This is my Second Buy Recommendation

  • Posted: 16 November 2008 11:02 PM

    Its time to buy Apple.  This is only the second time that I have publicized that people should buy Apple.  The last time I told people to buy Apple was on my bachelor party in July of 2006 before Apple reported fiscal Q3 earnings on July 19.  I recommended Apple in the $50’s.  For the second time, I’m placing a buy recommendation on Apple for anything in the $90’s and a strong buy recommendation for anything in the $80 dollar range.  I have a 2 year price target of $230 a share.  Article coming. 

    Cheers,
    Andy Zaky

         
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    Posted: 17 November 2008 01:05 AM #1

    Andy, as much as I ADORE AND APPLAUD the yoeman work you have been churning out { you have NO idea how much I agree with you…} you assume some version of rationality in the markets.

    I have given up on that, my GREAT COMPANIES list of investments, ALL of them making money hand over fist, MOST of them wildly successful, with moats galore are ...

    Down 50% or more.

    Irrationality will ALWAYS win out over sane calm analysis I now believe. The HERD will determine 80% of what any stock will do, the companies can do well, or poorly, however if the herd is stampeding the other direction, NO AMOUNT OF SANITY will impede that lemming like rush to the cliff on the downside, or the soaring rush to the moon on the upside.

    That doesn’t mean I wish you to stop your EXCELLENT work, it seems to be the ONLY sane numerically based output anymore, you and and a few others here ... the so CALLED AMATEURS, are blowing the beans out on the lazy, ill informed, good for nothing, rumormongering, sleazy, crooks that are more commonly called ANALYSTS and get touted by whores like Eric Savits and the other nincompoops that are allied with the Murdock page three crowd who now control so much of the financial markets. Fox is appropriate, they ARE Foxes, and the henhouse is now guarded by the Fox’s.

    Disgusted isn’t even CLOSE to what I’m feeling these days.

    { FWIW, I knew the world was upside down, when TWO YEARS ago, I found out that “conservative Rupert Murdock” was raising money FOR Hillary Clinton’s run for the White House. Yeah, Hillary! And THAT is supposed to be the CONSERVATIVE network crew? The scales continue to fall off but it is never a pleasant process to find out that EVERYONE is now lying, and pushing false agenda’s under the cover of formerly trusted outfits. }

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  • Posted: 17 November 2008 01:19 AM #2

    [quote author=“TanToday”]
    I have given up on that, my GREAT COMPANIES list of investments, ALL of them making money hand over fist, MOST of them wildly successful, with moats galore are ...

    Down 50% or more.

    In 2000, AAPL fell more than 50% to mere book value. If you caught wind that, amongst the financial turmoil of “overvalued companies” and “PE adjustments”, and a DECADE of a forecasted bear market, that steve jobs would be back at the helm in a little bit, and innovate AAPL out of a hole.. tech wouldn’t die, people would need routers, college students with ideas would be hired to produce, microsoft would continue to falter, would you buy hand over fist at that price?

    Just saying..nobody has a crystal ball and the impossible has happened many times before. And we’re not really facing the impossible with Apple’s amazing slate.

         
  • Posted: 17 November 2008 03:34 AM #3

    [quote author=“TanToday”]
    I have given up on that, my GREAT COMPANIES list of investments, ALL of them making money hand over fist, MOST of them wildly successful, with moats galore are ...

    Down 50% or more.

    Tan, we’re quite a few in the same boat

    However, to put our losses into perspective, look at companies which are facing true difficulty: either in a slowing sector, or running a business which is fundamentally flawed, or even in desperate need of financing while the fundamentals are sound:
    just to name a few well-known names which have popped up in the last 3-4 years on the board
    SanDisk went from +$60 to a mere $7
    Starbucks went from +$40 to $8
    Garmin went from +$120 to $19

    In a crashing market, everyone gets punished, the only difference being that well-run companies lose less of than less-successful companies.
    Paradoxically, we should be thankful (:roll:) that Apple is a well-run company that cannot be hammered into oblivion as it is the case with other stocks

         
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    Posted: 17 November 2008 04:44 AM #4

    Re: This is my Second Buy Recommendation

    [quote author=“andyzaky”]Its time to buy Apple.  This is only the second time that I have publicized that people should buy Apple.  The last time I told people to buy Apple was on my bachelor party in July of 2006 before Apple reported fiscal Q3 earnings on July 19.  I recommended Apple in the $50’s.  For the second time, I’m placing a buy recommendation on Apple for anything in the $90’s and a strong buy recommendation for anything in the $80 dollar range.  I have a 2 year price target of $230 a share.  Article coming. 

    Cheers,
    Andy Zaky

    Andy, have you considered that our economy is now in the keynesian paradox of thrift that states that as economies falter, people tend to save more and spend less and less until the economy slows and grinds down to a sustenance level that it cannot go below?

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    Posted: 17 November 2008 05:23 PM #5

    Guys,

    Please read Andy’s post closely.  He specifically stated a TWO year target.  Not tomorrow or even this time next year.  I for one is with him on this.  I think most of this BS will have sorted out in two years.  If not, just wait another year.  This is for the Long term investment.

         
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    Posted: 17 November 2008 05:50 PM #6

    Unless ‘Great Depression: the Sequel’ is on, I suspect we’ll see AAPL near $200 again in a year or two.  Well, there’s also the possibility that we’ll relive the ‘70s and see prices bouncing in a range but making no long-term headway.

    I suspect Apple’s fiscal Q1 will prove stronger than most expect, and I hope it will be as spectacular as Andy forecasts.  There is some data suggesting this isn’t altogether a fever dream.

    Personally I worry more about 2009, when we’ll see how long we drift through the recessionary doldrums.  It’s then that consumers’ new found ‘virtue’ might really cripple the economy.

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  • Posted: 18 November 2008 05:57 PM #7

    I stand by my buy recommendation.  I’m fully aware that delusions regarding a second great depression are rampant on Wall Street.  Such delusions put further support behind my buy recommendation.  Unemployment is at a mere 6.4%.  That’s nothing.  GDP has declined by less than a percent in Q3 and is expected to fall just a few percentage points in Q4.  That hardly makes a second great depression.  Every time we enter a recession, there’s talk of a second great depression.  The 70’s were far worse than anything we’re experiencing today.  Inflation is in check, the fed funds rate is at a percent, and unemployment, while rising rapidly, is still at 6.4% which is healthy by all measures.  5% unemployment is optimal.  But this is no 20%+ unemployment that we saw in 30’s.  GDP has to decline by 10% for an entire year before we can even talk depression.  That means things have to get more than two times worse than they are today.  There’s no data to suggest such a scenario either way. 

    No one can forecast more than a few months ahead.  What we know about the economy is that any time the feds have injected a healthy bout of liquidity into the market as they have, it has tended to lead to a recovery.  We don’t know why it works, we just know that it does.  Whenever the money supply increases as it has, it has gotten business to expand and has to led the consumer to spend.  Why?  Who knows?  Perhaps it has to do with the fact that we’re not a saving country or perhaps it is an unexplainable phenomenon. 

    Intuition tells us that once unemployment increases, and once consumers stop spending, we should go into a never ending downward spiral, devil’s snag as it were.  Why this doesn’t happen is really anyone’s guess.  Personally, I think it has to do with the fact that Americans are natural spenders and to some degree, impulsive.  Americans also tend to forget.  While the consumer might slow their spending as a result of negative sentiment regarding the economy, Americans also tend to forget and move on.  “You know, its like, the recession, its so last month.”  I could easily see people forgetting about the market collapse and bank failures by the time we hit December as some other issue in the news becomes popular.  Remember, we’re only at 6.4% unemployment.  The recession does not effect everyone.  As a matter of fact, the vast majority of Americans are unaffected by a recession despite what one might hear in the media.  And before anyone here questions this statement, simply try and come up with an argument about how more than a very small minority are affected.  Give concrete examples.  This everyone is affected bullshit simply doesn’t fly.  I want to know exactly how everyone is affected.  I personally, don’t know of a single person who has lost his or her job, makes less than they did last year, or who spends less than they did last year - save a few day traders who are affected by the market’s delusions regarding a great depression.  And while my personal observations are merely anecdotal and too small of a sample size to really prove anything, such observations are evidence of the fact that if a healthy size of people were affected, almost everyone would notice from their personal observations. 

    I’m choosing to use common sense here.  If things get nasty, I can always bail.  The downside risk from here is so minimal that buying is almost a no brainer.  I feel so strongly about my recommendation that I’ve decided to sell my house to invest in the market.  I think this market is presenting a once in a life time opportunity, and I don’t want to be the asshole who said I could have bought RIMM in the 40’s, GOOG in the 200’s or Apple in the 80’s and MSFT at $19.  I’m either going to look like a genius or a moron.  But the fact of the matter is, I’m very young, have been very fortunate to have made as much as I’ve made over the past 6 years, and want to take the risk that we’re not entering a second great depression.  I’ve done the analysis, and the analysis tells me things are severely undervalued.  More undervalued than I’ve seen since the tech bubble collapse.  Apple has $25 billion in cash and trades at an $80 billion market cap for god’s sake.  RIMM has a forward P/E of 8!  This is not going to happen too often.  For this reason, I stand by my buy rating and 2 year price target.  I see the economy recovering sometime in 2009, and I see analysts turning bullish on Apple sometime in late 2009.  Finally, I see a major Apple rally occurring between July and January of 2009 as money is returned to the stock market and as new hedge funds find value in investing in Apple.

         
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    Posted: 18 November 2008 07:14 PM #8

    My goodness… well, I certainly hope you got a decent price for your property, despite the horrible market!  There are a few local markets where prices are doing quite well (though we’ll see how well posh Manhattan holds up as the investment bankers are decimated).  :innocent:

    I don’t know what will happen next year, or the year after.  No one does.  But unless something goes terribly wrong, the markets will recover, capitalism will come back.  This is not 1929 (though I’m less confident than Andy that this isn’t 1973).  The miracles of technological and management productivity (not to mention compound interest), human creativity, and sheer animal spirits will return to the fore.  If you’re young enough, now is a wonderful time to invest.

    Of course, many of us are already trapped by our sinking shares with no spare cash (thankfully I still have some left).  But Andy’s somewhat extreme financing measure reminded me of this recent Slate piece .  If I could get, oh, the sort of leveraging Bear Stearns had, or even 2:1, and the banks were willing to wait a decade or so… you bet I would take any penny they’d give me and invest, invest in every quality enterprise I could.

    Well, good luck, Andy.  I suppose I should say, good luck to us all.

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  • Posted: 18 November 2008 07:19 PM #9

    [quote author=“andyzaky”] I don’t want to be the asshole who said I could have bought RIMM in the 40’s, GOOG in the 200’s or Apple in the 80’s and MSFT at $19. 

    Andy:  I’m in total agreement as to the general economy and market.  Both aren’t as terrible as many are claiming, both will come back sooner than many people are projecting. 

    And when the market comes back, AAPL comes back big time.  But RIMM, GOOG and MSFT??

    RIMM has a new Achilles heel in the enterprise-enabled iPhone.  Its going to have to fight hard (i.e reduce margins, spend big ad bucks) just to preserve its fairly narrow turf.  And it will have to pay huge ad bucks to try to play offense against the iPhone in the consumer market.  I’m not suggesting that RIMM should be shorted, but I wouldn’t buy it even as this lower price.

    MSFT will have its twin towers of Windows and Office for years to come, but where does the growth come from?  I don’t see a huge pop for that stock in the future.

    GOOG has plenty of revenue growth ahead of it, but that hasn’t always translated into PROFITS.  Until Google proves that it cares about consistently maximizing profits, I’m not putting my hard earned money there.

    If I was to pick a stock to stand with AAPL for the future, it would be AMZN. Lots of growth ahead of it, and the competition so far is pretty weak.

    I look forward to your next AAPL projections.  I’m glad you are ignoring those who use the current market price to scoff at a much higher value.  The drop in the market since October has impacted all of us, but some of us have not forgotten just how quickly the sun rises again.

         
  • Posted: 18 November 2008 09:04 PM #10

    [quote author=“macorange”][quote author=“andyzaky”] I don’t want to be the asshole who said I could have bought RIMM in the 40’s, GOOG in the 200’s or Apple in the 80’s and MSFT at $19. 

    Andy:  I’m in total agreement as to the general economy and market.  Both aren’t as terrible as many are claiming, both will come back sooner than many people are projecting. 

    And when the market comes back, AAPL comes back big time.  But RIMM, GOOG and MSFT??

    RIMM has a new Achilles heel in the enterprise-enabled iPhone.  Its going to have to fight hard (i.e reduce margins, spend big ad bucks) just to preserve its fairly narrow turf.  And it will have to pay huge ad bucks to try to play offense against the iPhone in the consumer market.  I’m not suggesting that RIMM should be shorted, but I wouldn’t buy it even as this lower price.

    MSFT will have its twin towers of Windows and Office for years to come, but where does the growth come from?  I don’t see a huge pop for that stock in the future.

    GOOG has plenty of revenue growth ahead of it, but that hasn’t always translated into PROFITS.  Until Google proves that it cares about consistently maximizing profits, I’m not putting my hard earned money there.

    If I was to pick a stock to stand with AAPL for the future, it would be AMZN. Lots of growth ahead of it, and the competition so far is pretty weak.

    I look forward to your next AAPL projections.  I’m glad you are ignoring those who use the current market price to scoff at a much higher value.  The drop in the market since October has impacted all of us, but some of us have not forgotten just how quickly the sun rises again.

    Those aren’t the only four companies in which I plan to invest.  Also, they won’t be weighted equally.  I have about 10 or so companies in mind.  Yet, I plan to have about 40% of my capital invested in Apple for obvious reasons.  However, AMZN is not a company in which I am currently interested.  It is simply too overvalued when compared to others in the tech sectors.  I’m not saying that its overvalued on an objective measure, but its overvalued when compared to others.  Just take a look at the following forward P/Es:

    1.  AAPL - 13.75
    2.  RIMM - 10.36
    3.  GOOG - 13.32
    4.  AMZN - 24.64
    5.  MSFT - 8.64
    6.  CSCO - 10.82
    7.  IBM - 8.77
    8.  HPQ - 8.72
    9.  INTC - 14.10

    AMZN is simply too overvalued compared to others in the sector.  It also doesn’t deserve the relatively lofty P/E that it is getting.  AAPL has ZERO debt and $25 Billion in cash and has the same growth rate as AMZN.  Yet, AMZN has only $2.3 Billion in cash and $435 million in debt.  AMZN grew at about 67% this year while AAPL grew at 78% on a non-GAAP basis.  Now that’s compared to big swinging dick AAPL and its probably not fair to compare the two since the market is obviously more irrational with AAPL than with others in the sector.

    Yet, if you compare AMZN to RIMM or GOOG, we get some similar results.  RIMM grew its EPS at 100.65% this year while AMZN grew its EPS at 67.82%.  Yet, AMZNs trailing P/E is at 26.36 and forward P/E is at 24.64 while RIMMs trailing an forward P/E are 15.42 and 10.36 respectively.  So RIMM is growing at a faster pace than AMZN yet has less than half the trailing and forward P/E.

    Also, if you want to compare their business, RIMM is not situated as poorly as people think.  First of all, the smart phone market is growing at a very rapid pace making the market as a whole bigger for everyone.  And while AAPL might dominate the space, stealing market share from RIMM, it still doesn’t justifying giving RIMM a freaking 10 P/E.  Also, RIMM and AAPL compliment each other very well in a portfolio because if AAPL all out dominates the smart phone market, then AAPL’s stock price will more than make up any drawbacks to RIMM. You will see a huge reflection in AAPL’s stock price if AAPL dominates the space to a degree that justifies giving RIMM a 10 P/E.  If AAPl doesn’t all out dominate the smart phone market, then both AAPL and RIMM will thrive making each a great investment.  A position in RIMM is a kind of hedge to AAPL. 

    FInally, its not a matter of which business will or will not do very well in the future.  Its a matter of value compared to business prospects.  AAPL is obviously very well situated going into the future.  But there’s no way I would buy AAPL at $200 a share today if I could buy RIMM at $40 or GOOG at $300.  Its all a matter of value relative to business prospects.  Right now, RIMM simply presents with a much better value than does AMZN or even GOOG. I have never taken a position in RIMM until very recently.  I recently purchased the 2010 $40 call option in RIMM that I fully expect to yield some handsome returns.  RIMM could easily go to $100 by the end of 2009.  At an entry of $18.00, that could be a 3 bagger easily. 

    Don’t get me wrong, if AMZN had a similar P/E of RIMM, GOOG or AAPL, I might be inclined to favor AMZN.  But as it stands, I simply believe that RIMM, GOOG and AAPL present with a better value.  I think all 4 will perform very well in the next 2 years and I certainly believe that AMZN deserves closer to a 40 P/E, but at this level, its simply not as good of a value.  See the following article, it speaks directly to this issue:

    http://bullcross.blogspot.com/2008/10/aapl-is-radically-more-undervalued-than.html

         
  • Posted: 18 November 2008 09:27 PM #11

    Re: This is my Second Buy Recommendation

    [quote author=“Eric Landstrom”][quote author=“andyzaky”]Its time to buy Apple.  This is only the second time that I have publicized that people should buy Apple.  The last time I told people to buy Apple was on my bachelor party in July of 2006 before Apple reported fiscal Q3 earnings on July 19.  I recommended Apple in the $50’s.  For the second time, I’m placing a buy recommendation on Apple for anything in the $90’s and a strong buy recommendation for anything in the $80 dollar range.  I have a 2 year price target of $230 a share.  Article coming. 

    Cheers,
    Andy Zaky

    Andy, have you considered that our economy is now in the keynesian paradox of thrift that states that as economies falter, people tend to save more and spend less and less until the economy slows and grinds down to a sustenance level that it cannot go below?

    I think this theory is not without its flaws.  It presupposes that modern Americans are predisposed to save rather than spend.  It all depends on the culture.  This could be true, and was in fact true, of places such as Japan.  Countries that are known to be savers rather than spenders will tend to fall victim to the Keynesian paradox of thrift.  We’re not a saving country.  We ceased being so in the post war era where we became a home owning country.  The advent of the modern 30 year mortgage that started with the veterans of WWII (VA mortgages), made us a home owning and spending country.  Americans demand their comfort come hell or high water.  Think about how irrational our country is.  Americans literally work their asses off their entire lives just so they can live comfortably what few hours they stay in their homes.  Americans, despite what is portrayed in the media, have the lowest amount of vacation time and work the most hours per year than almost any country in the world.  This phenomenon comes as a result of our spending habits. We spend. WE don’t save.  The Keynesian Paradox of Thrift does not apply to Americans, otherwise we would never come out of any recession ever. 

    After September 11, I remember many “economists” claim that the U.S. could enter a prolonged and deep recession.  Some, though less than today, argued that we were headed for a depression.  Yet, Americans forgot all about Sept. 11 as quickly as it happened, and were spending more than ever over the past 8 years.  Its way too premature to argue for depression and its even too premature to argue that we’re headed for a deep and prolonged recession. 

    In January, everyone from people in the media to economists to analysts believed that it was a foregone conclusion that the U.S. was already in recession.  Yet, GDP was positive for the first half of 2008.  It was largely assumed that the U.S. was in recession and that there would be a “second half” recovery.  Neither happened.  Actually, the opposite was true. Even though people just automatically concluded that we were in recession in January-February, GDP, earnings and employment said otherwise.  But, then we entered recession in the second half of the year.  And this isn’t the first time this has happened.  Over the past 5 years, there were at least 10 situations I could think of off the top of my mind where the market believed we were in recession and everyone in the media spoke in terms that suggests that it wasn’t even a question.  May-July 2006 sticks out.  Everyone said that growth in 2006 would be negative and that the economy was in recession.  Never happened.  We grew at a rapid pace for 2006 and most of 2007.  This is where the adage “the stock market predicts 7 out of the last 2 recessions” comes from. 

    Now that we’re in recession, the media tries to go a step further and predict depression.  Economists, the media and the analysts will always portray things far worse than they actually are.  If we’re in recession, they’ll talk depression.  If we enter depression, then its the end of America.  If America falls, the world is over.  The members of the media are in the words of Charlie Murphy, “Constant line-steppers.”  They go one step too far.  I give absolutely no credence to what any analyst or economist has to say.  I’ll let the data speak for itself. The data, simply does not suggest a depression is in the cards.  Not yet.  Before I go so far as to even consider the idea, we have to see 8-10% unemployment and 6% negative GDP growth for multiple quarters.  At that point, we could talk depression. 

    The stock market, on the other hand, is getting close to pricing in Depression.  I think the DJIA to fully discount depression will have to go to 6,000.  So we’re not quite there, but we’re getting there.  When I see 500 in the S&Ps;, and 6,000 in the DJIA, then I’ll be invest in the market even if a depression is in the cards.  But a depression is not the end of the world and I refuse to believe that we enter anything remotely close to the great depression.  That’s just ridiculous.

         
  • Posted: 19 November 2008 03:52 AM #12

    [quote author=“andyzaky”]
    Yet, if you compare AMZN to RIMM or GOOG, we get some similar results.  RIMM grew its EPS at 100.65% this year while AMZN grew its EPS at 67.82%.  Yet, AMZNs trailing P/E is at 26.36 and forward P/E is at 24.64 while RIMMs trailing an forward P/E are 15.42 and 10.36 respectively.  So RIMM is growing at a faster pace than AMZN yet has less than half the trailing and forward P/E.

    IMHO, you need to discount RIMM’s P/E more than the others because, unlike the others, RIMM’s “E” is now under an unprecedented assault.  RIMM has only one line of business, and historically that business was nearly immune to competition.  Now it has fierce competition.  The future “E” may have no bearing to the recent “E”. 

    AMZN’s higher P/E reduces its attractiveness, but you’ll miss some great opportunities if you only look for bargain basement P/Es.  I believe its relative lack of strong competition justifies its higher P/E.

    But we can agree on one thing:  AAPL’s stock price is ABSURD.  I have trouble putting my money anywhere else when the reward/risk ratio of this one investment is so much higher than anything else I know about.

         
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    Posted: 20 November 2008 04:12 AM #13

    Re: This is my Second Buy Recommendation

    [quote author=“andyzaky”][quote author=“Eric Landstrom”][quote author=“andyzaky”]Its time to buy Apple.  This is only the second time that I have publicized that people should buy Apple.  The last time I told people to buy Apple was on my bachelor party in July of 2006 before Apple reported fiscal Q3 earnings on July 19.  I recommended Apple in the $50’s.  For the second time, I’m placing a buy recommendation on Apple for anything in the $90’s and a strong buy recommendation for anything in the $80 dollar range.  I have a 2 year price target of $230 a share.  Article coming. 

    Cheers,
    Andy Zaky

    Andy, have you considered that our economy is now in the keynesian paradox of thrift that states that as economies falter, people tend to save more and spend less and less until the economy slows and grinds down to a sustenance level that it cannot go below?

    The Keynesian Paradox of Thrift does not apply to Americans, otherwise we would never come out of any recession ever.

    Andy, you’re mistaken in your understanding of the paradox of thrift. The paradox says that as economies falter people save more and spend less and less until the slowing spending bases on a sustenance level relative to the culture at which time the economy can then grow. The paradox of thrift does not state the death spiral is endless as you seem to presume. All to say you’ve got a false assumption and that you should realize that in a year or two economists will complain that Americans are saving too much and spending too little unless we get a tax break or an incentive to spend money.

    FWIW, stimulus don’t work because they are a redistribution of wealth. Sure the money gets spent but the people from whom the money was taken will over time spend less that the total sum of the stimulus net loss in total spending.

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  • Posted: 20 November 2008 06:10 AM #14

    Re: This is my Second Buy Recommendation

    [quote author=“Eric Landstrom”][quote author=“andyzaky”][quote author=“Eric Landstrom”][quote author=“andyzaky”]Its time to buy Apple.  This is only the second time that I have publicized that people should buy Apple.  The last time I told people to buy Apple was on my bachelor party in July of 2006 before Apple reported fiscal Q3 earnings on July 19.  I recommended Apple in the $50’s.  For the second time, I’m placing a buy recommendation on Apple for anything in the $90’s and a strong buy recommendation for anything in the $80 dollar range.  I have a 2 year price target of $230 a share.  Article coming. 

    Cheers,
    Andy Zaky

    Andy, have you considered that our economy is now in the keynesian paradox of thrift that states that as economies falter, people tend to save more and spend less and less until the economy slows and grinds down to a sustenance level that it cannot go below?

    The Keynesian Paradox of Thrift does not apply to Americans, otherwise we would never come out of any recession ever.

    Andy, you’re mistaken in your understanding of the paradox of thrift. The paradox says that as economies falter people save more and spend less and less until the slowing spending bases on a sustenance level relative to the culture at which time the economy can then grow. The paradox of thrift does not state the death spiral is endless as you seem to presume. All to say you’ve got a false assumption and that you should realize that in a year or two economists will complain that Americans are saving too much and spending too little unless we get a tax break or an incentive to spend money.

    FWIW, stimulus don’t work because they are a redistribution of wealth. Sure the money gets spent but the people from whom the money was taken will over time spend less that the total sum of the stimulus net loss in total spending.

    I’m with Andy on this one.

    Eric, you are in complete disagreement with at least Wikipedia:

    The paradox of thrift (or Paradox of Saving) is a paradox of economics propounded by John Maynard Keynes. The paradox states that if everyone saves more money during times of recession, then aggregate demand will fall and will in turn lower total savings in the population. One can argue that if everyone saves, then there is a decrease in consumption which leads to a fall in aggregate demand and thus leads to a fall in economic growth.
    The simplified form of the argument is that, in equilibrium, total income (and thus demand) must equal total output, and that total investment must equal total saving. Assuming that saving rises faster as a function of income than the relationship between investment and output, an increase in the marginal propensity to save, all other things being equal, will move the equilibrium point at which income equals output and investment equals savings to lower values.
    In this form it is a prisoner’s dilemma as saving is beneficial to each individual but on a whole it can be harmful. This is a “paradox” because it runs contrary to common intuition. One who does not know about the paradox of thrift would fall into the fallacy of composition. This fallacy arises when one infers that something is true of an economy from the fact that it is true of an individual. Although exercising thrift might be good for an individual, by enabling that individual to save for a “rainy day”, it might not be good for the economy as a whole.

         
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    Posted: 20 November 2008 08:57 AM #15

    Re: This is my Second Buy Recommendation

    [quote author=“Mike in Helsinki”][quote author=“Eric Landstrom”][quote author=“andyzaky”][quote author=“Eric Landstrom”][quote author=“andyzaky”]Its time to buy Apple.  This is only the second time that I have publicized that people should buy Apple.  The last time I told people to buy Apple was on my bachelor party in July of 2006 before Apple reported fiscal Q3 earnings on July 19.  I recommended Apple in the $50’s.  For the second time, I’m placing a buy recommendation on Apple for anything in the $90’s and a strong buy recommendation for anything in the $80 dollar range.  I have a 2 year price target of $230 a share.  Article coming. 

    Cheers,
    Andy Zaky

    Andy, have you considered that our economy is now in the keynesian paradox of thrift that states that as economies falter, people tend to save more and spend less and less until the economy slows and grinds down to a sustenance level that it cannot go below?

    The Keynesian Paradox of Thrift does not apply to Americans, otherwise we would never come out of any recession ever.

    Andy, you’re mistaken in your understanding of the paradox of thrift. The paradox says that as economies falter people save more and spend less and less until the slowing spending bases on a sustenance level relative to the culture at which time the economy can then grow. The paradox of thrift does not state the death spiral is endless as you seem to presume. All to say you’ve got a false assumption and that you should realize that in a year or two economists will complain that Americans are saving too much and spending too little unless we get a tax break or an incentive to spend money.

    FWIW, stimulus don’t work because they are a redistribution of wealth. Sure the money gets spent but the people from whom the money was taken will over time spend less that the total sum of the stimulus net loss in total spending.

    I’m with Andy on this one.

    Eric, you are in complete disagreement with at least Wikipedia:

    The paradox of thrift (or Paradox of Saving) is a paradox of economics propounded by John Maynard Keynes. The paradox states that if everyone saves more money during times of recession, then aggregate demand will fall and will in turn lower total savings in the population. One can argue that if everyone saves, then there is a decrease in consumption which leads to a fall in aggregate demand and thus leads to a fall in economic growth.
    The simplified form of the argument is that, in equilibrium, total income (and thus demand) must equal total output, and that total investment must equal total saving. Assuming that saving rises faster as a function of income than the relationship between investment and output, an increase in the marginal propensity to save, all other things being equal, will move the equilibrium point at which income equals output and investment equals savings to lower values.
    In this form it is a prisoner’s dilemma as saving is beneficial to each individual but on a whole it can be harmful. This is a “paradox” because it runs contrary to common intuition. One who does not know about the paradox of thrift would fall into the fallacy of composition. This fallacy arises when one infers that something is true of an economy from the fact that it is true of an individual. Although exercising thrift might be good for an individual, by enabling that individual to save for a “rainy day”, it might not be good for the economy as a whole.

    I see I didn’t make myself clear. I said nothing of total buying power, Mike. I stated, “The paradox says that as economies falter people save more and spend less and less until the slowing spending bases on a sustenance level relative to the culture at which time the economy can then grow. The paradox of thrift does not state the death spiral is endless as you seem to presume.”

    This means that as people save more and spend less economies contract but they do not contract forever because there is a minimum level of commerce. All people need to eat for example and at the very least, eating is a level of consumption nobody willingly gives up. As such all economic contractions have as a floor a minimum level of consumption—which I took the extra step by stating the minimum level of consumption is determined by the cultural context.


    “Market participants willing to forgo current consumption (i.e., to save) in order to be able to enjoy greater future consumption would find their efforts foiled by the market mechanisms that link saving and investment. Rather than stimulating investment, increased saving would impinge on overall spending and hence on overall income. This perverse negative income effect, which Keynes identified as the paradox of thrift, is discussed at length in Section 9.9” (available: http://www.auburn.edu/~garriro/cbm.htm).

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    Black Swan Counter: 9 (Banks need money, Jobs needs a break, Geithner has no plan, Cuomo’s grandstanding, .Gov needs a hobby, GS works for money, flash crash, is that bubbling crude?).

    For those who look, a flash allows one to see farther.