Corporate earnings are up big! Great! Buy! No wait! The economy is going down the toilet! Sell! Buy! Sell! Buy! Sell! Help! Anyone would be forgiven for thinking that the stock market has become bipolar. There is, in fact, an explanation for this madness. According to the Commerce Department?s Bureau of Economic Analysis, the answer is that corporate profits accounts for only a small part of the economy. Using the income method of calculating GDP, corporate profits account for only 15% of the reported GDP figure. The remaining components are doing poorly, or are too small to have much of an impact. Wages and salaries are in a three decade long decline. Interest and investment income is falling, because of the low level of interest rates and the collapse of the housing market. Farm incomes are up, but are a small proportion of the total. Income from non-farm unincorporated business, mostly small business, is unimpressive. It gets more complicated than that. A disproportionate share of corporate profits are being earned overseas. So multinationals with a big foreign presence, like Apple (AAPL), Intel (INTC), Oracle (ORCL), Caterpillar (CAT), and IBM (IBM), have the most rapidly growing profits and pay the least amount in taxes. They really get to have their cake, and eat it too. Many of their business activities are contributing to foreign GDP?s, like China?s, much more than they are here. Those with large domestic businesses, like retailers, earn far less, but pay more in tax, as they lack the offshore entities in which to park profits. The message here is to not put all your faith in the headlines, but to look at the numbers behind the numbers. Those who bought in anticipation of good corporate profits last month, got those earnings, and then got slaughtered in the marketplace. Buyer beware.
I am completing one of the best trading years of my 45-year career in the stock market. The Trade Alert service is up by a stunning 41.5% so far in 2013 and by 96.55% since inception 35 months ago.
Pretty much every forecast I made for the year came true (click here for ?My 2013 Annual Asset Class Review?). The question now is: ?What to do here??? How do I beat the performance of the ages?
It seems that the world has come around to my point of view on virtually every asset class. Stocks are soaring, lead by the sectors I suggested, technology, industrials, health care, and consumer cyclicals. Since I wrote ?Apple is About to Explode? the shares have been up nine consecutive trading days, and are now 36% above its June lows.
Commodities have, at last, begun their long crawl off the bottom, with copper producer Freeport McMoRan (FCX) massively outperforming the market since August. Gold, silver, and the agricultural commodities have been dead in the water, as expected. Bonds are going nowhere. Oil is falling, as it should. It took a poison gas attack to squeeze me out of my short position there, (thanks a lot Bashar!).
The Washington shutdown came to a big nothing, and translated into ?BUY,? as I expected. Of course, the data flow is going to be gobbledygook for the rest of the year, as different parts of the economy shut down, restart, and then report at different rates. Only privately sourced information, like corporate earnings and the endless torrent of real estate numbers, will be reliable. You can bet that the Federal Reserve is watching these numbers more than usual too.
It looks like we lost about a fifth of our economic growth for the year, while achieving absolutely nothing. For this, the Republicans will have hell to pay next year. More on that later.
There is only one problem with this scenario. When the world agrees with me, I get nervous. Much of my money is made betting against the consensus, not agreeing with it. I am getting run over by bulls on stocks catching up with me from behind. As a result, I have sold out of all of my positions and let my remaining options positions expire well in-the-money. For the first time in years, I am 100% cash. What a bizarre feeling.
Any experienced, seasoned trader will tell you that the best thing to do now is nothing. Maintain your discipline and don?t chase. Buying something that is up ten days in a row is idiotic. Leave that behavior to the wanabees, newbies, and dummies. Just wait for an extreme move in something, anything, and then go the other way.
Let?s take a look at corrections in the S&P 500 this year, which have been few and far between. It has been a market where once you got out, it has really been hard to get back in. Someone else always came by to take your seat. Here were those rare points:
May - 8%
July - 4.7%
September - 4.6%
The primordial, lizard brained trader will look at this chart and come to the same conclusion, regardless of its ticker symbol. They?ll buy once on a 4.6% dip, double up on an 8% dip, and place a stop loss order not far below there.
If the market continues to run away to the upside, then just sit back and watch it. If you already have a monster year, and you should if you have been following the advice of this letter, that?s fine. Let your friends pick up the tab for the next dinner.
Some of the indicators I follow are starting to shout about a top. Individual margin debt is at an all time high. And my buddy, Henry Blodget, of Business Insider sent me the chart below. It shows the funds held in Rydex money market funds, one of the best contrarian indicators out there.
Peaks in assets held by this very low risk family of funds are highly coincident with stock market bottoms, the last two of which were found in November, 2012 and July, 2013. The markets roared after that. Bottoms of assets held in the Rydex funds very roughly coincide with stock market tops, although they may take months to play out. This presages a selloff in risk assets that could start at anytime.
Sometimes, discretion is the better part of valor.
https://www.madhedgefundtrader.com/wp-content/uploads/2013/10/Airplane-Seat.jpg440330Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2013-10-22 09:02:352013-10-22 09:02:35What to Do Now?
You have to be impressed how Apple shares have been trading during the Washington shutdown and the debt ceiling crisis. While other highflying technology stocks have crashed and burned, Apple has held like the Rock of Gibraltar. Is this presaging much better things to come?
After the bar was set extremely low in the run up to the iPhone 5s launch, there has been an onslaught of good news. The first weekend sales came in at a staggering 9 million units, nearly double analyst forecasts. That?s a lot of units to be wrong by.
This has led to a series of broker upgrades by Cantor Fitzgerald, Cowen & Co., Piper Jaffray, Sanford Bernstein, and most recently by Jeffries. Entrenched bears are slowly an inexorably turning into bulls. Targets range up to $780.
During the summer, when the shares were trading in the low $400?s, Apple emerged as the largest buyer of its own stock. Still, it only made a dent in the $60 billion the company has dedicated to the program.
Of course, corporate raider and green mailer Carl Icahn (he lived in my building in Manhattan and was always a bit of a jerk) wants Apple to buy $160 billion of its stock, about $36% of the total market capitalization. But with a position of only $2 billion, Carl doesn?t have enough skin in the game to get anything more than a free dinner from CEO Tim Cook. Still, the more Icahn bangs the drum about the value of Apple, the more money he sucks in. His blustering has probably added about $50 to the stock price. That works for me.
Like the Origin of the Universe and the 105-year long losing streak suffered by the Chicago Cubs baseball team, the cheapness of Apple shares is one of those mysteries that baffle investors. Sure, you?d expect some natural profit taking after the meteoric 15 year run in the shares, from $4 to $707. But 46% is a lot, and many would say too much.
The company earns an eye popping net profits of $3.5 million per business hour (click here for the most recent quarterly announcement). Some one-third of it capitalization, or $150 billion, sits in cash in European bank accounts. That works out to $165 of the current $490 share price. This brings the ex cash trailing price earnings multiple down to a subterranean 11.8 times, or a 25% discount to the 16X market multiple. The dividend yield of 2.5% still exceeds that of the ten year Treasury bond. This is absurdly cheap.
Anyone who makes their living looking at the numbers has been loading up on the stock for the past eight months. Even permabear and short seller, Jim Chanos, has been buying on the theory that both Apple and competitor Samsumg together have been demolishing the Wintel architecture.
I think there is something important going on here. Apple is bringing out the next generation iPad in two weeks. Product refreshes for the iMac, Macbook, and Airbook in coming months are already well known. Every time an announcement of an announcement is made, the stock spikes $10.
But the 800-pound gorilla in Apples earnings stream is the iPhone, which accounts for more than 70% of its profits. The wildly successful 5s and 5c launches will take total smart phone sales from around 36 million in Q3 to at least 56 million units in Q4. The analyst community is nowhere near these numbers, so they are substantially underestimating the profitability of the company.
Apple has already cracked the China market for cash buyers with the latest upgrade of its wireless operating system. The whale here is a deal with China Mobile (CHL) with its 740 million customers, which has been to subject to on again and off again negations for years. Still, Apple has already told its manufacturers to add China Mobile to its approved carrier list.
I think the stock is beginning to discount pending the launch of the iPhone 6, which is still a distant 11 months away. That will take the company another generation ahead, with an expansive six-inch screen and a blazing fast A8 processor, leaving competitors in the dust. The business is so big that my favorite airline, Virgin America, has initiated nonstop service from San Francisco to Austin. I?m told the plane is always full.
All of this leads me to believe that Apple will be a major mover in 2014. The chip shot is $600, and we get a real head of steam into the iPhone 6 rollout, we could match the old high at $707. You can buy the stock here with some conform. If you are hyper aggressive, try playing the weekly call options on the next breakout. The more cautious can settle for the Technology Select Sector SPDR ETF (XLK), or the ProShares Ultra Technology 2X leveraged ETF (ROM). Apple has major weightings in both of these ETF?s.
https://www.madhedgefundtrader.com/wp-content/uploads/2013/10/Gibraltar.jpg331496Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2013-10-11 01:03:242013-10-11 01:03:24Apple is Ready to Explode
Apple?s (AAPL) report this morning that it sold a stunning 9 million model 5s and 5c iPhones has bowled over even the company?s most optimistic cheerleaders and sent the bears running. The consensus estimate had been only for 5 million units. At the opening highs, shares were up $30 to $497, well above the $468 that prevailed at my September 11 Trade Alert to buy the calls.
The blowout success emboldened Apple to substantially raise its Q4 guidance. Forecast revenues were quickly taken up from $34 to $37 billion, while margins edged up from 36% to 37%.
Analysts complained that the company muddled the numbers by simultaneously launching two new phones and retiring one. Certainly that generated some Apples to orange comparisons (no pun intended!). But the bottom line here is that this was a spectacular launch.
There are a number of reasons why both the analyst community and Wall Street got this so wrong. For an incremental upgrade, so many improvements were unleashed at once that it took some time to digest them all.
The iOS 7 64 bit operating system on the new A7 chip, the first ever for a smart phone, substantially boosted speeds, up to ten times for some functions for long suffering iPhone 4 owners. The iSight camera makes a generational leap to a very fast 8 megapixels. Other improvements came through for hundreds of other applications, which I am still trying to figure out. It?s like having to learn how to use an iPhone all over again, so save your upgrade for a free weekend.
Entire new business lines were introduced with barely any notice, like the free Internet radio service, which saw an amazing 11 million unique listeners sign up during the first few days. The agreement with Japan?s NTT Docomo to offer iPhones was hugely overlooked. With 60 million high earning customers, it makes the China Mobile (CHL) now show almost an irrelevance. Even without a (CHL) deal, consumers can now simply buy a 5c for $475 and connect to the domestic network for the first time.
Apple is still the fastest smart phone by miles, according to the chart below, beating the pants off of Google?s Android (GOOG), the Samsung Galaxy (SSNLF), and the Windows smart phone (MSFT). This is a crucial element in the company maintaining its premium pricing. Consumers don?t want to start collecting Social Security by the time their next page loads. If you are a fast typist, unlike me, you can hit the keys faster than the other operating systems? ability to process the commands, muddling the text.
It didn?t hurt that a staggering 200 million customers downloaded the new iOS 7 since last week, reminding us once again of the firm?s dominance in this space. Now we learn that several car manufacturers are going to build in iOS 7 into new models coming out next year. Apple is muscling into huge markets that no one else is even thinking about now. That?s another potential 30 million unit a year business.
I think we are 5 months into a 17 month leg up in Apple stock since it bottomed on April 21 at $380. In the wake of the 5s and 5c launch, we will probably trade in a range from $460 to $525. We will then break out to the upside in the new year, spurred on by another raft of new product launches for the iPad and iMac that could take us as high as $600.
A second period of digestion will follow. Then the prospect of an iPhone 6 launch in September 2014 should return us to the old high of $707. That gives you a potential gain in the stock from this level of 44%.
The company is putting its money where its mouth is. During a long, tedious summer, when its shares were trading in the low $400?s, it was the major buyer. The bulk of its $50 billion war chest is still in place to buy the dips.
I never believed the ultra bears, who seemed to berate the firm for its successes as much as its failure (iMaps, etc.). Downside targets have gone as low at $250 a share.
I have never been one to hold back from throwing rocks at the establishment. But this is a company that is making net profits of $14 million an hour, and they want to sell it short? If they were based in California, I?d say they were smoking something. Oops, they are based in California.
Buy the rumor, sell the news. That was again the lesson of yesterday?s new product launch, where Apple (AAPL) rolled out their new premium 5s and low-end 5c iPhones. So many commentators heaped such abuse on the company in the run up to the release that today?s weakness was a sure thing.
Failure to announce a deal with China Mobile (CHL) in Beijing last night was the immediate reason for today?s $30 plunge, which prompted several houses to downgrade the stock. It was a classic ?closing of the door after the horses have bolted? moment. As with time immemorial, your broker is asking you to buy high and sell low, delivering to you a perfect money destruction machine.
However, this time, there is far more than meets the eye. China Mobile wasn?t the barrier to greater access to gargantuan 700 million mobile users. It was compatibility with China?s unique 3G TD-SCMA networks. The new plastic? $99 iPhone 5c bridges that gap.
Chinese customers can now buy the iPhone 5c retail unsubsidized, as are 70% of the mobile phones in the Middle Kingdom, and use them on the local China Mobile network for the first time. Analysts expect this will enable Apple to pick up 6% of China?s mobile market share immediately, much at the expense of rival Samsung. The full China Mobile subsidy package, which the uninformed and non-technical have been looking for, could still be years off, but has been rendered irrelevant by Apple CEO, Tim Cooks, move.
The reality is that Apple?s unit sales will remain stable, or even grow modestly, with no new products whatsoever, its marketing presence is so overwhelming. So the next version of the Mac Book Pro and iPad, due out in coming months, can only deliver upside surprises on profits. Expanded carrier distribution, better ASP?s, and higher margins will be the inevitable result.
The company also has plenty of room to cut prices and build market share as existing products, like the iPhone 4 and 4s, age. It?s clear that the ultimate low end entry point for Apple products will be the iWatch, to be launched early next year.
The net net here is that Apple?s earnings estimates will be revised up for the first time in more than a year.
This is happening with the additional rocket fuel of a massive $50 billion share repurchase program that continues unabated. Corporate raider and major shareholder, Carl Icahn, is trolling in the background demanding more.
It also helps that the company carried off one of the largest corporate bond deals in history at the absolute peak in the bond market five months ago, a brilliant move that resulted from no small amount of prodding from me.
My tumultuous personal life aside, I am entering this trade cautiously as usual, adding a deep in the money call spread that limits my risk. Note too on the chart that the strikes align nicely with major support levels that should provide an extra safety margin. These only have to hold for five weeks for the October expiration to work.
Take a look at the China Mobile (CHL) chart as well, which will go ballistic if the China recovery story is real.
https://www.madhedgefundtrader.com/wp-content/uploads/2012/02/apple-1.jpg333300Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2013-09-12 01:04:142013-09-12 01:04:14Buy Apple on the Dip
Corporate earnings are up big! Great! Buy! No wait! The economy is going down the toilet! Sell! Buy! Sell! Buy! Sell! Help! Anyone would be forgiven for thinking that the stock market has become bipolar.
There is, in fact, an explanation for this madness. According to the Commerce Department?s Bureau of Economic Analysis, the answer is that corporate profits accounts for only a small part of the economy. Using the income method of calculating GDP, corporate profits account for only 15% of the reported GDP figure. The remaining components are doing poorly, or are too small to have much of an impact.
Wages and salaries are in a three decade long decline. Interest and investment income is falling, because of the low level of interest rates and the collapse of the housing market. Farm incomes are up, but are a small proportion of the total. Income from non-farm unincorporated business, mostly small business, is unimpressive.
It gets more complicated than that. A disproportionate share of corporate profits are being earned overseas. So multinationals with a big foreign presence, like Apple (AAPL), Intel (INTC), Oracle (ORCL), Caterpillar (CAT), and IBM (IBM), have the most rapidly growing profits and pay the least amount in taxes. They really get to have their cake, and eat it too. Many of their business activities are contributing to foreign GDP?s, like China?s, much more than they are here. Those with large domestic businesses, like retailers, earn far less, but pay more in tax, as they lack the offshore entities in which to park profits.
The message here is to not put all your faith in the headlines, but to look at the numbers behind the numbers. Those who bought in anticipation of good corporate profits last month, got those earnings, and then got slaughtered in the marketplace.
Dilbert cartoonist Scott Adams argues that you should invest in companies you hate because only the most unprincipled and rapacious firms make the greatest profits.
Moral bankruptcy is a great leading indicator of success, and the best ones can get you to balance your wallet on the end of your nose and bark like a seal, as you buy products that you utterly despise. Companies with the work ethic of a serial killer, like British Petroleum (BP) come to mind, but you can also add other firms to the list, like Goldman Sachs (GS), Citicorp (C), Pfizer (PFE), and Altria (MO).
Adams initially started investing in companies he loved, like Enron, WorldCom, and Webvan, and absolutely lost his shirt. Adams? advice to BP is not to waste money on artificially sincere ad campaigns apologizing, but get us to hate them more. Bring on more dead bird pictures!
Who is Adams about to hate next? Apple (AAPL), because he irrationally craves their products, resents their emotional control over his entire family, can?t get ITunes to work, and is appalled by those aloof black turtlenecks that Steve Jobs used to wear.
https://www.madhedgefundtrader.com/wp-content/uploads/2013/04/Anger-Computer.jpg271389Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2013-07-05 01:03:412013-07-05 01:03:41Only Buy Companies You Hate
Say you owned 10% of Apple (AAPL) and you sold it for $800 in 1976. What would that stake be worth today?
Try $22 billion. That is the harsh reality that Ron Wayne, 76, faces every morning when he wakes up, one of the three original founders of the consumer electronics giant. Ron first met Steve Jobs when he was a spritely 21-year-old marketing guy at Atari, the inventor of the hugely successful ?Pong? video arcade game.
Ron dumped his shares when he became convinced that Steve Jobs? reckless spending was going to drive the nascent start up into the ground, and he wanted to protect his assets in a future bankruptcy. Co-founders Jobs and Steve Wozniak each kept their original 45% ownership. Today Job?s window?s 0.5% ownership is worth $1.5 billion, while the Woz?s share remains undisclosed. Ron designed the company?s original logo and wrote the manual for the Apple 1 computer, which boasted all of 8,000 bytes of RAM (which is 0.008 megabytes to you non-techies).
Today, Ron is living off of a meager monthly Social Security check in remote Pahrump, Nevada, about as far out in the middle of nowhere you can get, where he can occasionally be seen playing the penny slots.
https://www.madhedgefundtrader.com/wp-content/uploads/2013/06/Apple-Computer.jpg324447Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2013-06-21 01:03:332013-06-21 01:03:33The Worst Trade in History
Markets are overbought now, especially given that the US economy is only growing at a subpar 2% annual rate. But the S&P 500 (SPY) will close higher by yearend. Despite the fact that 30-year Treasury prices (TLT) are near all time highs, there are still huge opportunities in the fixed income space. And both the Japanese yen (FXY) (YCS) and the Tokyo stock market (EWJ) (DXJ) have more to run.
These were a few choice investment nuggets I gleaned from my wide-ranging interview with my friend, Anthony Scaramucci. Anthony is the founder and managing partner of SkyBridge Capital, a leading fund of funds for alternative investments. To learn more about SkyBridge Capital, please go to their website at http://www.skybridgecapital.com/.
After getting a law degree from Harvard, he started his investment career at Goldman Sachs in 1989, where he spent 7 years in the wealth management division. He went on to start his own money management firm, which he sold to Neuberger Berman in 2001. When Lehman Brothers bought Neuberger Berman in 2003, Scaramucci spent a short stint there as managing director of its Investment Management Division.
Anthony is the author of two books: The Little Book of Hedge Funds:What You Need to Know About Hedge Funds but the Managers Won?t Tell You and Goodbye Gordon Gekko: How to Find Your Fortune Without Losing Your Soul.
Scaramucci is focusing his heaviest weighting in fixed income strategies that benefit from improving credit ratings in the US real estate market and low prepayment rates. This brilliant, reasonably well risk adjusted strategy is earning him 11%-13% annual returns, or 5-7 times the cash flow of ten-year Treasury bonds.
Anthony has been consistently negative on gold, which makes him look like a genius for the past two years. He has a small weighting in emerging markets, which offer higher risk and volatility, but potentially greater returns. His picks there include the Southeast Asian nations of Indonesia (IDX), Singapore (EWS), and Malaysia (EWM).
He thinks Apple (AAPL) is very cheap, but is facing an innovation headwind. Still, investors in Steve Jobs? creation should do well over the long term.
SkyBridge Capital uses 28 sub managers to generate outsized market returns. He came out ahead by 20% in 2012 and is up 9% so far this year. It has won awards for the best fund of funds with over $1 billion in assets for the last three years in a row. The firm now has over $7.7 billion in assets under management or advisement.
Anthony?s team of professionals does all the spadework in finding great managers, doing the due diligence, and cross hedging exposures. He charges 1.50% management fee, but last year earned back 77 basis points for his clients in manager discounts. So on a net basis the fees are really quite reasonable.
New investors can open an account for as little as $50,000. This is a big deal because some of the best managers have minimums as high as $10-$15 million. It is the only way the little guy can get access to the best of the best. Customers must be accredited investors with at least $200,000 in annual income and a net worth of over $1 million.
Anthony comes across as polished and erudite, yet cautious. He clearly spends a lot of time thinking about how to invest other people?s money.
As if Scaramucci didn?t have enough to do, he devotes much energy to organizing the SkyBridge Alternatives Conferences, the annual Woodstock for the high and the mighty of the hedge fund industry. The most recent event in Las Vegas presented heavyweight hedge fund legends Paulson & Co.?s John Paulson, Third Point?s Daniel Loeb, and Omega?s Leon Cooperman (click here for my coverage of this love fest).
I will be attending the next SkyBridge Alternatives Conference in Singapore during September 24-27, 2013 (click the link http://www.saltconference.com/saltasia2013/). Former Treasury secretary, Tim Geithner, and the last European Central Bank president, Jean-Claude Trichet, will be the keynote speakers.
To learn the precise details of the SkyBridge high return strategy, please follow the instructions for downloading the full interview below. There you can also get his list of the best US stocks to buy in the current environment.
Just go to the AUDIO menu tab and click on the pull down menu for RADIO SHOW (click here for the link at http://madhedgefundradio.com/radio-show/). Click on the green BUY NOW button and complete the order form. A blue link will appear telling you to ?click here to proceed?. Then click on the small blue box with the question mark inside to download. Hit the PLAY arrow to listen. You can pause, fast forward, or rewind at any time. Given the quality of the information you will obtain, the $4.95 price is a bargain.
To buy The Little Book of Hedge Funds at a discounted Amazon price, please click here. To buy Goodbye Gordon Gekko, please click here.
SkyBridge Capital?s Anthony Scaramucci on Hedge Fund Radio
https://www.madhedgefundtrader.com/wp-content/uploads/2013/05/Anthony-Scarmucci.jpg344470Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2013-05-28 09:42:272013-05-28 09:42:27SkyBridge Capital?s Anthony Scaramucci on Hedge Fund Radio
Apple blew away the bears today with the issuance of $17 billion in bonds, the largest such corporate debt issue in history. Spread over two, five, ten, and 30 years, the deal was oversubscribed by more than 3:1, with $40 billion in demand left unfilled.
Foreign investors took down a major part of the deal, which explains Deutsche Bank?s senior role in the syndicate. The yield on the ten-year bonds came in at 2.40%, a mere 70 basis points over equivalent US Treasury paper.
The mega deal, dubbed ?iBonds? by traders, underlies the tremendous shortage of high-grade fixed income securities worldwide. Since 2007, the amount of double ?A? or better rated paper has declined by 60%, thanks to widespread downgrades inspired by the newfound religion of the ratings agencies.
As I never tire of pointing out at my strategy luncheons and lectures, the principal sin of governments is not that they are borrowing too much money, but not enough. This has given us a global bond shortage that has taken returns to insanely low levels. Look no further than the ten-year yield of 1.68% in the US, 1.20 % in Germany, and a pitiful 0.60% in Japan.
The issue also highlights the sudden fascination of all things Apple since its better than expected calendar Q1 earnings report last week, with $43 billion in revenues spinning off $9.5 billion in profits. Since then, we learned that the richest man in Russia, Alisher Usmanov, soaked up some $100 million of stock close to the $392 bottom. This is a man who?s proven track record of market timing is uncanny.
It doesn?t require a lot of imagination to figure out what this deal is all about. With $145 billion in cash on the balance sheet, why borrow another $17 billion? The reality is that this is a way of repatriating, through the back door and tax-free, some of the estimated $100 billion in cash the company has parked in offshore bank accounts.
What will it do with the money? How about buying back $17 billion worth of stock? Buy borrowing at 2.4% and retiring 3.2% dividend stock, the yield pick up on the transaction comes to $136 million a year. That goes straight to the bottom line. The deal reminds me of the kind of financial engineering that dominated Japanese finance during the late 1980?s. When I was a director of Morgan Stanley, I signed many of these multi billion dollar deals as a co-manager.
It wasn?t just Apple that has returned from the grave, which saw its stock rise by 14% since last week?s two year low. Look at many of the old tech warhorses, like Microsoft (MSFT), Applied Materials (AMAT), Hewlett Packard (HPQ), and Intel (INTC), which have blasted forth from long moribund levels in recent weeks.
Which raises an interesting possibility. What if the long predicted selloff in May does a no show? What if, instead of the usual 10%-25% swan dive, we only get the 2.5% that has been the pattern for 2013? The possibilities boggle the mind.
In that case where will the money flood into next? Stocks that have been going up like a rocket for the past eight months, or shares that have either fallen like a stone during this time, or barely budged? Stocks that are trading at double the market multiple, or at half the market multiple? Hmmmm. Let me think about this one.
There are two major categories of the latter, commodity related shares and technology ones. China is still slowing, placing a monkey on the back of most commodities related companies. So I vote for technology, which by the way, is the cheapest it has ever been on an earnings multiple basis.
In that case, the strength in old tech will develop into far more than a one-week wonder. It could provide the rocket fuel that will power the major indexes for the rest of the year. That would take the S&P 500 up to 1,700 where it can flaunt a glitzy earnings multiple of 17.
Don?t get too giddy. This is definitely a best-case scenario. But then lately, the best-case scenarios have been happening, thanks to the reflationary efforts of our friend, Ben Bernanke.
That would be fantastic news for Apple?s long-suffering shareholders. Now that its stock has clearly broken through the 50-day moving average on the upside, the eventual target of this leg could be as high as the 200-day moving average at $541. One can only hope.
https://www.madhedgefundtrader.com/wp-content/uploads/2013/05/Dracula.jpg268337Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2013-05-01 09:26:212013-05-01 09:26:21Old Tech?s Big Comeback
Legal Disclaimer
There is a very high degree of risk involved in trading. Past results are not indicative of future returns. MadHedgeFundTrader.com and all individuals affiliated with this site assume no responsibilities for your trading and investment results. The indicators, strategies, columns, articles and all other features are for educational purposes only and should not be construed as investment advice. Information for futures trading observations are obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. Your use of the trading observations is entirely at your own risk and it is your sole responsibility to evaluate the accuracy, completeness and usefulness of the information. You must assess the risk of any trade with your broker and make your own independent decisions regarding any securities mentioned herein. Affiliates of MadHedgeFundTrader.com may have a position or effect transactions in the securities described herein (or options thereon) and/or otherwise employ trading strategies that may be consistent or inconsistent with the provided strategies.
We may request cookies to be set on your device. We use cookies to let us know when you visit our websites, how you interact with us, to enrich your user experience, and to customize your relationship with our website.
Click on the different category headings to find out more. You can also change some of your preferences. Note that blocking some types of cookies may impact your experience on our websites and the services we are able to offer.
Essential Website Cookies
These cookies are strictly necessary to provide you with services available through our website and to use some of its features.
Because these cookies are strictly necessary to deliver the website, refuseing them will have impact how our site functions. You always can block or delete cookies by changing your browser settings and force blocking all cookies on this website. But this will always prompt you to accept/refuse cookies when revisiting our site.
We fully respect if you want to refuse cookies but to avoid asking you again and again kindly allow us to store a cookie for that. You are free to opt out any time or opt in for other cookies to get a better experience. If you refuse cookies we will remove all set cookies in our domain.
We provide you with a list of stored cookies on your computer in our domain so you can check what we stored. Due to security reasons we are not able to show or modify cookies from other domains. You can check these in your browser security settings.
Google Analytics Cookies
These cookies collect information that is used either in aggregate form to help us understand how our website is being used or how effective our marketing campaigns are, or to help us customize our website and application for you in order to enhance your experience.
If you do not want that we track your visist to our site you can disable tracking in your browser here:
Other external services
We also use different external services like Google Webfonts, Google Maps, and external Video providers. Since these providers may collect personal data like your IP address we allow you to block them here. Please be aware that this might heavily reduce the functionality and appearance of our site. Changes will take effect once you reload the page.
