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Veteran S&P Futures Trader: "I Am 100% Confident That Central Banks Are Buying S&P Futures"

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I have been an independent trader for 23 years, starting at the CBOT in grains and CME in the S&P 500 futures markets long ago while they were auction outcry markets, and have stayed in the alternative investment space ever since, and now run a small fund.

I understand better than most I would think, the "mechanics" of the markets and how they have evolved over time from the auction market to 'upstairs". I am a self-taught, top down global macro economist, and historian of "money" and the Fed and all economic and governmental structures in the world. One thing so many managers don't understand is that the markets take away the most amounts of money from the most amounts of people, and do so non-linearly. Most sophisticated investors know to be successful, one must be a contrarian, and this philosophy is in parallel. Markets will, on all time scales, through exponential decay (fat tails, or black swans, on longer term scales), or exponential growth of price itself. Why was I so bearish on gold at its peak a few years back for instance? Because of the ascent of non-linearity of price, and the massive consensus buildup of bulls. Didier Sornette, author of "Why Stock Markets Crash", I believe correctly summarizes how Power Law Behavior, or exponential consensus, and how it lead to crashes. The buildup of buyers' zeal, and the squeezing of shorts, leads to that "complex system" popping. I have traded as a contrarian with these philosophies for some time.

The point here is, our general indices have been at that critical point now for a year, without "normal" reactions post critical points in time, from longer term time scales to intraday. This suggests that many times, there is only an audience of one buyer, and as price goes up to certain levels, that buyer extracts all sellers. After this year and especially this last 1900 point Dow run up in October, and post non-reaction, that I am 100 percent confident that that one buyer is our own Federal Reserve or other central banks with a goal to "stimulate" our economy by directly buying stock index futures. Talking about a perpetual fat finger! I guess "don't fight the Fed" truly exists, without fluctuation, in this situation. Its important to note the mechanics; the Fed buys futures and the actual underlying constituents that make up the general indices will align by opportunistic spread arbitragers who sell the futures and buy the actual equities, thus, the Fed could use the con, if asked, that they aren't actually buying equities.

They also consistently use events through their controlled media, whether bad or good price altering news, to create investment behavior. The "ending" QE 3, and the immediate Bank of Japan QE news that night, and thus the ability to not quit QE using them as their front, and then propping our markets on Globex, like this is suppose to be good news, free markets totally dependent on QE, is one example. Last night, Obama passing the amnesty bill, and the more great news about how Europe and now China are also printing money out of thin air and "stimulating" their economies with QE too, which in turn prompts the Fed to prop up overnight futures markets on Globex to make that look like great news as well. I guess this is suppose to create a behavioral pattern for investors, that dependency on government gives us positive feedback and is good, much like Pavlov's dog and the ringing of the bell.

Why would the Fed prop up our stock market to begin with? Weren't they just supposed to "stimulate" the treasuries market only, to keep interest rates low, indirectly, by an eventual direct purchase in secondary markets, keeping them propped up (for five years now!)? Well, first of all as it relates to equities and utilizing the "Plunge Protection" mandate, why not just bypass the "plunge" altogether. Can't the definition of Plunge Protection be just that? Protection against a plunge instead of during a plunge? Doesn't propping the market equate to "Plunge Protection" since propping alleviates plunge and "protects" us? Does it depend on what the definition of "is" is? And really, doesn't the Fed buying futures directly alleviate those bankers who take their money in TARP or however means and then this money doesn't make its way into the very heart of what the public deems as its consumption motivator, higher stocks and real estate? Plus, buying futures is a means of then delivering fiat cash upon every expiration, therefore, "stimulus" to someone who receives it.

The Fed boasts about having a printing press, and I guess this allows them to "fix" everything. They "print money out of thin air" we keep hearing (which is true by the way) and with US taxpayer backing (fiat currency (always fails throughout history)), (perhaps post QE 3 there is an Executive Order for QE infinity), they sit on the actual bid and hold our treasury markets steady, and by buying out big sellers as they arise like Russia and China via their Belgium central bank franchise as an example, propping our dollar and then staying on that bid by other franchises, having constant bid flow into equity futures in real time hours and Globex overnite, all in order to retain US consumer confidence (since that is what we are suppose to continue to do) and the image of global strength to keep the dollar from losing its reserve status. Their obsession of stopping a deflationary depression, has headfaked people like Bill Gross, formerly of PIMCO, and known to have started hedging long bond positions five years ago with the assumptions that Fed printing would be inflationary, and rates would move higher, but without the assumption of the perpetual direct bid in the market place by the Fed creating, "price discovery". For now, that is.

In the end, which they know exactly when that is, the ultimate con is exposed through mass theft. Americans finally find out what those guys on CNBC are talking about when they mention "inflation" and how it destroys buying power over time. The end reflects the Fed stepping away from the bid in all markets. Prior to this, of course, they prep their offshore fund accounts to take the other side and short dollar, short global equities, and short fixed income, with mass leverage for maximum gain. I mean, why wouldn't they? They are a private entity and are composed of non-US citizens with no accountability or oversight and they seem to be globalist humanists with a depopulation bent (Rockefeller Foundation). Why wouldn't they use our money to prop, their money to take other side in a massive global short play, then let it all crash by simply stepping off the bid of these markets. They can then use the controlled talking heads who can relay the complexities of fiat money, index arbitrage, money velocity, currency and CDO swaps, with some geopolitical China worries, whatever, but really emphasize that the whole capitalistic system and constitution was flawed to begin with anyways, and that perhaps totalitarian fascism would be best for the country at this point since everyone's wealth is destroyed overnight and are literally hungry. Perhaps Obama is just that person! Maybe Dinesh D'souza was right about Obama. This is the way to destroy us, or "equal" the playing field globally by taking us down to third world status, is it not? Leverage the American people's money by trillions of dollars at the tops of capital markets, then bury them in a death spiral? Maybe Thomas Jefferson knew what he was saying' "If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered."

Why wouldn't anyone believe these words written here? Perhaps you can't imagine someone being so evil? Wasn't the Federal Reserve Bank concept initially funded by a Rothschild in the 1800s, who used the media to deceive the public and sway the London Stock Market down negatively, who then speculated against that panicking public's sell orders by taking long positions in stocks, then making a fortune when everyone found out that the news was wrong and positive? Then later another Rothschild founded our Federal Reserve in 1913, and others like JP Morgan who supposedly bought the US stock market in a banking panic and "saved" America in 1909? Aren't all of these Fed owners Fabian Socialists?

Details of this last market move:

This last 1900 point Dow Jones push upwards - and the Ebola events leading into it - it was so orchestrated and heightened at critical points but the ascent and push straight up in price, and sideways nonreaction after was completely unlike anything I've seen before. After going up for a record breaking amount of time the last five or so years, in a nonlinear exponential mania type of ascent, there should normally be tremendous volatility that follows. But, this isn't a tech-like mania! There aren't any buyers here other then the Fed. The shorts were all squeezed in 2009, 2010, 11, 12, and everyone who has ever wanted to buy stocks is in!

Modern Portfolio Theory has reached it's pinnacle, leading 55% of the American public who partake in that "diversified" portfolio theory off an eventual cliff. The market acts more like a penny stock that has been pumped up and is "boxed" (boxed, meaning, the whole float is buying and holding and held with the promoter, one broker dealer, and thus this one broker dealer can control price "discovery"(regardless of actual fundamentals and using "press releases" to sway and create order flow they want and need from naive clients)) , and less like a free market. The Dow runs up that much that quickly, then on Globex its down .02 percent at the most over night, multiple days in a row? No pullback? Are you kidding me!? Then the actual trading days have very little volume, and the peaks in price intraday also exhibit nonreactions sideways, just a couple of tics from the highs. This price manipulation reflects that they want to expunge all shorts on all time scales, to the point that there will be no point to try, and at the very end, there will be very few. This also reflects that a group of very smart prop trader types, experienced behavioralists, perhaps off of a prior prop desk like a Goldman, are controlling this game, and not some government treasury/cftc/sec "plunge protect" type who doesn't understand this game.

With the indoctrination of Modern Portfolio Theory, and the masses' epistemology from experience and from "experts" to never ever get out because "it always comes back", and from corporate buybacks, the actual intraday trading float has disappeared, thus, easier and cheaper to manipulate and find the perfect "price discovery" for every situation to control investor behavior, especially during off hours on Globex. This past situation, during the break and runup, there would be thousands of opportunities for the Fed insiders using different variations of ways to front run (without using the focus dump then pump futures contract itself), making the HFT guys front running for pennies look like complete chumps. Can you imagine all the different ways to bet the global markets at the height of the ebola scare, which just happened to be the height of the mass media hammering the public with fear about it(haven't heard a word since!), which happened to be the exact moment of a very large Dow Jones 600 points intraday range after falling 1000 points in 9 days, which also happened to be at the height of put option premiums expanding and call option premiums eroding quickly, by knowing that the Fed is now going to prop it back up, way back up, and quickly! Shorting put premium globally for expiration in 7 or 37 days? Buying way out of the money cheap calls, buying the underlying equities, shorting interest rates, buying inflation, buying emerging markets and all of their liquid securities, options plays etc... on and on. That prior knowledge ts worth trillions, is it not? We all know that investment bank broker dealer desks take the other side of trades, and inventory the other side opportunistically. Why wouldn't this "bank" too, especially now that they are intertwined with investment banks thus have gained their intellectual property in trading? And why wouldn't they influence our idiot sheepish politicians to mandate the Fed Reserve, to encourage the Fed Reserve, to stimulate, whereas our Fed could use that for "the people", while at the same time, for themselves take the other side based on their offshore opportunistic mandate? Today's current markets are completely manipulated, every market, all the time, with our money and political Keynesian (control) mandate doing the manipulation in order for their money to front run and profit from there opportunistic mandate.

So if I am right, and my 23 years of experience trading equities, during manias enables me to know with certainty that I am, that they are allowed to directly be involved and have a perpetual standing bid in the secondary derivatives markets, they can then take the other side when they want (no need to publicly announce this, but to justify in their own heads). So when they take the other side in the public markets upon themselves pulling the prior US citizen backed bids in all markets for the ultimate 80 year cyclical "end game" (btw, about 23 years past the Kondratief Cycle deadline which is one way to describe the inevitable delay in this ongoing natural economic system reset) of the US fiat backed paper print con capped off by mass leverage, wouldn't they make trillions on the bubble pop on the way down? Wouldn't they also end up eventually owning the whole US since commerce would halt immediately, everyone would lose their jobs causing mass deflation (and hyperinflation due to our currency being booted as reserve currency, and imports becoming expensive overnight) causing mass defaults on their home loan obligations? Where do our mortgages end up now post 2008, 2009 financial collapse? Our governments coffers via FHA, FNMA, GNMA? And who will place a lien on our government when they default on it's loans? Wouldn't they be able to foreclose on America?

The US mandate on allowing Plunge Protection enabling the Fed to stick their noses directly in the equities markets was written in 1988 and is public knowledge and found in the public forum. And the attached "memo" shows incentives from the Chicago Mercantile Exchange for Central Bankers to use their equity futures markets.

Write me if you have any questions or comments, or if you need me to join in your efforts help to expose this Ponzi scam.

Moses

PM

The Supreme Court doomed the online video streaming service in June for violating broadcasters’ rights and transmitting copyrighted programming without reimbursing its creators.

Between the court’s ruling and Friday’s filing, Aereo was continuing to toy with its business model. And it clearly plans on toying some more, as a Chapter 11 filing is often considered a rehabilitation bankruptcy. The objective is to reorganize the debt with a view toward re-emerging as a healthy entity.

If Aereo were throwing in the towel, it would have opted for Chapter 7 and liquidated.

Sources said Aereo — with its transcoding ability to digitize files for playback on different devices and to transfer those files at wire speed — remains valuable, and could sell that technology despite rulings that its operations were illegal

The commission, which regulates Uber, is “looking into allegations” that the mobile car-hailing app violated users’ privacy by tracking them without their permission.

“We’re looking into the allegations,” TLC spokesman Allan Fromberg told The Post.

Uber came under fire this week following several reports that it snooped on riders, including Buzzfeed reporter and entrepreneur Peter Sims.

The spying scandal also prompted a probe from Sen. Al Franken (D-Minn.), chairman of the Senate subcommittee on Privacy, Technology and the Law.

TLC Commissioner Meera Joshi was called on the carpet this week for shrugging off Uber’s alleged misdeeds.

“Growing pains,” Joshi said in dismissing the scandal, according to Crain’s Business News.

“We are surprised both at that cavalier comment and the commissioner’s attitude toward a licensee dealing with the public,” Tweeps Phillips, executive director of Committee for Taxi Safety, wrote in a letter to Joshi on Thursday.

“The Taxi and Limousine Commission has a duty to protect the riding public from unsavory businesses and their shady practices,” added Phillips, whose organization represents about 20 percent of the city’s yellow-cab business.

Phillips also asked for the TLC to suspend Uber’s operations “until the riding public can be assured that their privacy and data are safe.”

Talks to acquire the pay-TV channel controlled by John Malone are heating up with Starz said to be seeking around $5 billion, The Post has learned.

The business has drawn interest from CBS Corp., the owner of rival premium channel Showtime, and “The Hunger Games” studio Lionsgate, sources said.

A deal for Starz could bolster either company’s existing pay-TV assets. CBS’s Showtime is the No. 2 player behind Time Warner’s HBO, while Lionsgate is part owner of smaller rival Epix, along with Viacom’s Paramount and MGM.

Earlier reports suggested 21st Century Fox had met with Starz execs, but sources said the meeting was more a courtesy than anything.

The discussions are at an early stage and could include options beyond a straight sale, such as a “strategic alignment,” or asset swaps, said sources.

Showtime, HBO and Starz are increasingly competing with streaming services like Netflix, Hulu and Amazon Prime.

That could damp demand for Starz because it’s no longer necessary to buy a cable brand to make a premium content play, sources said.

Starz, run by former HBO boss Chris Albrecht, offers a mix of movies and original series such as “The Outlander” and “Black Sails.” It has movie deals with Sony and Disney, although it is set to lose the Disney contract to Netflix after 2015.

Starz, which was spun out of Malone’s Liberty Media last year, has a market cap of $3.32 billion. The stock rose 32 cents on Friday to close at $32.20 and is up 10 percent year to date.

Malone, who owns 49 percent of Starz, has said it would be better off as part of a media company that owns other cable channels.

Starz declined comment, as did representatives for CBS and Lionsgate.

The Securities and Exchange Commission has opened several investigations into the lightly regulated platforms, known as alternative trading systems, a top watchdog said on Friday.

The SEC has “significant cases in our pipeline related to alternative trading systems,” Daniel Hawke, chief of the SEC’s market abuse unit, said during a panel discussion at Columbia Law School.

“We think that when the current era of market structure enforcement by the SEC’s viewed in retrospect, we will be seen as having struck the right balance between a principled regulatory approach and an aggressive and comprehensive enforcement effort,” he added.

His remarks come after the SEC approved new reporting rules for exchanges and dark pools. Dark pools match buyers and sellers for assets like stocks, except the prices and volume aren’t as readily available for buyers.

SEC chief Mary Jo White has said the agency will update rules for dark pools to tamp down on illegal trading.

Camox fund founder Jonathan Herbert has played lots of small-cap European shares to big gains this year while shorting some giants.

October Hedge Funds: Best, Worst, Biggest

Jonathan Herbert doesn’t share other investors’ deep anxiety about a recession in Europe.

One of the region’s best-performing equity hedge fund managers this year, the Swiss native runs the Camox fund, a value-driven long-short investor based in London. Herbert’s fund buys lesser-known small- and mid-cap European stocks that he believes are on the verge of faster earnings growth because of a product break-through or a turnaround in their business.

Leading performer Herbert has played a lot of small-cap European shares to big gains this year while shorting giants Danone and Unilever. Photo: Chris Gloag for Barron’s

“Even though Europe is mired in anemic growth, it really doesn’t matter because our companies are innovating and actively selling their products in China, Latin America, and the Middle East,” says Herbert, 42. “It’s paradoxical that many of our companies are exhibiting organic growth rates between 5% and 20%, when gross-domestic-product growth in Europe is basically at zero.”

Herbert looks for companies that dominate narrow global industries. Recent investments have included one in the aluminum auto-engine-parts business and another in enterprise software made specifically for banks. By his estimates—usually based on a multiple of enterprise value divided by earnings before interest and tax—his picks tend to trade at a 40% discount to their large-cap peers, and their organic growth rate is four times as fast. He’s short a number of big, household names.

The preference for small-caps has evolved over time for Herbert, who was raised in the French-speaking Swiss village of Cologny by an Israeli father and an American mother. He first became interested in the group while working as a stockbroker at Deutsche Bank and then at private bank Lombard Odier Darier Hentsch, in Zurich. He realized risk-averse institutional investors weren’t fully exploiting the opportunity.

“If you can capture that explosive growth in terms of investing in the company at the right point in time, and if the company is cheap enough that you have a margin of safety, that is where the money is to be made,” says Herbert, who has a joint master’s degree in economics and business administration from the University of Lausanne.

His Camox fund (derived from the Latin word for a breed of mountain goat native to the Swiss Alps) has posted outstanding returns this year, rising 24.77% through Sept. 30, according to fund tracker BarclayHedge. That is nearly six times the MSCI World Index’s meager 4.33% return in the same period. Over three years, Camox has returned 33.01% annualized, more than double the MSCI’s 16.80% return.

The gains helped boost assets under management to $255 million (205 million euros) by early October, from just $7.6 million when Herbert started with a single analyst in February 2008. Camox’s management fee ranges from 1.5% to 1.7%, plus a performance fee of 17% to 20%, depending on how long investors agree to lock up their money in the fund. Minimum investment is $500,000.

“He does not fall in love with stocks,” says Gilles Lambotte, a partner at Octogone Group, a financial advisory in Geneva that has invested in Camox. “He gets in and out with conviction.” In September, when euro-zone inflation fell to its lowest level in five years, Herbert believed “the market was slightly overvalued,” so he liquidated 25% of his portfolio. German stocks fell by 16% in subsequent weeks, so Herbert used the cash he’d raised to buy stocks.

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Camox currently has 25 long positions and six shorts. Among the bullish bets are Software (ticker: SOW.Germany). Herbert likes enterprise-software stocks because the companies collect monthly “maintenance charges” from customers—usually large companies that can’t risk a shutdown. In the second quarter, Software suffered a surprising decline in sales at its “middleware” unit, whose products tie together different databases. Middleware, for instance, is what allows the computer systems of law-enforcement agencies and airlines to work together to cross-check passenger lists for terror suspects. The revenue shortfall caused the stock to fall 33%.

But Herbert’s research found that the company had lost a senior sales executive and spent a lot of time seeking certification to work with the U.S. Defense Department, which hurt European sales. He’s betting sales will rebound. Camox bought shares at about €18 each, and by mid-November, the stock had risen to €21.50; he has a target of €40 over two to three years.

Another favorite is Temenos Group (TEMN.Switzerland) of Geneva, the largest producer of enterprise software for banks outside of the U.S. As European banks regain their footing—their solid scores on recent stress tests suggest as much—they can again afford to upgrade their information-technology systems. Foreseeing the banking rebound, Camox started buying the stock for about 16 Swiss francs ($16.64) in February 2012, right after it fell sharply. Since then, Temenos has nearly tripled, recently trading at CHF33.40 ($34.55); Herbert expects it to rise above CHF50.

By quizzing European companies about their suppliers and competitors, Herbert occasionally discovers companies scarcely covered by sell-side analysts. One example is Montupet, (MON.France), a manufacturer of aluminum components for car engines that suffered in 2009 when General Motors went bankrupt and orders fell. Herbert bought the stock in September 2013 for €22, anticipating a recovery in U.S. auto sales and an increase in outsourcing by German car makers. Backed by rising revenue and profits, the stock has nearly tripled, to €64. It could top €100 in two or three years, he says.

Among Herbert’s six short positions are large-cap European consumer stocks, including yogurt maker Danone (BN.France), and food and home-products giant Unilever (ULVR.UK). He thinks the shares of these dividend-paying, slow-growing companies are overpriced—selling for more than 20 times earnings—because European investors are scrambling for protection against a recession.

Shorting large-caps raises cash for Herbert to invest in smaller gems that are growing a lot faster. “As long as Europe doesn’t slip into a prolonged recession, our companies will do just fine—and prosper,” he says.

The board of Telecom Italia has given the go ahead to management to look at the possibility of merging its Brazilian operations with those of smaller rival Oi, a deal that would shake up the wireless market in Latin America’s largest economy.

A combination of Telecom Italia’s Brazilian unit TIM Participacoes and Oi would be the largest mobile carrier in Brazil by subscribers, larger than Telefónica’s Brazilian unit.

The go-ahead comes as the battle for a leading position in Brazil’s telecoms market has been intensifying, particularly around the future of TIM Participacoes.

Spains’ Telefónica is acquiring GVT, the Brazilian broadband provider, from Vivendi for about $9bn and has been linked with a potential role in the purchase and break up of TIM Participacoes, in which Telecom Italia owns two-thirds. In September, Mexico’s América Móvil said it was in talks to bid for a controlling stake in TIM Participacoes along with Oi.

In a statement, the board said it had also requested management look at merging its Italian broadband operations with those of local player Metroweb, a city based broadband system owned by an Italian state investment fund.

Telecom Italia is struggling to find a strategic solution, potentially through a merger in Brazil, to offset falling revenues in Italy and also to find a solution to low broadband penetration at home.

“Telecom Italia identifies Metroweb as the partner with which is could quickly create the development plan for the new generation network in optic fibre at a national level,” the company said.

It has said in the past that Metroweb would be among its options as an acquisition target, emphasising that there needs to be consolidation in the domestic industry, but identified possible price and antitrust issues that would need to be solved.

High speed broadband penetration is low in Italy. Telecom Italia which controls a third of the mobile market trails in 4G with just 2 per cent of its subscribers on the fastest wireless standard.

Hawesko shareholder Alexander Margaritoff has said the takeover offer for the wine trader by another shareholder, Detlev Meyer, is too low, Boersen-Zeitung reported.

The German daily cited Margaritoff, who holds a 30% stake in the company and is the son of its founder, as saying that Meyer, a board member, needs to raise his EUR 40 per-share offer in order to reflect the company's value.

Meyer's investment firm, Tocos, has a 29.5% stake in Hawesko and has stated that its takeover offer is valid until 22 December, the article noted. Meyer is seeking to become the largest anchor shareholder in Hawesko which had a EUR 465m turnover in its 2013 business year, according to the article.

The report noted that Michael Schiemann, whose investment firm Augendum has a 5% stake in Hawesko, informed Manager Magazin Online that he may be willing to sell his shares.

Source Boersen-Zeitung

Intel Has 30% Upside

Intel has a 3 ½ -year lead on rivals in chip-making technology, which should pay off in prolonged growth.

At $35.59, the stock (ticker: INTC) is now halfway to the five-year doubling we predicted last year (“The Stars Are Lining Up for Intel,” June 3, 2013). But don’t sell yet.

CEO Brian Krzanich has overdelivered on Intel’s growth, but Wall Street is not impressed. Only 40% of analysts recommend buying the shares. Photo: Kristoffer Tripplaar/Newscom

Intel stock is 7% cheaper than the Standard & Poor’s 500 index, relative to projected earnings for the next four quarters, according to FactSet. That’s where it was at the time of our earlier story and we continue to see promising signs.

Earnings estimates have been gradually rising, yet the shares have relatively few fans on Wall Street, suggesting plenty of popularity to be gained. Intel is strategically running a deep loss in its mobile-chip division in order to make up for its late start there. That’s a drag but also an opportunity. Merely shrinking those losses to break-even in future years will uncover earnings power in the rest of the company that is currently hidden.

As elevated capital spending reverts to ordinary levels, the result should be swelling free cash flow and more dividend increases like the one announced Thursday. Shares look likely to rise over 30%, to $48, over the next two years.

The skepticism on Intel—just 40% of analysts who cover the shares say to buy them—is understandable. Earnings per share are expected to climb 19% this year to $2.25, which looks like excellent growth, except that earnings first topped $2 a share back in 2010. That year, Apple introduced its iPad tablet computer, setting off fears, and early signs, that tablets would supplant notebook and desktop personal computers.

PC shipments suffered eight quarters of declining shipments until the second quarter of this year, according to market researcher Gartner. Some users switched to tablets for entertainment, but that shift peaked last year and replacement demand should now drive slow but steady PC growth, Gartner reckons.

This year, revenue for Intel’s PC Client Group is expected to climb 5.8% to $34.9 billion. Management forecasts flat volumes next year, but declining prices on a shift to more consumer computers from enterprise ones. That view could prove conservative, argues JPMorgan Chase, considering that Microsoft (MSFT) has a new operating system and new chips afford longer battery life for devices, including “2-in-1” convertible notebooks, and that the existing computer base looks creaky. An estimated 600 million machines are four or more years old.

The good news is no matter which type of computer users do their typing, poking, or swiping on, they’ll want to connect to distant and rapidly growing data sources. Revenue for Intel’s Data Center Group is expected to jump 25% this year to $14.1 billion. Starting next year, Intel predicts about 15% yearly growth through 2018.

NOW THE BAD NEWS: Intel is on track to ship a promised 40 million tablet chips this year, versus just a million or so two years ago. But its mobile division will likely lose about $4 billion in the process. That’s partly due to “contra revenues,” which are effectively rebates to spur demand while Intel closes the cost gap to rivals on low-end multifunction chips.

Next year Intel expects the division’s loss to shrink by only $800 million. But by then, it expects to sell a full range of tablet chips, ranging from cheap models called SoFIA, which have integrated wireless function, to pricier Cherry Trail chips for zippy performance at low power. Analysts see the mobile unit achieving positive gross profit margins by 2016.

That sets Intel up for a gradual rise to $4 a share in earning power, according to Credit Suisse analyst John Pitzer. That includes $1.50 to $1.90 a share for the PC group, $1.55 to $1.70 a share from data centers, and pocket change from both share repurchases and the shift toward new connectivity for ordinary devices—what’s come to be known as the Internet of Things. Mobile only has to break even or come close.

JPMorgan predicts Intel will exit next year with $3 a share of earnings in sight. A 30% rise over the next two years would put shares at under 16 times, about where they trade now relative to this year’s earnings estimate.

Investors who have been put off by delays in production ramps for Intel’s latest chips should focus on the broader picture. Intel has a 3½-year lead over rivals like Taiwan Semiconductor Manufacturing, IBM, and Samsung Electronics in cutting-edge chip-making techniques, says Pitzer. It has built that lead at great cost.

Capital expenditures are expected to total almost 20% of revenue this year, versus an average of 16% over the past two decades. But that figure should decline starting next year, which should unlock more free cash for dividends and share repurchases. A six-cent dividend increase on Thursday, to 96 cents a share per year gives the stock a 2.7% yield.