Beware of rising interest rates and falling U.S. dollar: Gross
Bill Gross of PIMCO, manager of the world's largest bond fund, said on Bloomberg TV that investors should consider bonds denominated in non-dollar currencies that will hold their values like the Canadian dollar, Mexican peso, and the Brazilian real.
He also favors floating-rate bonds and playing credit spreads (i.e., the difference in the yields of bonds with the same maturity but with different credit quality) over investing in fixed-rate bonds.
Gross' recommendations stem from his concerns about rising interest rates and the decline of the U.S. dollar. These views are in turn shaped by his negative views of U.S. economic policy.
Gross took shots at President Obama's recent compromise with the Republicans as an example of misguided government policy.
Obama's plan extended income tax cuts, put in place a payroll tax cut, and extended unemployment insurance benefits. Many prominent economists applauded the direction of this plan because it will boost the economy in the short-run, even though it will also increase the budget deficit.
Gross sees it in a different light.
He thinks the short-term boost is just another misguided program of borrowing from the future in order to spend in the present. Framing it in the context of the jobs market, it's sending the unemployed to shopping malls and grocery stores instead of giving them jobs.
A better plan, according to Gross, would be investing in capital equipment and education in order to raise the long-term competitiveness of the U.S. economy; doing so will also create more jobs.
Obama's misguided policy is one reason Gross thinks the U.S. dollar will continue to devalue and interest rates (the borrowing cost of the U.S. government) will continue to rise.
The Federal Reserve's second round of quantitative easing (QE2) is another reason.
Back in November, Gross called the program a Ponzi scheme and said it signaled the end of the 30-year trend of falling interest rates.
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From all accounts it appears that the world is in the early stages of a major leg up in food prices. The major macroeconomic trend will likely drive economic policy and the investment outlook for years to come. Although mainstream pundits like to focus on cyclical drivers like the weather, the real force behind the move is secular. The U.S. is leading the world in a pandemic of monetary inflation that is helping to cause commodity prices, food in particular, to skyrocket across the globe.
The Federal Reserve's monetary excess is currently being magnified by China's misguided currency peg policy. As the United States debases its currency through excess printing, China must follow suit. In order to maintain a consistent relative valuation, China must adopt the monetary policy of the United States.
Just last week, China announced that in the 4th Quarter 2010 its foreign currency reserves leapt by $199 billion to $2.85 trillion. The increase was much larger than economists expected, and suggests that China is printing as much as $2 billion worth of RMB per day in order to buy dollars to maintain the peg. The big problem is that China, with a booming economy, is adopting a monetary policy of an economy that is contracting. This is the perfect recipe for inflation.
And it's not just China that is enforcing a currency peg. Many other countries intervene in the forex market when they feel their currency has risen too high against the greenback.
For example, the Chilean currency gained 17% in value against the USD in just 7 months during 2010. The surging currency underscored the country's status as an emerging markets success story. But that condition abruptly ended last week when Chile's central bank pledged to intervene in the local currency market by increasing foreign currency reserves by $12 billion in 2011. After the announcement, the currency predictably dropped against the dollar and caused a major sell-off in Chilean equities.
The specious idea behind this action is that foreign governments believe that by keeping their currencies cheap they can bolster exports and maintain a strong economy. But a rising currency does not necessarily restrain exports. If those countries currently committed to pegs were to reverse course, their problems with local inflation could diminish. And those lower prices could offset to a certain degree the decreasing purchasing power experienced by the importers of those countries' domestic goods.
However many countries fail to understand this basic economic concept and fail to see the forest for the trees. By stubbornly clinging to the belief that a rising currency is bad for the economy, world economic leaders are helping to unleash a wave of inflation.
Typically, food prices are more volatile than prices for finished goods. It is there that this new wave of inflation is first manifested. Unfortunately, this means that the poorer people around the world, who pay a higher percentage of their income for food, will bear the brunt of the pain. A quick look at some alarming movements in food prices should give you a sense of how bad things are getting:
- Sugar was up 25% in 2010.
- Corn and wheat were up 53% and 49% respectively in 2010.
- Soybeans were up 28% in 2010.
- In December, the U.N.'s Food Price Index, which covers dairy products, meat, sugar, cereals and oilseeds, jumped an alarming 4.2% from the previous month. In so doing the Index passed the previous peak set in June 2008.
- India's food price inflation rose to a one-year high of more than 18% according to data released in early January. Rising food and energy prices in India have convinced many analysts that the Indian central bank will raise rates later this month.
- In China, food prices rose 11.7% from January to November 2010. In response, several cities have implemented direct controls to limit food price increases and the central government has vowed to eliminate speculation in the country's commodities markets.
Of course, global currency depreciation has also caused other commodity prices to rise. Food production is extremely energy intensive, and $90 per barrel oil has helped push food prices to new all-time highs.
The surging cost of fertilizer, driven in large part by U.S. ethanol policy, is also adding another driver to rising food costs. According to the EPA, ethanol sales in the United States are expected to rise to 13.9 billion gallons in 2011 from 12.95 billion gallons in 2010. The agency is requiring that renewable sources account for at least 8 percent of motor fuels sold in 2011. Congress is requiring that U.S. annual ethanol production increase to 36 billion gallons by 2022. With nearly 40 percent of the U.S. corn crop currently diverted to ethanol, the demand for fertilizer is likely to increase substantially.
Prices are already on the move. Mosaic, one of the country's largest fertilizer corporations, sold diammonium phosphate for $461 a metric ton in the fourth quarter, up 61 percent from a year earlier.
Admittedly, there are other non-inflationary factors that are boosting global food prices. For instance, poor weather conditions in major exporting countries across the globe have significantly curtailed harvests and expectations. And alongside bad weather in Australia, Europe, North America ,and Argentina, rising Asian demand is at the heart of the spike. China, for example, is expected to buy 60 percent of globally traded soybeans in 2011/12, which is double its percentage of four years ago.
But the genesis of soaring food costs lies at the feet of Ben Bernanke and his desire to re-ignite inflation domestically. However, countries like India and China have already started to reverse the inflationary effect of linking their currencies to the USD and are raising banks' reserve requirements and interest rates. Contrast those actions with those of our Fed chairman who has repeatedly stated that inflation in the U.S. is far too low. We can only hope Mr. Bernanke repents from his love affair with inflation before food riots land on U.S. soil.
In the meantime U.S. investors can help mitigate their exposure to rising food costs by perhaps looking to invest in those firms whose financial performance improves with rising food prices.
DuPont earnings fall; cuts '09 outlook
Chemical maker DuPont
First-quarter net income fell to $488.0 million, or 54 cents a share, compared with $1.19 billion, or $1.31 a share, last year. Sales fell 20 percent to $6.87 billion.
Analysts, on average, forecast earnings of 52 cents a share, before items, on revenue of $7.44 billion, according to Reuters Estimates.
For full-year 2009, the company expects earnings to be between $1.70 to $2.10 a share, down from its earlier forecast of earnings to be in the range of $2.00 to $2.50 a share.
The revision anticipates that weak demand across key markets will continue throughout 2009, the company said in a statement.
Analysts, on average, were expecting full-year 2009 earnings to be $1.88 a share.
DuPont shares, which rose 13 percent in the last three months, closed at $26.74 Monday on the New York Stock Exchange. In the last 52 weeks, the stock has traded in the range of $16.06 to $52.34.
(Reporting by Hezron Selvi; Editing by Derek Caney)
Dollar Uncertain in Choppy Dealing Tuesday Morning
The dollar was little changed in choppy dealing versus most other majors Tuesday morning in New York as traders tried to get a handle on another mixed bag of corporate earnings results. With little first-tier economic data to consider, attention will likely turn to Wall Street to see whether stocks extend their big losses from the previous session.
Fear that the recent bear market rally has petered out fueled increased risk aversion on Monday, driving the dollar higher against the euro but sharply lower against its Japanese counterpart.
Treasury Secretary Tim Geithner is expected on Capitol Hill for a hearing on oversight of the government's $700 billion bailout program at 10 a.m. ET.
There are no key economic reports due to released on Tuesday. Reports due later in the week include the Commerce Department's durable goods orders report and industry data on existing homes sales.
The dollar consolidated its recent gains versus the euro Tuesday morning, holding near yesterday's monthly high of 1.2887. Approaching mid-morning, the dollar was trading at 1.2950.
The Center for European Economic Research, or ZEW, said in a report that its economic sentiment index for Germany rose to 13 in April from minus 3.5 in March. Meanwhile, economists had expected the index to rise to 2. The indicator marked a positive reading for the first time since July 2007.
After coming under pressure in very early dealing versus the sterling, the dollar was able to find its footing and was down only slightly from yesterday's 3-week high of 1.4467. Nearing 8 am ET, the buck was trading at 1.4525.
A report from the Office for National Statistics said UK's annual inflation in March eased to 2.9% from 3.2% in February. The annual rate came in line with economists' expectations and reached the lowest since March 2008. The largest downward contribution to the change in the CPI annual rate came from housing and household services.
The dollar was stable versus the yen Tuesday morning after falling below a recent trading range yesterday. The buck fetched 98 yen in early dealing, an improvement from Monday's 3-week low of 97.64. With traders betting the dollar was overbought following a run to a 3-month high of 101.43 earlier this month, traders are turning to the yen as a value hedge play.
Commodity prices stabilized Tuesday morning after falling sharply Monday on renewed concerns about global demand. As such, the dollar leveled off against resource-linked currencies like the loonie. Approaching mid-morning, the dollar was near 1.2400, having snapped back from last week's 3-month low of 1.1982.
Later this morning, the Bank of Canada makes its latest interest rate decision. Economists expect the BoC to hold steady at 0.5 percent.
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iPhone 5 Concept - Design by HandyFlashThis ultra-thin concept developed by HandyFlash shows what a millimeters-thick iPhone would look like next to a cup of coffee and a spoon.
Since Apple introduced the first iPhone in June 2007, one question has dominated the conversation: When's the next one coming out?
From 2007 to 2011, Apple treated customers to a new iPhone experience in either June or July. Yet, the company's most recent iPhone, the iPhone 4S, was released in the fall, which throws off the pattern a bit. Now, customers don't know when to expect the next one, the sixth-generation iPhone, the iPhone 5: Will it be in June, or October?
While Apple keeps its lips sealed until the official unveiling, there are plenty of reasons why consumers shouldn't expect a new iPhone to debut in two to three months. The iPhone 5 is coming, but it's coming in October at the latest, not June. Here are five reasons why:
1. The 11-month pattern. Up until last year, each iPhone was released roughly one year apart, but why was the iPhone 4S released in the fall instead of summer? While there is no clear reason why the 4S was the only iPhone released in the fall, analysts believe the Cupertino, Calif.-based company attempted to implement LTE into the phone, and failed.
Even though LTE features significantly higher speeds compared to 3G networks, the first implementations of LTE in smartphones ravaged battery life, which was a key complaint from users. Apple wanted the fastest networks for its customers, but the only way to fit LTE into the iPhone 4S would've been to increase the phone's thickness to accommodate a larger circuit board and a bigger battery. Apple CEO Tim Cook, in a company earnings conference call in April 2011, said first-generation LTE chipsets force a lot of design compromises.
The iPhone 4 PCB [printed circuit board] is already incredibly small, not leaving any room for an extra chip to enable LTE without shrinking the size of the battery, said Anand Shimpi, a chip expert and CEO of Anandtech.
Fortunately, Qualcomm recently unveiled the fifth iteration of its new chip, which supports TD-SCDMA, TD-LTE, HSPA+, EV-DO, embedded GPS, and LTE on TDD and FDD networks worldwide. The chip works with Android and Windows 8 devices, but there's a high degree of likelihood that this will be the same chip inside the iPhone 5. Yet, the chip was only released in February, so Apple likely needs ample time to test the LTE chips inside the iPhone 5 before they're implemented.
Furthermore, Qualcomm said on Friday that it's having trouble meeting demand with its most advanced LTE chips, which means that Apple will almost certainly be unable to rollout millions of new iPhones with the LTE chips by June.
2. Capitalizing On The iPhone 4S. If it ain't broke, don't fix it. Apple released a new iPhone every summer to record-breaking success, but the first-ever fall release for an iPhone with the 4S proved to be even more lucrative. Sales of the iPhone 4S and its main feature, the AI personal assistant Siri, were largely responsible behind the best quarter in Apple's 35-year history for Q1 2012, claiming $46.33 billion overall, $13.1 billion in profit and $17.5 billion in cash for the quarter that ended Dec. 31, 2011. Some of that money and attention is also owed to the immense outpouring of sympathy following the death of the company's co-founder and chairman, Steve Jobs, but ultimately, people stood in line for iPhone 4S units because they wanted the phone.
Even though Apple could always return to its summer schedule, it likely wants to give the fall a try. Maybe Apple prefers using the summer to build hype around the iPhone, but in all likelihood, Apple wants to give itself plenty of time to consider each iPhone design. As Apple designer Jony Ive once mentioned, the company always builds lots of models of every iDevice, but it won't ship it without good reason. The company won't rush to get an iPhone in for WWDC in June unless it's ready; Apple applies deadlines to itself, and it owes nothing to the public if it's late with an iPhone. It will ship, as all great artists do, but consumers will appreciate the extra time and care given to the next iPhone.
3. Christmas sales. Even if Apple couldn't realistically ship the iPhone 4S any sooner than October, that fall release proved to be the best thing for the company. Sales hit an all-time high, but more importantly, Apple learned that an iPhone released near Christmastime is a gift unto itself.
Releasing the iPhone 4S in October was perfect timing for Christmas. The iPhone 4S was released on Oct. 14 but, as always, there were several weeks of backorders. But luckily, by the time iPhone 4S units were back on shelves -- around mid-November -- it was time for Christmas shopping.
Santa had a lot of iPhone 4S units to deliver. In addition to being the No. 1 item on teens' and young adults' wish lists for the 2011 holiday season, the iPhone 4S was one of the bestselling items before, during and after Christmas.
In fact, Apple broke its single-day sales record on Black Friday (Nov. 25), reaching its projected forecast by 7 p.m. and far exceeding those figures by the end of the day. Even though its product discounts were far from extraordinary, Apple again offered free shipping for all its products, as well as free engravings on the back of its iOS devices. Coupled with the fact that Apple rarely doles out discounts, consumers jumped at a chance to own Apple's stylish devices. Apple was the fifth-most visited online retail store that day, behind Amazon, Wal-Mart, Best buy and Target.
The company's bestselling item was the iPhone 4S, which got a boost from Siri. In the quarter, Apple sold two million more smartphones than Samsung, the company's prime competitor,shipped.
As if 2011 wasn't enough of a reason, it makes logical sense to release a new iPhone around Christmas. Everyone wants the latest technology for the holidays, be it a new video game, or a camera, or a tablet, laptop, or smartphone. The holiday season is all about getting the big gifts, and usually those are gadgets and gizmos. Christmas excitement and iPhone hype can be a dangerous combination, but if Apple wants to create noise with its iPhone launches, it would be crazy to distance itself much further than September or October for the release; again, if last year's formula worked so well, why fix it?
4. Apple's product schedule. Apple had an incredible spring with the launch of the new iPad, which was met with rave reviews across the board. From a marketing and revenue standpoint, Apple has no reason to try and steal its own thunder by releasing an iPhone release so soon.
On the contrary, recent news suggests the next Apple product to be rolled out will be a brand-new line-up of MacBook Pro laptops, which are said to be thinner, lighter, and much faster than previous models in connection and processor speed. If Apple releases the new laptops in either May or June, which many expect them to since they've started disappearing from the shelves of big-box retailers, that event -- in conjunction with the release of Mac OS 10.8 Mountain Lion -- would carry Apple into the fall. Just in time a holiday smartphone launch.
5. The Ritchie Rule. Earlier in April, Reuters reported Apple pegged the iPhone 5's release date around the second quarter of 2012. While this report would mean a release in June or July, contradicted what supply chain sources told the Japanese blog Macotakara, which said Apple would release the iPhone 5 in September or October, effectively abandoning mid-year iPhone launches for a 11-month upgrade cycle starting in the fall.
Of the two reports, it was Macotakara's that was backed by Rene Ritchie, the editor-in-chief at iMore. On March 23, Ritchie said the iPhone 5 will be released in October 2012.
When all else fails: follow the Ritchie Rule, which is, Believe Ritchie. In recent years, Ritchie's track record with Apple news has been stellar. Last August, Ritchie correctly reported Apple's next iPhone would be unveiled in the first week of October, but while all other reports called the speculative device the iPhone 5, Ritchie was one of the only individuals who called it the iPhone 4S. More recently, Ritchie also correctly pegged the new iPad's unveiling on March 7.
Of the limited number of reports out there, Ritchie can be trusted. He has valuable sources from within Apple, and his reports have always been highly reliable and accurate. And again, given the schedule of other Apple products in 2012, it makes the most sense to hold onto the iPhone and release it the closest to the holiday season when it has the most likelihood to gain traction with all age groups.
Other Features, Specs To Look For In The iPhone 5
Bigger screen. On March 21, Apple had reportedly ordered 4.6-inch screens, to be featured in the company's next iPhone. The report came from a South Korean publication, the Maeli Business Newspaper, which quoted an unnamed industry source, according to Reuters. But just two days later, iMore's Ritchie said the iPhone 5 would keep the same 3.5-inch screen -- the same size as all previous generation iPhones -- but said it could get a little bigger than its predecessors, although not nearly as big as the 4.5-inch-plus Android smartphones..
So who to believe, the Maeli Business Newspaper, or our old pal Ritchie? The truth seems to lie somewhere in the middle. In early January, as Apple was reportedly gearing up to begin production on the iPhone 5. A source from within China's Foxconn manufacturing plant told 9 to 5 Mac that various sample iPhone 5 prototypes were floating around the factory floor, but there were a number of common features among the phones, including a display that measured at least 4 inches, and a longer and wider form factor that did not match that of the iPhone 4 or 4S. The Foxconn sources believed the iPhone 5 would retain the rectangular shape of its predecessors, which, if true, would put to bed any rumors of a slimmer teardrop design.
OLED Display. Apple is reportedly testing iPhone 5 prototypes with an A5X chip, which is the quad-core graphics processor used to power the Retina Display in the new iPad. But why would Apple need such a powerful chip for an iPhone? Given that the A5X chip is a graphics powerhouse, if Apple doesn't drastically change the physical size of the screen to 4.6 inches, it may be changing the display's overall quality.
On April 4, the Korea Times reported that Apple is interested in switching from LCD to OLED displays for its next round of iPhones and iPads. The reason behind the potential move would be Samsung, which recently launched its spinoff company called Samsung Display that aims to pivot away from LCD to focus more on OLED technology. Apple is by far Samsung's biggest customer: The Cupertino, Calif.-based company bought $7.8 billion worth of components from Samsung in 2011, ranging from memory chips to LCD panels, but the company will reportedly buy $11 billion worth of parts this year, which could mean Apple is buying more expensive display material.
Apple has plenty of money to afford OLED screens in an iPhone-sized display, and it would make sense for Apple to ask Samsung to help build its iPhone 5 displays. Samsung knows how to build big, beautiful screens for any size device: Just imagine what Samsung could do with Apple's Retina technology implemented into an OLED. Apple would effectively put distance between the iPhone and all other smartphone competitors for another five years, at the very least.
Liquidmetal Encasing. Apple may make its next iPhone considerably thinner and lighter thanks to some recently-licensed patents for liquid metal, which the company acquired in 2010 from Delaware-based Liquidmetal Technologies. The report comes from a Korean publication called ETNews, which cites industry sources.
The next flagship phones of [Apple and Samsung] are expected to adopt unprecedented materials for their main bodies, that is, ceramic for the Galaxy S3 and liquid metal for iPhone 5, both being thin, light and highly resistant to external impacts, said ETNews' Kim In-Soon. The new phase of the rivalry is because neither one of them can get a decisive edge over the other solely with its OS and AP specifications, features or design.
Apple acquired the licensing rights to various patented amorphous metal alloys from Liquidmetal Technologies in August 2010, but ETNews claims Apple will create a liquid metal alloy of zirconium, titanium, nickel and copper to create an outer surface smooth like liquid.
LTE Connectivity. It's already a foregone conclusion that Apple will implement radio bands for 4G LTE in the iPhone 5, given that Apple introduced the high-speed network on its new iPad, released on March 16, which was likely done as a practice run.
LTE features significantly higher download and upload speeds compared to 3G technologies, but previous implementations of LTE in smartphones tended to ravage battery life, which was a major complaint from users. If Apple wanted LTE in the iPhone 4S at the time, it would have been forced to increase the phone's thickness to accommodate a larger circuit board and a bigger battery. Apple CEO Tim Cook, in a company earnings conference call in April 2011, said first-generation LTE chipsets force a lot of design compromises.
The iPhone 4 PCB [printed circuit board] is already incredibly small, not leaving any room for an extra chip to enable LTE without shrinking the size of the battery, said Anand Shimpi, a chip expert and CEO of Anandtech.
Fortunately, Qualcomm recently unveiled the fifth iteration of its new chip, which supports TD-SCDMA, TD-LTE, HSPA+, EV-DO, embedded GPS, and LTE on TDD and FDD networks worldwide. The chip works with Android and Windows 8 devices, but there's a great chance this will be the chip inside the iPhone 5.
The iWallet. Apple won a major patent on March 6 for a piece of technology called the iWallet, which is a digital system that gives users complete control over their subsidiary financial accounts on their iPhones, and also leverages Near-Field Communication (NFC) technology to complete credit card transactions directly on the phone as well. The iWallet has many different features, including giving users the ability to see their entire credit card profiles, view statements and messages from their banks, and even set parental controls for their children, should they also want to use their iPhones as digital wallets. Outside of the iPhone, users can keep track of their payments and statements within the iTunes billing system, which keeps credit card information and records safe and secure. There's a possibility that iWallet could also work with other Apple utilities, which could allow users to buy things like movie tickets directly within the apps, but only time will tell with that one.
3D Photography. Some may say 3D technology is nothing new, or possibly even overdone; Apple would argue that's nobody has done it right. Yet.
Apple says that while existing 3D cameras and video records can get three-dimensional information from bojects, they're generally incapable of getting detailed enough information in relation to the shapes, surfaces and depth of the objects. Apple's solution involves a series of systems, tools and methods to capture a 3D image by using multiple sensors and cameras. One sensor would capture a polarizing image, while two other sensors would capture two different non-polarizing images, and Apple's system would combine the images into a composite.
Apple has another solution involving different specialized sensors for capturing the image's surface information, color imaging and luminance, and combining the data into another composite that has information about the depth and plurality of surfaces. Together, these systems and methods of capturing light and image information would create an incredible 3D image that can be seen without glasses.
Advanced Haptics. In the days before Apple unveiled its new iPad in March, a rumor from left field said Apple would implement an advanced haptics system into the iPad, which would give users the sensation of texture when they touched an object on the screen. Android devices currently have a type of feedback when you press a button on a smartphone, so it's possible Apple will one-up its most fierce rival with unrivaled touch technology.
A touchscreen that created the sensation of textures would be an incredible piece of technology, but we're hoping Apple completes the puzzle with one important piece of technology from Microsoft. In mid-March, Microsoft engineers unveiled a lag-free touch screen that responds to your finger's touch in less than one millisecond. Current Apple devices only have a minor lag with their touchscreens, but this minor adjustment would make users feel like they're really touching their work, drawing a picture, or handwriting a note. Apple has proven to us time and again that simplity is the key to an enjoyable experience, but speeding up the touchscreen would make the already-popular iPhone into the best touchscreen experience ever.
Multi-player gaming. The iPhone 5 might also be the first phone to feature a new piece of software for multi-player gaming. On March 15, the U.S. Patent and Trademark Office published a patent application from Apple that describes a system for multi-player gaming, which allows groups of people to play the same game together and even see it from different perspectives according to the devices' physical relation to one another. The system actually mimics that of the Find My Friends app, in which a user's device detects other nearby devices that it recognizes as friends, and invites them to all join a common application. The technology also determines the relative position of those devices, so some games -- like turn-based role-playing games or card games -- can be played in a specific order.
Crack-proof glass. Apple's patent for crack-resistant glass, granted on Nov. 15, uses the same alumino silicate glass solution used in the iPhone 4 and 4S, but chemically treats it with potassium and sodium ions to achieve greater compression thresholds on the surface and edges of the glass, making it less susceptible to cracks.
Apple also included a handy feature that will appeal to everyone who's ever dropped their iPhone: The patent calls for a shock mount to be placed between the glass and the body of the device, which will instantly inflate if the device senses it's falling. If the iPhone's internal accelerometer senses it's falling, an actuator within the device sucks in the cover glass as it accelerates to the ground, protecting it from damage.
What else would you like to see in the iPhone 5? Would you rather see the iPhone 5 released earlier, or later for the holidays? Let us know in the comments section below.