Apple, no more blockbuster products

Posted by Ray on October 20, 2010 under Main | Be the First to Comment

Apple has been the alpha position to own in this market with virtually all mutual and hedge funds holding shares. It is not surprising since the company is on a roll with products and has great earnings, although I think the stock is way too expensive. I also seem to recall the last time all the ‘smart money’ was piled into just a few holdings like MSFT, INTC, and Pets.com (joking of course, but you get the point). That did not end well and I assume the same thing will eventually happen to Apple.

The iPod and iPhone took the world by storm, but the iPad seems less exciting for some reason and the Mac is just holding its own. Since the iPhone 4 there has not been anything else that the company has produced that seems exciting. The way the iPad quickly came to market it seemed like the company felt like it was forced to put the product out, it is just a huge iPhone. What has the company done to follow up on those blockbuster products? Not much. A new iPod Touch and now a new operating system for the Mac, hardly anything to get people really excited.

Without a new wonder toy I do not believe the company will be able to maintain its earnings growth momentum. Even if Apple launches the iPhone with Verizon it will surely be good in the short-term, for both companies, but I think you will just see more switching from AT&T to Verizon with people keeping their same iPhones that they got from AT&T, why spend more money since you just upgraded. Most iPhone customers have said that they would drop AT&T if Verizon or any other carrier offered the iPhone, which is why Verizon will get more subscribers, but the sales of new phones may be slower than most think.

Yes, I know new phones will sell, a lot of them at first, but, frankly, if people haven’t switched from Verizon to AT&T by now I highly doubt you will see the same success at Verizon. Not only that, but Verizon has sold, to happy customers, many Droid phones which means the iPhone does have competition on the shelf. So far it appears that the Droid type phones are gaining market share as well which probably explains why Apple inked the deal with Verizon.

In short, I think the iPhone at Verizon will be good for Verizon shareholders, but why would iPhone sales increase past a couple of quarters after the Verizon deal is done. The rush will be right away and then it will die down and people like me will not buy an iPhone because we actually like being able to talk on the phone. Verizon is the big winner out of all of this, I own shares in Verizon, and Apple, in my opinion, is simply trying to capture as much near-term success as possible since they have no new killer product to announce.

Of course, Apple does have China to sell its products to, but I think we may be surprised to see that the Chinese might not be as head over heels for Apple products as the yuppies and guppies are here in the states. Everyone has enormous price targets on Apple as well and any miss will be very painful for shareholders. I am also of the belief that when everyone agrees on something it is bound to do the opposite. The valuation of Apple is high and so is the beta, market weighting and its market cap, unless you believe Apple is more valuable than, say, IBM, I do not believe Apple is worth more than IBM, sorry.

I am well aware that being negative on Apple is just plain wrong and that people will undoubtedly flame me to death with their comments. However, that does not change the fact that the company is overvalued, doesn’t pay a dividend, has nothing Earth shattering in the pipeline and is doing what with its cash right now? Nothing. I do not subscribe to forward P/E multiples either so by all current metrics I wouldn’t touch it. Instead I would play Verizon instead and look for other companies that aren’t trading at crazy multiples, like Amazon or Salesforce.com… oh, wait, never mind.

Stick to income at a reasonable price like Verizon, BPT (BP Prudhoe Bay Trust) or commodities, specifically silver, and other soft commodities, it is too late for rare Earths. Yield plus inflation protection makes great sense right now, Apple just doesn’t.

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Smoot-Hawley Anyone?

Posted by Ray on September 29, 2010 under Main | Be the First to Comment

Here we are some 81 years after the Great Crash of 1929 and what turned out to be the beginning of the Great Depression which ushered in unusual monetary policy and solidified Keynesian economics. Part of the reason for the Depression was probably the best intentioned, yet most ridiculous, legislation which placed tariffs on imported goods, Smoot-Hawley. The idea was to protect America and to bring us economic riches, but the exact opposite happened. While not all of the Depression can be blamed on that legislation pretty much everyone agreed that it was a major contributing factor as it triggered trade wars. 81 years later and we are repeating the same mistake, politicians never, ever, learn.

I was shocked when the bill passed committee, well, not shocked, but surprised, but I am dumbstruck by the fact that it went to the House for a vote… and passed! I am referring to the brain child of Lindsey Graham and one Mr. Charles Schumer, 2 peas definitely not alike with the exception of being idiots. The bill I am referring to is Schumer-Graham, the new Smoot-Hawley, which will force Treasury to impose tariffs on countries they feel are manipulating their currency lower, in this case against China. One wonders if the U.S. will feel the wrath of the bill since we are sinking our own currency, but we would never manipulate our dollar lower, yeah, right.

I had spoke about a brewing trade war with China about a year ago as we leveled tariffs on some steel imports and tires. China responded with claims of dumping cars and chicken products and we retaliated, etc., etc. The politicians will not feel, yet, the fallout of this idiotic move, but the people who are struggling sure will. This will essentially guarantee that we will place tariffs on cheap products made in China, I wonder if the iPhone will fall in this category, which impacts the shoppers of Walmart the most, or Target or insert your favorite low cost store here.

I wonder, why does Washington hate the poor? Because that is exactly who they are punishing with this legislation, the poor. They will have to pay higher prices for what used to be low cost goods, money they do not have I might add. While the guise of this bill is to protect American jobs, read protectionism, it will likely do the opposite as China will retaliate in some fashion, I am sure of it. It also makes little sense to give your largest creditor a hard time and to alienate the fastest growing, or one of the fastest growing, economies in the world. Well, Washington is brain dead and probably never thought this far ahead, but still, how could they not?

China already made claims about other chicken products, this is a new claim a couple days ago, which shows that they are willing to do something to return the favor. What that is, who knows, but perhaps they will void more financial contracts with U.S. banks or ban some products. What I am sure of is this will pave the way for more protectionism worldwide and that is not good. You cannot legislate your way to prosperity and punishing a country for keeping their currency cheap is just wrong. I have stated many times before that a major revaluation of the yuan will lead to mass bankruptcies in China, but this is what the U.S. wants, not a strong dollar, but a strong yuan, who cares about the dollar anyhow.

It will not create jobs domestically for one simple reason, Vietnam has favorable currency rates, so does Indian, Indonesia, Peru, Mexico, Malaysia and many other countries. What are we going to do when our corporations move to these other countries? Are we going to tax them or simply place general tariffs on the products manufacturer there? Are you getting the point yet? Capital will flow to the next easier place to do business and Congress can continue to throw up road blocks, but they will fail. Not to mention that we want to double our exports in 5 years, according to Obama, and if we slap China do you really think they will let us have free reign or trade with them? Nope.

This is a job killer and will turn the troubled economy into deeper mud, there is simply no way to deny this. I just cannot believe Congress passed this bill this far, it makes zero sense. I know the Democrats are desperate for votes and this is a populous bill, but most people will see it, if they at least paid attention in high school history class, as a major problem for us. Especially since most Americans know China is our largest lender. Worse is that only 70 or so in the House voted against it… how can there be that many stupid people in Congress?

The bottom line is that our sugar daddy is going to be upset and probably cut us off because of this. We will now have fewer jobs and little financing of our massive deficits. Nice job guys, perhaps you would like to come to each Americans home and kick them in the shin as a follow-up because I do not see how they can top this idiotic move.

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If you just got worried…

Posted by Ray on July 21, 2010 under Main | Be the First to Comment

If you are just getting worried now about the economy over what Ben Bernanke said about the economy in today’s testimony I have to ask, where have you been? Did you not read the Fed minutes when they came out? Have you not read any of the economic indicators that have been showing we are heading for a slowdown? How about IBM’s cautious warning or other firms who are being cautious about the immediate future?

My point is simple, the data is fairly clear, a slowdown is coming, period. Double dip? Probably, but we will not know for some time now. However, it is likely we are facing severe challenges moving forward and Ben is scared, he is out of ammo and he knows it. Everyone is speculating and asking what he is going to do to spur the economy ‘if’ it weakens which is an absurd question because it is weakening and what is Ben doing? Nothing, why? Because he can’t.

Sure, he can stop paying interest on bank reserves, but banks will not lend because they are impaired still, he admitted that today. Plus, banks will just turn around and buy treasuries because lending is just too risky right now which is why banks are not lending, on top of their balance sheets being loaded with debts marked to make believe. Everyone also believes quantitative easing is on the way, but it is not. I have said this many times before and will say it again, QE accomplished its goal, lowered mortgage rates, treasury rates and the dollar. I ask, what direction are mortgage rates, treasuries and the dollar headed? We are out of the “liquidity” crisis part of our issues and are into the nobody wants to buy anything part of the problem, QE will not solve that problem.

Earnings season is a dud, period. I know, Apple, Apple, big deal they have the hottest products out right now and you expected them to fail or something? The question you have to ask yourself id this, what can Apple do next? They clearly had to push the iPhone 4 out and the iPad is something they really did not want to do, they were forced into it because they were told to by the geek squads. What product do they have next up their sleeve? Nothing so you better hope a whole lot of people want to keep buying an iPhone that doesn’t really work as the title implies. Outside of Apple we had a couple of other standouts in the earnings department, but more misses than anyone wants to admit. There were lots of revenue misses which means cost cutting worked, but poor sales are still poor sales. The Fed cannot stop that people.

If you were not nervous before you should be nervous now, but I have no idea why you were not nervous before. All the speeches or all the rigged stress tests in the world will not change the facts, the economy on a global scale, is slowing down. Even China says that Europe’s problems are creating big problems, like I forecasted previously, for their exports. How much do you want to bet that the Yuan strengthens further? I do not believe China is slowing down as much on purpose as much as China is just slowing down, but time will tell there. The real question is, if China does slow significantly more than forecasted what happens to the rest of the world? Answer, it isn’t good.

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