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There are two problems with Apple Pay -- and both are problematic.

The first is that not everyone has an IOS device, or one that supports it.  And not everyone ever will, despite the wet dreams of the entire Dallas Coyboys cheerleading squad blowing Tim Cook nightly that dance in his head.

The second is that the "carrot" Apple Pay tries to offer is claimed to be an "escape" from the fee structure of the interbank system that currently is used by various credit and debit vendors -- typically 2-3% of the ticket size.

However, there is an issue with that second "problem" -- the belief that these "alternatives" will be materially cheaper all-in, including risk allocation, is unproved at best.

Remember that cost is not just the discount rate, although that's certainly a factor (and it's not just the 2% or 3% charge, it's also the ticket fee, usually a quarter or fifty cents, that many of these merchant processors charge -- for small charges this is ruinously expensive for the merchant.)  That ticket charge, by the way, is why you see signs in some stores saying "$10 minimum for credit cards" and similar even though such restrictions are a direct violation of every merchant agreement I've seen -- and I've seen a lot of them.

The other costs include the terminal and software integration expense (that can be quite significant too), the data exposed to the merchant (or not) and who knows it (and what they can do with it) and exactly how fraud costs and chargebacks are allocated; that is, when does that risk pass to someone other than the merchant.

But at the core the problem is that ~72% of US consumers own a "smart phone" in the United States, and of them ~41% of them own Apple devices.  A proprietary "solution" thus has a penetration problem in that it serves something like a third of the market; the other two-thirds are not served, yet you must install the hardware and software everywhere anyway.

I suspect the root of CVS and Rite-Aid's problem lies in the data stream and risk allocation -- but that's speculation.  Apple allegedly managed to negotiate a 15-25 basis point reduction in the "discount rate" from the issuers, but in exchange for that they assumed some of the fraud risk -- and exactly how that will play over time is unknown.

The big problem that Apple Pay has, beyond my implementation and security concerns (which are very real, by the way) is that they did not in fact do much of anything, if anything at all, to disrupt the current card issuer/network model -- and thus there is no dramatic change in the fee structure either.  As a result the incentives for merchants to sign on for this are muted at best, especially when it comes with costs.  If that "cost" includes a shift of data ownership away from the retailer then from the retailer's point of view it's a very bad deal as it is really nothing more than Apple trying to grab ownership of something they have never had access to in exchange for nothing from the retailer's point of view.

My money is on this initiative being as successful as Apple's "Beacon" nonsense -- which, incidentally, I note, has gone exactly nowhere since being announced.

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I have often said that H1Bs are poison, and offshoring labor more so.

I made my money in the computer field.  It used to be a good field to go into; good money could be made as a programmer, even working for someone else (my first "real" job was doing exactly that.)

Not any more.

Ever heard of Electronics for Imaging? We hadn't either until this morning, but it's apparently a multimillion dollar, multinational, public corporation based out of Fremont, California. And the United States Department of Labor just caught EFI red-handed in an investigation, which found that "about eight employees" were flown in from India to work 120-hour weeks for $1.21 per hour. EFI apparently thought it was okay to pay the employees the same wages they'd be paid in India (in Indian rupees).

This is why companies want H1b visas, it is why they're offshoring labor, and it's why college degrees are being rendered worthless at an ever-increasing rate.

There are still a few places where they make sense -- but virtually the entire computer science field is moving this way, toward being paid a buck an hour -- and if they can't do it here, they'll hire people from India over there where they still **** in the outdoors (really!) and thus don't have to pay for indoor plumbing and sanitation.

Thank both political parties and all those big companies.

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Beware the tricks in your bag today....

Today’s decision to expand Japan’s monetary stimulus may be regarded as shock treatment in the central bank’s effort to affect confidence levels.

Bank of Japan Governor Haruhiko Kuroda’s remedy to reflate the world’s third-largest economy through influencing expectations saw the yen sliding and stocks climbing. Kuroda led a divided board in Tokyo in a surprise decision to expand unprecedented monetary stimulus.

Remember, folks, QE works.

It works so well that it has be repeated.  Time and time again.  Every time.  All the time.

Where's the exit for Japan?  Two decades in coming, and yet here we still are, needing evermore.

What you got out of this was a big (~2%!) move in the Yen -- weaker.  That of course translated into a big move northbound in the futures.  Remember that a collapsing currency results in a skyrocketing stock market priced in that currency, but whether this is "good" depends on whether you can eat your (electronic) shares.

Given this enormous move (weaker) in the Yen would you mind explaining where the inflation is that the BOJ wants to see?  Since it has not materialized perhaps you might also muse on exactly what the impact of this "program" actually is.

And that's the paradox, you see -- despite the outrageously-large move in the Yen over the last few years there has been no inflation to be found in Japan itself -- at least as measured from the government's point of view, and thus what has been reported.  But that there's no reported inflation does not mean that your standard of living improved.  One need only look here where there has been essentially no inflation over the last several years either (as reported by the government) and square that with the median family income numbers, or for that matter other periods of time here in America, to see that these so-called reported numbers mean exactly bupkis when it comes to whether your net purchasing power, as measured in the goods and services you can buy with an hour of labor, have improved or deteriorated.

So what's to come for Japan?

Hint: If you're a Japanese citizen I hope you enjoy grabbing your ankles.

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2014-10-31 06:01 by Karl Denninger
in Market Musings , 173 references

Yeah, this is smart....

Another quarterly earnings report, another slam dunk for Facebook. The company made $3.2 billion in the third quarter, up 59 percent year-over-year, and grew to 1.35 billion monthly active users. More than 700 million people check Facebook on their phones every single day. These are impressive numbers. But Facebook is about to toy with the hearts and minds of investors, shareholders, and analysts by spending the next year investing heavily in its passion projects: WhatsApp, Oculus, and

Really?  Slam-dunk?  Like Spamazon?

Well, sure.  Why not?  As long as investors will put up with executives paying themselves billions via either cash or (worse) "buybacks" (that are not really buybacks, because the stock is not canceled -- it is instead put in the Treasury and then used to pay executives) while the firm returns zippo in dividends and earns no net profit, what's to deter this behavior?

The oddity in this isn't that it happens.  It's that traders and "investors" (if there are any left) sit back and allow it while holding their shares, permitting Bezos and Zuckerburgler to loot them under the guise of "future investment."

Uh huh.  Amazon has run this line of crap now for more than a decade sequentially and gotten away with it, so why not?  As long as Bezos can walk on water, who cares?  As long as Zuckerburgler can do so, who cares?

Well, obviously, not you and not I.  I find it utterly amazing -- and amusing -- that the so-called analyst community continues to give this sort of crap a pass as well, but I guess I shouldn't be.

After all, so long as there's someone standing around willing to bid up yet another zero-net business (FaceBook has a P/E of nearly 70, and Amazon's is negative) why, if you're an executive, should you not keep taking cash from the idgits that insist on shoving it into your hand?

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2014-10-30 08:32 by Karl Denninger
in Editorial , 392 references

.... if Tim Cook is gay.

I find it utterly disgusting that in this day and age we are expected to pay homage to those who place their sexuality on display as one of their "public" attributes unless that is all they have to sell.  Plenty of celebrities are in that position, and if you can get someone to pay to look at your boobs or other body parts, more power to you gal (or guy.)

For a CEO to parade this around, irrespective of what he claims as the reason, is idiotic.  It is nothing more than an appeal to political correctness, and that's an appeal you are forced into when you can no longer sell your own professional excellence as that has been exhausted.

Therefore I declare that you are seeing Peak Apple, right here and now.


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