Friday, November 16, 2012

Apple Update


Apple is a stock I love to hate.  I love to hate it because the rise in the value of the company had no reflection to sustainable fundamentals.  Zero.  The price of the stock outstripped all sustainable valuation measurements by magnitudes.   And the hyper-consumerism that has created a mania around its products is completely unsustainable.  Just as the mania surrounding the company’s stock is driven by a massive, leveraged liquidity bubble and a runaway financial system.  I have put up quite a number of posts on the company over the years.  This is a company that literally stands for everything that is wrong with our country from sweat shop labor practices to the mindless hyper-consumerism mania to the corporate advertising propaganda that creates a reptilian brain impulsivity and mindless stupidity in the sensationalism of its products.  It also stands for some of what was oftentimes right with our country from its maniacal focus on the user experience to its inventiveness to its creative destruction of a dying intellectual property or digital rights management space. 

As I have noted on here before, there are tipping points and small perturbations that often are overlooked in any ecosystem.  That includes a company’s ecosystem or the fundamentals surrounding a company’s success.  Apple was doomed ten years ago to suffer its coming fate.  Most people who don’t appreciate the fundamentals the world is experiencing today simply don’t get that.  And, that doom was certainly exacerbated the day Steve Jobs left the company.  Not doomed to complete failure but most certainly doomed to a very different future where Apple will certainly lose the aura of invincibility.   The fact is the Apple we all know today existed in only one place.  In the mind of Steve Jobs.   That company died when Steve Jobs passed. 

There most certainly is a lot of talent at Apple but the culture is already changing.  In a power move that would make Joseph Stalin proud, Tim Cook, the new leader at Apple, recently purged a few of the most capable minds in the company, including one of the leading candidates to take the CEO job when Jobs stepped down.  A leader who rules through autocratic control and cannot constructively encourage dissent & disagreement from talented team members is doomed to failure. 

Back in mid September of this year I showed a graphic of Apple’s stock and its very poor volume characteristics that weren’t confirming its rapid rise to new highs.  Also included in that post was the broadest index in the United States, the Russell 2000, whose poor volume characteristics were also not confirming its rising prices.  Both peaked simultaneously just a few days later, as did all broader markets.   This happened just as the major turn dates I wrote were coming in September actually came to pass.  In other words,  as of late September of 2012, something has again changed in all financial markets and it is affecting all prices.  We didn’t get the potentially catastrophic weakness that I was concerned about in late September and October but markets have most definitely been impacted and some assets like Apple have actually experienced mini crashes.   Apple lost one fifth of its value in less than two months. 

That said, I expect we will see a temporary stabilization and some attempt of a rally as early as next Tuesday or as late as the first week of December.   We shall see.  Shorter term movements are very difficult to project.  But Apple is still in an uptrend and above its linear regression channel that I have shown again above.   As I have noted on here for at least the last five years, my downside target on Apple remains less than $50 a share.  That’s about a 93% drop from its peak.  And, as I noted before the 2008 crash, we could see Apple back below $35 as this cycle ends.   People generally don’t appreciate how unsustainable fundamentals have led to a mania in Apple products and its stock.   Yet the carnival barkers are already out in force telling people to try to catch a falling knife because the stock is now apparently so cheap. 

I doubt Apple will ever see $700 a share again.   As I noted before, Apple was trading at a valuation greater than all of the publicly-trade companies in Italy and closing in on the value of all of the publicly-traded companies in Russia.  The criminal manipulation of financial assets bears no reflection on reality.  It is simply a mechanism of looting by a criminal financial class.  

The same bulloney the Wall Street carnival barkers use to rationalize Apple was used to rationalize Microsoft’s stratospheric rise into the internet bubble.  The Microsoft bubble was another bout of criminal behavior by the looting financial class.  At the time Microsoft had more cash on its balance sheet than any company in history and the stock collapsed regardless.  In fact, again today, the only company that has anywhere near the cash level of Apple is Microsoft that has again amassed a massive $60 billion in cash.  And the stock is still a pig and likely going much lower over the long term.  The cash hoard at Apple will not save the stock price.  And, if Apple uses that cash to diversify, or diworsify as I have called it on here, it will simply hasten the ultimate implosion of the company. Diversification is path that most corporations fail miserably at.  It is the kiss of death of corporations. 

Apple had an amazing run.  A run substantially driven by financial looting and the criminalization of our money, our financial system, our economy and our government.   All good things come to an end.   As do most “ungood” things. 

posted by TimingLogic at 10:04 AM