I am so confident in Apple as a company and not so dependent in his CEO. 

But appart from what I think, there are some characteristics which are to have in mind when we valuate the company. First of all, Apple has the biggest product lines in their history, each one with an incredible succes (Macs, Ipod, Iphone, Itunes). Another important issue, is that Apple is always ahead of his competitors and their efforts to catch up seems to be null. Finally,in this financial crisis we are going through we have an important factor which is credit. Banks and other entities are tightening the credit they give to all kind of business. You are probably asking why I am talking to you of this. Since 2002 Apple has been taking a policy of no long-term debt and extremely large amounts of cash (See Balance Statements). In common markets situations this could be considered as an opportunity cost, but taking into account the present and future of financial entities, I think it is very important to have it in mind.

Summarizing, I believe Apple is prepared to continue growing with or without Steve Jobs in the company and, people are undervaluing Apple employees capacity.

NYSE

There are plenty of topics to talk about and I believe it could be an interesting way of joining different point of views. 

Hope you enjoy it!

GMG