Microsoft Surface Review

Microsoft Surface Pro Review

I been playing with the Microsoft Windows 8 Surface Pro lately and thought I’ll post a mini review for those who are in the market. 

Pros

·         Having a fully functioning windows and programs like Office is a huge huge benefit

·         The type keyboard is surprisingly good, much better than I expected

·         Great build quality on the tablet, they definitely paid attention to this

·         Great display, high resolution and great viewing angles

·         A USB port is a god send

·         The stylus is surprisingly good, and useful (though most Windows programs and apps don’t take full advantage of its capabilities yet)

Cons

·    While not a complete disaster, Windows 8 is HIGHLY annoying, there’s just so many things in it that are changed pointlessly and randomly

·     Highly disjointed experience between the tablet and desktop UIs.  Its just incredibly disorientating switching between these.

·      Battery life – pretty dismal, 3-4 hrs in my normal usage, very disappointing compared to my Nexus tablet and my iPad (yes I have all 3 ecosystems…haha)

·      Apps are pretty lacking in breadth and depth

·     Heat – my god, this tablet gets hot, not burning hot but a constant my hand and legs are starting to overheat hot after holding it even for a short time.

·      Type cover is ugly - the non-key side looks and feels like mouse fur - MS, why not leather or plastic?

My overall review?  Good potential but the first generation is seriously lacking.  Wait for Surface Pro 2 with Intel Haswell processors and Windows 8.1 OS, hopefully they’ll fix some of the problems in the current.  I can’t really honestly suggest buying it unless you really really need Office and Windows on the go which to be honest, you can do just as well with an ultrabook (my personal fav is the Samsung Series 9). 

On a side note, I think I have way too many tech gadgets…

Random Airport Musings

As an engineer, maximizing efficiency is (for better or for worse) always on my mind.  Recently at the Singapore airport, I noticed they had a very different airport security screening system vs the US.  In the US, there is a central security screening (yay TSA) after which you’re all set to go.  In Singapore, there is a trivial initial security screening to get to the inside of the airport but the full screening is found at each individual gate instead of a central one.

Which is better or worse I wonder?

US System

·         One single area for screening

·         Peaceful once you get past it

·         Long potential wait at screening area

Singapore system

·         Significant duplication of equipment and staff at each gate (dozens+)

·         Easy to get to your gate and gate is busy with only your flight

·         Can’t leave boarding area once you get there

Hard to say really as there is pros and cons to each but I find the duplication of equipment and staff likely unfavorable from a cost analysis (Singapore has cheap foreign labor however).  And while I hate the bottleneck of the initial screening area, I prefer to just get it over with myself and have freedom once I’m done. 

On a side note, I finally got the chance to ride the new Boeing 787 on Japan Airlines.  I can’t reiterate enough how much better Asian airlines are (excluding Chinese airlines) over US.  Delta has the record for some of the oldest planes in service at 20+ yrs, and its noticeable when you ride them vs the brand new JAL planes.  The friendliness and service orientated staff is also leaps and bounds superior.  It recaptures a bit of that feeling of actually ENJOYING a flight. 

At least in business class, the seats are also great with almost a fully flat recline, I actually was able to sleep some for once (important on a brutal 24 hrs straight of flight time).  The JAL lounge in Tokyo also now holds the record for best lounge I’ve ever seen.  Though I usually fly delta due to corporate policy and mileage, I think I’m going to have to stop bothering with them whenever possible.  Its just not worth it.

Foreign Markets Bounce Back

I mentioned just a few days ago that I found the emerging markets, especially Southeast Asia, extremely cheap.  After entering a bear down (down 20%), the valuations had just turned too favorable for it, especially in comparison to the slightly overvaluation in the US markets.

Lucky timing as emerging markets bounced right back.  Its up over 6% in just those couple of days.

Some specific countries have done even better:

Indonesia is up 10.5% after a pretty punishing drop.

Philippines is up 11%.

South Korea (one of the most undervalued markets) is up 5.6%.

I fully expect these to be an oversold bump rally, not yet confident if they have staying power yet but the point remains that these markets have been sold off a tad too much and for patient investors, may represent a good jumping in point.

Disclaimer: Have entered or added to these positions recently.

Fitting Picture For Today

A picture is worth a thousand words.

From Reddit.

Where to buy bonds directly?

One comment that was made in my recent article was about buying bonds directly.  While its true that buying bonds and holding it to maturity does eliminate price risk, to some degree you are still losing out via opportunity cost.  While I don't suggest it in general due to the amount of time/cost/effort to actually buy a diverse set of bonds, nevertheless it is an option.

You can generally buy bonds thru most brokerage accounts.  Note however that many of them have minimum quantity requirements and majority of them sell in increments of $1,000 (yes, not all are $1k but whatever).

In my brokerage accounts, generally the minimum orders are $1k per bond with minimum quantities of 5-10 bonds per order.

Treasurydirect.gov however is a US government sponsored website that allows you to buy and redeem directly from the Treasury in an electronic format.  I have not opened an account there but it at least advertises minimum orders of only $100 and is sold in increments of $100.  That's the lowest I've really seen.  Keep in mind, to form a nice do-it-yourself bond fund (including duration laddering, mix of corporate, municipal, inflation, international, etc) you have to buy a pretty decent number of bonds.  As many brokerages require a significant chunk of money per type, it quickly becomes prohibitive in my opinion to make one.  Your mileage may vary however if you found better deals yourself with however you do trading.

Overseas Markets - Extremely Undervalued

I've mentioned several times recently about the recent disconnect in US market performance vs overseas market performances.  While the S&P 500 still sits at a lofty 10% gain for the year, the Asia markets have almost all entered a correction or bear market.  Its quite amazing considering US is still struggling with 1-2% GDP growth during this market surge while Asia is getting 4-7% growth and entering a bear market.

While the momentum is still downwards, overseas markets are insanely cheap now, particularly emerging markets.  As Bloomberg noted (and you can check on Morningstar.com), the P/E ratios of these markets are just insane.  

The CSI 300 has fallen 23 percent from this year’s closing high on Feb. 6, while the Shanghai Composite is down 20 percent.

The Shanghai Composite is valued at 7.99 times projected 12-month earnings, the lowest since Bloomberg began to compile the data since 2006. The 14-day relative strength measure for the index, measuring how rapidly prices have advanced or dropped during a specified time period, was at 15.9 yesterday. Some investors use readings below 30 as a signal to buy. 

The number of Shanghai Composite stocks with RSI readings below 30 reached 586 yesterday, the highest level since Dec. 15, 2011, data compiled by Bloomberg showed. The index had 266 members trading at new 52-week lows, the most since Dec. 4, according to the data.

This is what the Shanghai market chart looks like:

Just look at that drop...

Just think about that, a 8x P/E ratio.  This is in a country where growth is slowing...from 7% GDP growth.  We're not talking about places like Europe which is struggling to get to 0% growth, we're coming down from 7%.  The US hasn't hit 7% GDP growth in decades.

And that's not the only market.  Via Morningstar.com -   EWY, the South Korea ETF, has a prospective PE (forward) of 9.26.  EWZ, Brazil, has a prospective PE of 13.8.  EPI, India, has a 10.5 PE.  THD, Thailand, is at 10.8.

By comparison, the US S&P 500 has a prospective PE of 15.

By many measures, these markets are insanely cheap.  Even if China has corporate earnings fall by 25%, there's still a 25% stock upside to reach the same valuations as the US.  Yes, the emerging markets (VWO down 19% YTD) are in bear markets right now, yes its like catching a falling knife at the moment (yesterday's plunge of 5% in China comes to mind) but going by valuation, its hard to believe that that these markets will not jump in the mid to long term.

It may not be 1 month, it may not be 6 months, but the fundamentals and valuations will eventually correct itself in one way shape or form.  Either their earnings will plunge 20-50% or their stocks will rise 20-100% (or a combination of the two).  I'm leaning towards stock appreciation personally.


Disclaimer: Have recently started to add ASEAN and Emerging market ETFs.   

Market Monday Morning Status - Futures

So far, indications look like the market will continue its downward slide this week.

International markets are down considerably (again).  China is down a surprisingly high 4% sending it down about 15% YTD.  Overseas markets are taking a huge beating on slowing China data and Fed easing announcements.  In my opinion, they're starting to get very undervalued.

World Indexes

• AMERICAS

• EUROPE, MIDDLE EAST & AFRICA

• ASIA-PACIFIC

Index	Value	Change	% Change	1 Month	1 Year	Time
Nikkei 225	13,196.07	-34.06	-0.26%	-9.69%	+49.98%	23:35:30
Tokyo Stock Exchange Tok...	1,098.18	-1.22	-0.11%	-8.03%	+46.24%	23:35:25
Hong Kong Hang Seng Inde...	19,938.29	-325.02	-1.60%	-11.85%	+4.97%	23:40:36
S&P/ASX 200	4,675.70	-63.10	-1.33%	-6.18%	+15.50%	23:40:06
S&P Asia 50 CME	3,143.19	-30.27	-0.95%	-10.07%	+2.40%	06/21/2013
Shanghai Shenzhen CSI 30...	2,224.35	-93.04	-4.01%	-14.36%	-11.46%	23:30:53
Shanghai Stock Exchange ...	2,010.77	-62.06	-2.99%	-12.14%	-11.06%	23:30:05
Korea Stock Exchange KOS...	1,814.22	-8.61	-0.47%	-8.07%	-1.80%	23:55:50
National Stock Exchange ...	5,667.65	+11.75	+0.21%	-5.28%	+10.14%	07:05:59

And US stock market futures aren't looking much better:

Americas

Index Future	Future Date	Last	Net Change	Open	High	Low	Time
Dow Jones Indus. Avg	Sep 13	14,657.00	-54.00	14,659.00	14,676.00	14,634.00	23:40:43
S&P 500	Sep 13	1,577.20	-6.90	1,582.00	1,586.20	1,573.60	23:39:20
NASDAQ 100	Sep 13	2,855.50	-9.50	2,864.00	2,869.25	2,850.75	23:39:29

World outside the US - Even Worse

One thing that has perplexed me for the entire year as the US market rally is the poor performance of all the other markets in the world.  Emerging markets for example, is down almost 16.5% YTD, vs the still positive 11% in the S&P 500.  This same trend is also found in a number of other assets such as gold, commodities, etc.  The US stock market is almost the only asset class still positive for the year.

Say what you will about decoupling but there's few explanations I can reasonably accept that would explain a +11 and -16% gap.

As Bespoke.com showed in this chart, the rest of the world is vastly oversold.

Microsoft retreats on its vision (or lack of)

One of my previous articles covered the Xbox One console that Microsoft recently announced.  I was highly critical of a few aspects of the Xbox, namely its focus on delivering Microsoft's vision instead of delivering a great consumer product for its customers.  

Microsoft made such a big deal of features like watching TV (is the Price is Right still that popular anyway?) and cloud control that they forgot the reason people bought the Xbox was to play games.  Not only did they ignore the gaming features, they actively hindered it with their new features such as DRM (digital rights management) control, centralized used game control, mandatory online connections, and etc.

With any product, especially consumer products for a very vocal audience you have to make sure that the negatives of your product is outweighed by the positives, especially when you have a competitor that took a different route.  I would argue that Microsoft doesn't really understand how this game is played because they operate off the Windows monopoly model where they're so entrenched.

After weeks of uproar, signs of poor acceptance, and low preorders, MS finally did a 180 and reversed its position, reverting back to the previous model.  I just can't understand how MS thought this was a good idea.  Arstechnica had a short description which I think highlights part of the problem:

When I got back from E3 last week, I called my mom for a regular check-in. Obviously, I brought up the show and the battle between Sony and Microsoft. When I described Microsoft's game licensing policies to her, she said they were "the stupidest fucking thing I've ever heard."

When she asked incredulously why Microsoft did what it did, I found myself fumbling for an answer. Despite recently having a long sit down with Microsoft's marketing chief where he was tasked with answering this very question, I found myself struggling. I couldn't easily explain to my own mother why in the world she should see Microsoft's "digital future" as anything but stupid.

This was, in effect, the problem. Microsoft's moves to slowly strangle the life out of the disc-based game failed the "mom test" because there was nothing strong enough to counterbalance the obvious hassles and annoyances that it imposed. And that's a shame, because it's not that hard to envision the world that Microsoft apparently did, where purely digital game libraries actually let console makers and publishers offer new and interesting ways to get access to their games, in exchange for those disc-based and online-connected annoyances. But Microsoft utterly and completely failed to sell that vision, and so here we are.

The 10 Year Note Yield

With the Fed's report today on tapering and the impending end of ZIRP, lets take a quick look at the 10 year treasury note yield.

The 10 year note yield has shot up to 2.37% as of right now, up 43% (!) from its low at the beginning of May.  

Looking at the 3 year chart, it shows how far we still have to go.  While its quite a bit off its lows, there's still a long ways to go before we hit recent values of 3%+.

Market response has been relatively benign (so far).  However, I'm glad I don't own any more bonds.  For stable safe havens, bonds have been anything but, especially in anticipation of yield changes.  And honestly, this is completely expected.  People know that yields were at unsustainable lows, and that it was going to go up (causing bond prices to drop).  

It was obvious, hence why I sold off a while ago.  Just look at the chart below for BND, the total bond market fund.  Its down 3% in 1.5 months for price.  Considering the yield for BND is only 2.5%, you just lost 1.25 yrs worth of returns.  And there's more downside to come as I mentioned above.

  

Market's Response to Fed Tapering - Noooo!

With the Fed event over today, its time to see how the market will react to almost definite tapering this year and potentially ending of ZIRP next year - not good at all.

And tomorrow may not look great either.  Futures so far:

Americas

Index Future	Future Date	Last	Net Change	Open	High	Low	Time
Dow Jones Indus. Avg	Sep 13	14,993.00	-54.00	15,040.00	15,040.00	14,971.00	23:43:02
S&P 500	Sep 13	1,615.80	-7.90	1,621.00	1,622.70	1,611.40	23:43:30
NASDAQ 100	Sep 13	2,944.25	-12.00	2,952.00	2,952.00	2,939.75	23:41:23

The interesting thing is that as I mentioned to a friend today, everyone knew this would happen eventually.  It was only a question of when.  And apparently nobody is ready to leave the party yet.

VIX Up! ...but is it really?

Market volatility has surely increased in the last month and there's been tremendous calls for corrections and etc etc.  One point people are making is that the VIX, the so called fear indicator, is up sharply!  ...but is it?

Yes, its definitely jumped as you can see above, now hitting 18.6 from a low of 12ish just a month ago.

However when you put it in the longer term context...

In the 2 year chart, you can see the VIX is still at a significant low vs other points in the last few years. So yes market volatility is increasing but its still low for now.  It'll be interesting to see how much farther it'll go.  If it returns to its normal ranges as the market begins a correction, this would imply we have a lot farther of a drop and volatility to go.  This may only be the beginning of the journey.