Silicon Valley’s Next Big Leap

  • Someone just made big money off an iPhone rumor
  • But you can make bigger money off the new tech under the iPhone hood
  • How a silly video game marks the advent of a $7 trillion industry
  • Gold at one-year highs: Here’s the next level to watch out for
  • Chinese yuan up 7% in 2017 — setting up a 2018 devaluation
  • Debt ceiling can is kicked… Two maddening things about the Equifax hack… A reader does us a favor… And more!

What would a new iPhone model be without reports of “production glitches”?

Apple takes the wraps off the new version next Tuesday, with all the attendant hoopla. After the closing bell yesterday, The Wall Street Journal posted a story on its website saying the new iPhone “was plagued by production glitches this summer.”

Relying entirely on anonymous sources, the story says, “New iPhones typically are in short supply when first released. But if shortages of the new phone extend beyond the initial sales period, which is expected to begin Sept. 22, analysts and investors could dial back their projections for sales in the crucial holiday period.”

The story’s having only minor impact on AAPL’s share price this morning — at last check, down less than two-thirds of a percent — but we imagine someone “in the know” made a small killing with put options during after-hours trading yesterday.

Supposedly the hang-up is with the OLED, or “organic light-emitting diode,” screens that Apple needs for the new model; Apple’s design is more challenging to build in the factory than the OLED displays on Android phones.

Whatever. Apple’s biggest breakthrough this month won’t be a new iPhone design, but rather a new feature in the iOS software that runs the iPhone.

“Imagine watching a rocket land in your backyard with your kids, for example, viewing the whole event through your iPhone screen as if it was real,” says a CNBC story this week. “Ikea has demoed another app that’ll let you place and see furniture exactly how it will look inside your home before you buy it, too.”

Welcome to the world of “augmented reality” — the next multitrillion-dollar leap in the evolution of Silicon Valley.

This isn’t virtual reality, or VR — where you strap something to your head and immerse yourself in a world that’s not real. The world of AR is the one you live in right now — but with added visuals to help make you healthier, wealthier and wiser.

Unfortunately, AR came out of the gate last year with a reputation as a pointless plaything.

Maybe you’ve never used AR in your everyday life, but your kids or grandkids almost certainly have — via the smartphone game Pokémon GO.

Using the GPS built into your smartphone, you play Pokémon GO by “walking around the real world catching cutesy little virtual monsters like Pikachu and Jigglypuff in places near your phone location and training them to fight each other,” says a description from the BBC.

Still unclear? Here’s the illustration we shared in The 5 as the craze was taking hold in July of 2016…

girl holding phone

See the little purple cartoon character? It’s not on the street, but it’s superimposed on the smartphone’s image of the street.

Here’s the thing: Even at that time more than a year ago, our Ray Blanco was tipping us off to AR’s potential, based on what he could see beyond the release of a silly smartphone game. “You can bet every app developer, game company and device-maker from Shanghai to Silicon Valley is paying attention to what happened in the last two weeks.”

Here’s a use of AR that’s anything but trivial.

“Imagine this,” says Ray: “The next time you lose your child (or grandchild) at the Fourth of July parade… before you panic or find a police officer, you simply hold up your smartphone… and there they are.


“Here’s what augmented reality really looks like,” Ray goes on…

  • “Doctors ‘examining’ the human brain from the comfort of their office, so they can work toward a cure for Alzheimer’s without ever picking up a scalpel…
  • “Tools ‘appearing’ out of thin air, and doing their job even better than the ones you used to lug around…
  • “School lessons ‘coming to life,’ so students can witness the moon landing from their living room.”

(Don’t take our word for it. Ray has short, eye-popping video clips illustrating all these examples and more.)

Getting the idea now? AR isn’t just a new feature that Apple hopes will induce you to shell out hundreds of bucks for a new iPhone. It’s setting the stage for a world that will move beyond smartphones.

“Apple will use its smartphone as a platform to test out new features and technologies… then use those lessons to create a brand-new device that will blow everyone away,” says Ray.

“More importantly, I believe this future product will be centered around AR technology. There are already strong indications that the next iPhone — due to be announced on Tuesday — will plant the first seeds.

“CEO Tim Cook is already on record saying that he thinks that AR is ‘a big idea like the smartphone.’ He went on to say we ‘will have AR experiences every day, almost like eating three meals… it will become that much a part of you.’

“According to TechCrunch, the AR market was valued at $1.2 billion in 2016, mostly on the surprising strength of Pokémon Go. It’s expected to reach as high as $2.6 billion by the end of 2017.

“But after the release of the iPhone 8, the market is expected to shoot up nearly vertically,” Ray goes on. “According to Research and Markets, it will hit $7 trillion by 2027.

“That’s total growth of 269,130% in just a decade… or average growth of 119% per year.”

As we said earlier, Ray’s been on this story for more than a year. And we stand on the cusp of the biggest profit potential right now — with the next iPhone’s unveiling on Tuesday and its release to the public 10 days later. Click here and Ray will show you how to grab your share of this $7 trillion bounty.

To the markets… which can scarcely bother reacting to the kicking of the debt-ceiling can.

As we continue to write midmorning, the U.S. House has passed a package deal of $15.25 billion in hurricane relief and a three-month suspension of the debt ceiling. The Senate passed the measure yesterday, so it now goes to the president for his signature. The Sept. 29 debt-default showdown is now put off till Dec. 15. (Can you tell we’re trying to contain our enthusiasm?)

The major U.S. stock indexes are treading water, the Dow up less than a quarter percent at 21,831. Gold punched through $1,350 overnight but at last check has pulled back to $1,344.

[Ed. note: We see the president is talking up the notion of abolishing the debt ceiling. We daresay there’s merit to this idea. Not because we want to encourage Uncle Sam to spend like the proverbial drunken sailor, but because doing so would acknowledge that Uncle Sam will spend like a drunken sailor regardless of what you or I or anyone else thinks. No longer would anyone in Washington labor under the pretense of “fiscal responsibility.”]

“By the time the markets close today, gold will have risen seven out of the past nine trading weeks,” says Greg Guenthner in today’s Rude Awakening.

“The precious metal’s next big test will be its July 2016 highs of $1,377. If it can break above these levels, we’ll be treated to prices not seen in more than three years…

Gold chart

And it’s not just a weak-dollar story, Greg points out. “Even with the euro and Canadian dollar powering higher, gold is taking the lead, outrunning foreign currencies as the close of the trading week nears. That’s an important gauge for the gold rally considering that much of its August move was attributed solely to a weak dollar.”

Elsewhere in the currency markets, the Chinese yuan is trading at a 16-month high against the dollar — setting up for a doozy of a devaluation, according to Jim Rickards.

True, the falling dollar “propped up the value of the PBOC’s reserves while allowing the yuan — which has a soft peg to the dollar — to rise,” observes Christopher Balding at Bloomberg. “The dollar falling faster against global currencies than the yuan gently pushed the yuan up against the dollar.” An unexpected anomaly, to be sure.

In spite of the dollar’s influence, China’s best effort to prop up its currency — cracking down on foreign investing — is a fool’s errand. Chinese citizens are desperate to get capital out of the country as confidence in the yuan plummets and domestic investment opportunities taper off or prove cost-prohibitive. (Just consider, China has some of the most expensive real estate on the planet.)

This can’t last long, says Jim Rickards. “China is buying time until the Communist Party Congress in October.”

Jim cites the “impossible trinity” theory advanced in the early 1960s by Robert Mundell that says “no country can have an open capital account, a fixed exchange rate and an independent monetary policy at the same time. You can have one or two out of three, but not all three.”

As cash flows out of China, with investors seeking higher returns abroad, “This will cause a foreign exchange crisis and policy response that abandons one of the three policies.”

So now we have a two-legged stool… not worth sitting on!

“China cannot keep the capital account even partly closed for long without drying up direct foreign investment,” says Jim. “Similarly, China cannot raise interest rates much higher without bankrupting state-owned enterprises… In the end, China will have to break the yuan’s peg to the dollar in order to stop capital outflows without killing the economy with high rates.”

Jim’s conclusion: “The impossible trinity really is impossible in the long run. China will find this out the hard way. Look for a yuan devaluation in early 2018.”

Among the market’s big losers today, deservedly so, is Equifax — down 14% at last check.

By now you’ve probably heard that Equifax — one of the big three companies that keep credit reports on all of us — suffered a massive hack in which the personal information of 143 million people was compromised. Good luck using the special website Equifax set up to find out if you’re one of them. Here’s the message many of us, your editor included, are seeing…

thank you note

“Apparently,” writes Louise Matsakis at Motherboard, “I am supposed to mark my calendar to come back to Equifax’s website in a week, in order to enroll in TrustedID Premier, a complimentary identity theft protection and credit file monitoring service that the company is offering.” Gee, thanks?

Meanwhile, it turns out that three of Equifax’s top executives dumped $1.8 million in Equifax shares three days after the company discovered the breach on July 29. The company says the suits in question were not aware of the breach at that time.

Let’s hope not. We’re of the opinion around here that “insider trading” is a victimless crime, but if the executives did know, there’s a case to be made that fraud occurred — maybe not legally, but certainly morally.

A quick dip in the mailbag before we call it a week: “I recently clicked through a Facebook link on an ad for The Altucher Report.

“Just as I was about to subscribe, I recalled that I learned about this from you guys first. So I closed all browser screens and went through your link to subscribe. Cheers!”

The 5: Wow, you really didn’t have to go to that trouble.

Although sometimes I do something similar: If I look for an item via Google and find a paid search result at the top of the page, I’ll scan down to see if the same link is there without Google getting its cut.

So thanks for saving us a couple of bucks. (Or were you slyly asking for a rebate on your subscription fee? Heh…)

Have a good weekend,

Dave Gonigam
The 5 Min. Forecast

P.S. As we go to virtual press we see New York Fed chief Bill Dudley is contributing to the sum total of economic ignorance by saying hurricanes are great for the economy.

“The long-run effect of these disasters,” he tells CNBC, “is it actually lifts economic activity because you have to rebuild all the things that have been damaged by the storms.”

No, it’s not the first time the subject has come up in our virtual pages in recent days. The broken-window fallacy is getting real old real quick.

In the meantime, our thoughts are with all our Florida readers battening down the hatches. Hang in there…

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

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