I haven't done an Off Topic post in awhile, so I thought it might be appropriate to do one regarding what occurred in Australia this week. As you probably know by now, Apple launched its iPhone 5 globally and Australia was the first place to officially start selling it (due to the timezone). The video above is from George Street in Sydney, where I used to live several years ago. I am totally stunned at the whole footage.
The question I would like to discuss is whether or not you guys believe Apple is a real mania? To me, this whole thing is totally ludicrous. Absolutely absurd. Maybe it is just me, but when I view the way everyone has gone totally mad, with frenzy and euphoria, about these telephones... yes, that is all they are, just telephones (we haven't yet cured cancer or reached world peace)... I think that the obsession society currently has towards Apple, which is discussed daily on all news channels and hourly on fiannce news channels regarding where its share price trades, is similar to the obsession society once experienced back during the Tulip Bubble.
As a disclosure, I would like to inform all that I am short Apple stock with Out of Money (OTM) put options that are long dated quite a few quarters out from here. Majority of experts on financial networks like CNBC and Bloomberg have prices targets from $750 to $1650, so they clearly seems to think Apple is still amazingly cheap. After all, what do I know? I still own iPhone 4 and iPad 2...
parabolic graph, it will break as have all of the others but from what level? $700 would be just fine with me. From previous high, AAPL has gained $50 only with all of the fanfare. I hope for Tiho and me it has topped............
ReplyDeleteyou mean like KO, BRK, etc.?
DeleteMy neighbor once stopped me from my yard work and seriously asked me "How can you not owning CISCO?". The price tag at the time was $81.00. The neighbor managed to have lose $3.0 Million in the tech bubble. He plays the market no more.
ReplyDeleteLately many of my hiking friends asked me if I own Apple as the Eiffel is being built . This is very instructive indeed.
One of the guys very proud and content to have owned AT&T. Looking at IYZ, it is a short.
Tiho, I will join you very very soon in shorting Aapl.
Tiho, it's hard to say how much of this price appreciation is bubble pricing, an how much represents real value. Apple has gained premium pricing because they have managed to consistently revolutionize product lines they enter
ReplyDeletemp3 players - ipod
smartphones - iphone
tablets - ipad
Now I guess they are looking to enter the cable/television space. if they manage to do the same there, I'd imagine the stock still has some ways to go--if only because Applemania will continue in the public mind.
The major problem I see fundamentally, and I can't imagine this is priced into the stock--after revolutionizing each subsequent product, competitors are closer and closer behind.
Already the iphone is far and away *inferior* to comparable samsung products, and there's a good chance samsung's new tablet will crush the ipad in the same manner
in order to maintain this massive success story, the company will not only have to continue revolutionizing products, but do so with ever increasing regularity. What's next after TV's? home lighting? cars? personal space flight??
Consistent with your notion that topping signs are out there if one would look carefully, take a look at the king pins like INTC and KO (divergence and just swallowed hard).
ReplyDeleteWhen I study $SPX:$VIX; Daily; Dots; MA(Simple) Env.(set at 8,8,0)., I see very similar set up as in late April 2011. Out of bound dot(s) are signals. Am I drinking my own bath water? The same can be said about the Russell 2000 with a P/E of 32+. I googled "Russell 2000 Over-valued" and could not find any recent results. I say shorting RUT may be a nice front-running trade.
Tiho, please comment. Thanks.
I do think Apple needs some cool down time, so I would not buy it, but I would not short it at this point either, consider:
ReplyDelete1. They are not just telephones, I am not an Apple fan and have an Android myself, but I use it extensively for reminders and internet access comes in handy very frequently. You can debate whether this is silly and just extra fluff that adds no value (that seems like a stretch), but it is a plain fact that a smartphone is not just a telephone.
2. Apple sells computers (and people are finally becoming willing to learn how to get away from Macroshaft Winblows stupidity) and tablets (capable of replacing full computers for an increasing number of people) as well.
3. I am not intimately familiar with all of the previous bubbles, but weren't they generally shell companies that were essentially worthless? I am also not familiar with the details of Apple's position, but don't they have significant income/share (not relevant whether they pay dividends with it). They certainly have real, desirable products and certainly aren't a 50x leveraged bet-on-MBS hedge fund.
4. Just because a few crazies are obsessed, does not mean everyone is, the people I know have Apple products because they find value in them (generalizing iPhone vs Android, Android appeals to higher tech users who like massive configuration options, iPhone is simpler and easier to use, so it depends on your preference). Lets admit: even if they are not for you, they are well designed, quality built products. Also, is it them that own most of the stock, or rational investors? I can't answer that.
5. You are cheating. Absolute price values have no meaning, they are sensibly related only in percentage terms. You can not compare an arithmetic chart of Apple against a semi-log chart of the south sea bubble and say they are the same no matter the fundamentals.
Also, this isn't really off topic, Apple is quite relevant both as an investment itself, and in its implications for the broader market.
A PE of 16.46 does not immediately scream "Short", but I imagine AAPL will be cheaper during next years's recession then it is today.
ReplyDeleteAAPL plus GOOG = one trillion in market cap. Lots of money concentrated in two stocks that retail will not purchase because of the high numbers. Illiquid if several mgrs. try to get out at the same time as was NSC last week?
ReplyDeleteAnonymous #2 @ September 23, 2012 11:37 PM - I disagree with your point, which is very subjective based on a quick glance of a chart. Looking at Coca Cola or Berkshire charts running into late 90s, they never appreciated as much as Apple and never hit that "turbo parabolic", almost vertical rise.
ReplyDeleteConsider that Coke went up from $3.50 in 1990 towards $34 in 1998. That is a lot and therefore when the bubble popped in all stocks, Coke went down too. It corrected by 50% all the way into 2006 low, but it is nothing compared to Apple.
Moving from $3.50 to $34 is an increase of 9.7 times in a decade. Apple is up 91 times in a decade.... I repeat... Apple is up ninety one times in a decade! There is a huge difference between something going up ten times and becoming overvalued and something going up almost one hundred times and becoming a global groupthink herd-following mania!!!
Edwin - Yes some major companies are all breaking down. The bear market has already started in "breadth", but stocks like Apple are masking it, due to their huge market cap weighting. Certain sectors like Semiconductors and Industrials are also struggling to make any new highs. Since I do not follow technicals closely, I cannot really comment on similarities to April 2010. I can say one thing however, this is nothing like April 2010, because we are now in the late cycle prior to a recession / downturn. April 2010 was a mid cycle slowdown and just a scare.
ReplyDeleteMichael - your story reminds me of Sony in the late 90s, where they "took over" consumer living room with their revolution of products. Sony was the Apple of the 90s with the Walkman and the VCRs etc etc. They also were flushed with cash and had the greatest technological minds working for them, and investors were always saying... what is next for Sony... maybe they will build a rocket to Mars! But have a look at how that bubble finished... (chart here)
This comment has been removed by the author.
DeleteI wrote "April 2011" as similar to the current time..... But don't worry about..as we are getting another clue from CFTC that short bets on US dollar reach highest since late August 2011. Looks like King Dollar is going to execute some corporal punishments on the dollar bears.
DeleteMy bad Edwin. For the record, even in September and October 2011 I was still relatively neutral on stocks (check blog posts for your reference). However, as already stated, we are now late in cycle and the business expansion is over.
DeleteYeah...I definitely agree with you that we are in the late cycle...Lets see (if and) how long money printing may extend the cycle.
DeleteI am drawing a plan to short some (bloated) consumer discretionary stocks.
Regarding Dollar shorts, you can see the chart on the Blog Charts page or by clicking here. One thing that is interesting is the fact that cumulative Dollar shorts are very high actually, but we need to exclude the Euro out of the context (as it is constantly shorted and hated).
DeleteAlso Dollar's Daily Sentiment Index hit 7% bulls last week and has recovered only slightly unto Fridays close. In particular, hedge funds are other speculators have piled into commodity currencies, which on cumulative basis are at historical record net longs. Furthermore, I've already put forward a chart which shows Canadian Dollar's sentiment is close to record highs.
All in all, commodity currency sentiment is rather extreme not just for the sake of a mild correction, but a more significant top. Fundamentals coming out of China do not bode well for these currencies going forward.
The typical question I get here in Australia is weather or not I'd short the Aussie Dollar? I would... but what if the Fed prints more and more and more. It is not that the Aussie is going up, it is just that the Dollar is going down. Currencies are manipulated heavily right now and its a hard game.
By the way, are you still long Coffee and short Long Bond Edwin?
DeleteIf you have not done so,I suggest that you check Reggie Middleton's seminal work on Apple,Google and the smartphone arena.Great analysis,strongly rooted in actual facts.The conclusions of course do not differ much from yours and from those of every thinking person who happens to have a basic understanding of investing and economic history.
ReplyDeleteNot a comment on the Apple share price but there is a satirical program on in the UK at the moment called "The revolution will be televised". It pokes fun at banks, politicians, tax evaders etc.
ReplyDeleteIn episode 5 they alleged Apple set up off shore to pay less corporation tax. Then they went to an Apple store dressed in Apple t-shirts like the staff and pretended to be from Apple in Nevada. They were telling customers about their new app called IDodge - saying it helps you dodge your tax. Eventually they were asked to leave! It's one of those programs where some things miss but others are very funny and it's nice to see someone speak out about what goes on.
It was them that were presenting George Osborne with an O Level maths book at the Mansion House speech.
http://www.bbc.co.uk/programmes/p00vqgx3
It would be amusing if public opinion turned against Apple's labour policy....
ReplyDeleteTaiwan's Foxconn Technology Group closed its Taiyuan plant in northern China on Monday after a personal dispute spiralled into a brawl involving 2,000 workers in a dormitory late on Sunday night, injuring 40.
The Taiyuan plant, which employs about 79,000 workers, makes automobile electronic components, consumer electronic components and precision moldings. An employee told Reuters the plant also makes parts and assembles Apple's iPhone 5.
In a statement, Foxconn cited police as saying about 40 people were taken to hospital for medical attention and a number were arrested.
The company said the incident escalated from what it called a personal dispute between several employees at around 11 p.m. on Sunday in a privately managed dormitory, and was brought under control by local police at around 3 a.m.
"The cause of this dispute is under investigation by local authorities and we are working closely with them in this process, but it appears not to have been work-related," Foxconn said.
China's Xinhua News Agency, citing Taiyuan City's public security bureau, reported that about 10 people were hurt in the fighting and around 5,000 police were sent to the scene, bringing it under control as of 9 a.m.
"The plant is closed today for investigation," said Foxconn spokesman Louis Woo.
Foxconn, the trading name of Hon Hai Precision Industry Co and the world's largest contract maker of electronic goods, has seen a few violent disputes at its sprawling plants in China, where it employs a total of about 1 million workers.
By late morning, Hon Hai shares were down 1.03 percent, lagging the broader market's rise of 0.1 percent.
http://uk.reuters.com/article/2012/09/24/uk-hon-hai-idUKBRE88N03M20120924
Thank you for all comments regarding Apple.
ReplyDeleteI think it may be much more meaningful to look at AAPL with a "log-scale." You would see that the 03-07 push was much more dramatic than the 09-present. I must agree that I'm blown away, and I do not own AAPL, regrettably. I personally own the Galaxy Nexus with Verizon and have had a better phone with 4g for a year, over the iPhone 5. However, I would say almost ALL of my friends are consistently blinded and amazed by whatever apple pushes out. Every single one of them vowed to be buying the new phone and to continue to buy their new phones. Apple would literally have to do something CRAZY to lose these customers. Everyone is now entrenched and now has a "cost of switching" do to all their apps. I also must disclose that I use to be an apple fanatic back about 7 years ago. I got the first iPhone and got all my friends to buy into it. It was when they came out with the iPhone 4S, that I felt cheated and felt that it was no longer the best phone. For me, I'll wait and see the next "full Google phone." For the rest of my friends, I do not see them switching anytime soon.
ReplyDeleteWhile I'm not short AAPL (too scary), I'm short financials since the 09/14/2012 top. I plan to cover soon (1-2 days) though, as I feel we will see a higher high soon. The thing is Bernanke will do everything possible to shore up the markets till 11/2012, as his job is at stake. After that, who knows what will happen.
ReplyDeleteBTW, Marc Faber is bullish now and sees huge opportunity in Europe and China. He may be right here. While US stocks are overvalued, some china stocks reached the 2009 lows.
Everyone is bullish, both smart and dumb money. Every guru, long term investor, trader, blogger, and everyone is talking about Apple at dinner parties....
DeleteAccording to COT, smart money are very bearish at the moment. Sometimes it means a top, sometimes it means a short squeeze happens before the real top: http://bbs.cobrasmarketview.com/download/file.php?id=28856&mode=view
DeleteOne more thing, Marc Faber is not some other average guru or loser. He has a proven track record going back to the 1987 crash.
DeleteJack
Faber turned bullish on Europe in late spring this year but recently suggested it was vulnerable to a 30% pullback. His call on China is due to its horrendous under performance rather than some expectation of a fundamental catalyst....Jeff Gundlach made the same point recently in suggesting a long Shanghai vs. short SPX. Of course, that is theoretical anyway, as foreign investors can't really buy the Shanghai index directly.
DeleteMarc Faber : "Currently I am quite negative about equities for the next three months. I am not saying that they will collapse but I think the markets will go down. I will add to my positions when the markets correct here." 09/21/12
Delete"Investors will look back at the European crisis today and think 'we should have bought equities in 2012’," "I think China stocks are quite a good buy," Marc Faber said Speaking during a hedge fund managers forum in Hong Kong 09/17/2012
I guess that means short term negative, long term positive. This is exactly what my charts are telling me. Quite a conundrum.
Hi folks!
ReplyDeleteI agree with you that apple is a buble, but not yet to burst!
Please, keep in mind that when you look at a chart you have to look at a log.scale it is totaly different!
Ivo-Bulgaria
Apple is up 112 times since its 2003 bottom, regardless of what chart you look at. I repeat... it is up 112 times!
DeleteThe bubble in Apple is in the "E", just as it was for homebuilders in 2005. Margins are completely unsustainable over the long term, and they will screw up a product cycle if they haven't already with this latest iphone. Most of their profits now come from hardware sales and they've increasingly failed on the software front. iCloud has been a turd for the most part, ios 6 has all kinds of problems already, and maps is a mess. They are beginning to act like a classic big company....just like the Microsoft they used to bash.
ReplyDeleteAlso, as the global economy continues to tank, will the marginal consumer realize that Apple's business model is now to offer modest product improvements and extract further money from their customers who barely use any of the incremental "innovations." Apple has a nice computer business and will be a player in the commoditized phone and tablet markets, but margins will collapse and their market share will not grow as the perma bulls expect...if it grows much from here at all. $650 billion for a gadget company with no monopolistic power? RCA, Tandy, Commodore, Xerox, 19th century railroads....
Technically, AAPL triggered a very significant confluence of Demark exhaustion signals...both for the long and intermediate term. For those not initiated, Demark is a set of technical indicators widely used by some of the biggest/best hedgies - Soros, SAC Capital, Tudor, Druckenmiller etc.
Yesterday I was watching a CNBC interview, where it was suggested that maybe a much smarter way to play Fed's QE is not to buy Gold, but to buy Apple. You know... throughout history whenever governments and central banks have debased currencies, wise investors have always protected themselves with rare assets, be it Gold or Diamonds or Rare Art etc etc. However, we now have a new paradigm shift. From today onwards history will remember that, whenever governments and central banks print money, the best way to protect yourself is to buy Apple!
ReplyDeleteI've updated the Blog Charts page for those that check it every now and than.
ReplyDeleteInteresting points from the COT report were:
- Hedge funds remain heavily long high beta technology stocks
- Hedge funds hold record longs in high beta commodity currencies
- Hedge funds have added commodity long bets for 15 weeks in the row
- Hedge funds are close to record longs in energy like Crude Oil
- Hedge funds are close to record longs in grains like Wheat
As we can see there is a huge amount of speculation in the market place right now. Some of it is justified on fundamentals, like the demand / supply issue for Grains and some of it is hope that fundamentals do not deteriorate like China slowing further linking to commodity currencies or company earnings falling linking to technology sector.Regardless, I would be very cautious when every man and his dog is close to record net long almost everything from stocks to risk currencies to various commodities.
Plus there are heaps of other charts...
Yes, I know it is 112times up, but you must look at log scale which calculate the percent change not the absolute value change in order to determine the trend!
ReplyDeleteLook at Dow in absolute scale back to 1900 and then change to log scale to see the difference, here with apple is the same.
Ivo-Bulgaria
http://1.bp.blogspot.com/-Aut9ntaINrs/UDOX5jhd4cI/AAAAAAAAPnQ/37kai25t3iM/s1600/PhillyFedStateJuly2012.jpg
ReplyDeleteVery scary chart! According to that this we should be entering recession right now.
Parabolic curve with a 90 degree angle of ascent-don't need log scale to see this, just a regular chart that goes back far enough in time to show the base and then the angle of ascent. Has it broken now???????????????????
ReplyDeleteTom DeMark often does good work, if his analysis shows AAPL has exhausted the buyers I trust AAPL's run is over in confirmation of other analysis posted here with Tiho.
I agree. I do not really care if you use a log scale or not a log scale. A bubble is a bubble when it goes vertical and totally parabolic. However, a true mania is when the whole world goes nuts over something, like we have seen in the video above. If it looks like a duck, quacks like a duck, swims like a duck... then it probably is a duck!
DeleteGood call on AAPL, it's crumbling. Had no balls to short it. Shorted financials instead for an OK trade, just covered.
ReplyDeleteJack
http://tech.fortune.cnn.com/2011/12/02/about-apples-incredible-shrinking-pe-ratio/
ReplyDeleteAAPL P/E ratio notes... if you follow that stuff...
Mitch
If you look at all previous parabolic charts, they all fall eventually, NFLX as the most recent example. AAPL will fall too, there are too many people enjoying rapidly improving Android phones for less.
ReplyDeleteG
Some technical comments you might find interesting:
ReplyDeletehttp://blogs.stockcharts.com/canada/2012/10/the-apple-starts-to-soften-.html
Thanks for all the comments guys.
ReplyDeleteHas Apple topped? None of us know for sure, but the stock peaked on 23rd of September just as the author wrote this post. This could possibly turn out to be one of the greatest predictions the author of this blog ever does.
ReplyDelete