cranium - 05 January 2009 10:06 PM

Nice to see you back Andy! On your Seeking Alpha blog I commented on selling all my worldly possessions to buy Apple going into earnings under $100, but I guess with your comments about your house it’s actually quite serious for you! With two young kids and a mondo mortgage I’m going to have to settle for less.

Quick question—how do you and deagol get such similar earnings with some notable differences in unit sales?

Andy vs Deagol
————————
- 8M vs. 6.5M iPhones
- 2.8M vs. 2.7M Macs
- 22M vs. 20M iPods

It has to do with the fact that we have some differences in the accessories.  The marginal difference in iPhone sales has no impact on our numbers at all.  But as for iPods and Macs, the small variations are made up in our differences on how we view Apple’s other segments.

Andy

I really hope that your plan works out, and whilst I am the last person who should be proffering advice (given the mess I have made of things), it sent a shiver down my spine to see that you were going to put the proceeds of your house into this market at this time.  So much so, that whilst I have continued to lurk, this is the first post I have made since October.  You may be right.  The market may see this recession as it has in the past. AAPL may rise on fundamentals.  Somehow I am not so sure.  Of course, someone who has done badly out of this market, is going to be looking at things with a more pessimistic outlook than someone who has been historically successful.  That said, we were all successful in 2007, and I dare say I am not the only one who got caught out with the head fake to 180 in August 2008.  One of the many things I did wrong, was not to ask the obvious question “what if I am wrong” and to hedge accordingly.  It seems to me that the beguiling beast of investing is that one is convinced of the rightness of ones actions at the time.  You are no doubt convinced that you are right, you otherwise wouldn’t be doing it.  I hope you are right, all I would say, with the best of wishes and intentions is good luck, but take care.

I would offer my 2¢ long-position view as such:

I think we will see a response to much better than expected earnings from AAPL, perhaps not quite as strong as Andy suggests, but along with the rest of the market having such low expectations we might see an overall uptick through the quarter. Analysts have been slashing S&P earnings—‘08 now at ~$48 (trailing PE of 19), and ‘09 at ~$42 (fwdPE of 22). The historical average is 15-16. Ouch.

Given those estimates, I don’t think the market picture is rosy for the rest of the year either, and AAPL will continue to be knocked around/down with the rest of the market. I think this will be a generally bad year for investment in stocks, in spite of the happy-talk heard in some corners. Many of you may remember how adamant I was this time last year when the recession talk was boiling my socks and I had to take a stand. Well, this time it’s a lot different—I was just as gut-punched as everyone else by just how over-leveraged the financials were (essentially how badly we were lied to), how irresposible they, the SEC, and regulators were, etc.

It took five years for the market to double back from the tech bubble peak.  I’m speaking from a position where I’m currently (still, thankfully) employed in a Fortune 100 global company, and what I see ain’t pretty, folks, and it ain’t looking good for quite…a…while.

John Mauldin has a good piece on why this crisis will play out a much different story compared to “normal” business-cycle downturns. He notes that uber-bear Bill Fleckenstein has closed out his short fund, but this may not be for long.

Say all you want about how good Apple-the-company is; the stock will be just as broken as the rest of the market and economy for some time, and I have other things to use the money for in the near term, so I’ll be closing my AAPL out when/if the bear lifts it’s head and allows me to get out from underneath with (hopefully) most of my skin intact.

Good luck to everyone, and here’s to a good Macworld finale.

UPDATE:  I stand by my recommendation of Buy in the 90’s and Strong Buy in the 80’s.  However, I am in the process of cutting my 2009 earnings estimates and I cut my 2-year price target to $180.

andyzaky - 02 February 2009 03:37 PM

UPDATE:  I stand by my recommendation of Buy in the 90’s and Strong Buy in the 80’s.  However, I am in the process of cutting my 2009 earnings estimates and I cut my 2-year price target to $180.

I remember suggesting a 30% haircut on AAPL’s growth model was the way to go and I did so based on the idea that in severe downturns commerce runs down to a culturally derived sustenance level. So how much are you cutting your growth and are you considering that sales will slow even more than expected if we see inflation take off.

My overarching thesis is that we must write down debt so people owe less and then inflate our way out of this mess so that people will buy the T-bills that the treasury must sell to pay for all of the increased .gov spending and backstopping.

For me, tech doesn’t seem to be a good way to play the inflation trade because nobody needs to upgrade—they can sit on what they’ve got.

andyzaky - 02 February 2009 03:37 PM

UPDATE:  I stand by my recommendation of Buy in the 90’s and Strong Buy in the 80’s.  However, I am in the process of cutting my 2009 earnings estimates and I cut my 2-year price target to $180.

Andy-
You mentioned you were only going to trade in and out of AAPL and not hold a long positiion - is that still the case?  2-year price target to $180 - 180 at the end of 2010?  180 at the end of 2010 doesn’t sound so bad right at the moment.

alice - 02 February 2009 04:07 PM

andyzaky - 02 February 2009 03:37 PM

UPDATE:  I stand by my recommendation of Buy in the 90’s and Strong Buy in the 80’s.  However, I am in the process of cutting my 2009 earnings estimates and I cut my 2-year price target to $180.

Andy-
You mentioned you were only going to trade in and out of AAPL and not hold a long positiion - is that still the case?  2-year price target to $180 - 180 at the end of 2010?  180 at the end of 2010 doesn’t sound so bad right at the moment.

I’m doing both.  I trade in and out, and hold a long position.  My long position is a hedge against a potentially powerful rally.  Yet, I do think that one could shave several points off of his/her average by trading in and out with just as many shares as he/she is holding long.  That’s what I’m doing at the present moment.  I was lucky enough to get a massive position on the Steve Jobs fiasco.

Eric Landstrom - 02 February 2009 04:03 PM

andyzaky - 02 February 2009 03:37 PM

UPDATE:  I stand by my recommendation of Buy in the 90’s and Strong Buy in the 80’s.  However, I am in the process of cutting my 2009 earnings estimates and I cut my 2-year price target to $180.

I remember suggesting a 30% haircut on AAPL’s growth model was the way to go and I did so based on the idea that in severe downturns commerce runs down to a culturally derived sustenance level. So how much are you cutting your growth and are you considering that sales will slow even more than expected if we see inflation take off.

My overarching thesis is that we must write down debt so people owe less and then inflate our way out of this mess so that people will buy the T-bills that the treasury must sell to pay for all of the increased .gov spending and backstopping.

For me, tech doesn’t seem to be a good way to play the inflation trade because nobody needs to upgrade—they can sit on what they’ve got.

Except for the fact that earnings isn’t saying this.  People are upgrading and they’re doing it in record numbers.  Apple set a new record in iPod sales in what is suppose to be the biggest financial crisis since the great depression.  If this is such a massive crisis as is touted by the media, then how can Apple 22 million of the most discretionary item in existence?

andyzaky - 02 February 2009 04:34 PM

Eric Landstrom - 02 February 2009 04:03 PM

andyzaky - 02 February 2009 03:37 PM

UPDATE:  I stand by my recommendation of Buy in the 90’s and Strong Buy in the 80’s.  However, I am in the process of cutting my 2009 earnings estimates and I cut my 2-year price target to $180.

I remember suggesting a 30% haircut on AAPL’s growth model was the way to go and I did so based on the idea that in severe downturns commerce runs down to a culturally derived sustenance level. So how much are you cutting your growth and are you considering that sales will slow even more than expected if we see inflation take off.

My overarching thesis is that we must write down debt so people owe less and then inflate our way out of this mess so that people will buy the T-bills that the treasury must sell to pay for all of the increased .gov spending and backstopping.

For me, tech doesn’t seem to be a good way to play the inflation trade because nobody needs to upgrade—they can sit on what they’ve got.

Except for the fact that earnings isn’t saying this.  People are upgrading and they’re doing it in record numbers.  Apple set a new record in iPod sales in what is suppose to be the biggest financial crisis since the great depression.  If this is such a massive crisis as is touted by the media, then how can Apple 22 million of the most discretionary item in existence?

God bless Apple’s iPod strength but traders are trading momentum, not fundamentals. To be sure, at some point we’ll all sober up and consider fundamentals but not right now, Andy. The upside is that many AAPL traders have wandered off elsewhere and are trading other things. The downside is that every time AAPL runs, up those same traders come back asking, “Where do you think you’re going?” shorting AAPL back down as they do so. Andy, doesn’t have to make sense but the phenomenon should be recognized.

andyzaky - 02 February 2009 03:37 PM

UPDATE:  I stand by my recommendation of Buy in the 90’s and Strong Buy in the 80’s.  However, I am in the process of cutting my 2009 earnings estimates and I cut my 2-year price target to $180.

So GM price target to $180
andyzaky price target to $180
Tommo ??!!

Tullio,

You’ve not been reading often.  Tommo forecasted $150-$160 by Summer this year.  Possibly if broad market goes into a multi-month rally ... in this type of scenario, Eric and his followers won’t dare to ask “where do you think you’re going?”.  Bear in mind, threat of a hyperinflation eroding cash hoards could prompt those monies back into the market sooner rather than later.  Historically, commodities and REITs stocks benefit from hyperinflation.

Fact is, anything could happen.  Given what has occurred in last 12 months, with the wild gyrations, I take the $180 with more than a grain of salt.  Could be $200 or even $250 if our Good Uncle doesn’t contract the money supply fast enough in a hyperinflation scenario.

My best guess (and only a guess) is that AAPL will trade within fairly narrow band ($25-$35) until mid to late Spring, IMHO.

Mace - 02 February 2009 11:25 PM

Tullio,

You’ve not been reading often.  Tommo forecasted $150-$160 by Summer this year.  Possibly if broad market goes into a multi-month rally ... in this type of scenario, Eric and his followers won’t dare to ask “where do you think you’re going?”.  Bear in mind, threat of a hyperinflation eroding cash hoards could prompt those monies back into the market sooner rather than later.  Historically, commodities and REITs stocks benefit from hyperinflation.

For the record, I called $78 as a bottom several months ago. Thus far the market has come within twenty cents setting a low of $78.20.

Today’s tech rally is a head fake. Shorts throttle off, stocks rise and gain momentum to the upside by bringing in a new group of long side investors, and then the shorts pile right back into a classic channel trade. But that’s the daily melee of skirmishers out on sortie. The battle and the serious money continues sitting on the sidelines waiting for a black swan as a catalyst before joining in the unfolding soirée.

My plan is to continue to play the cycles and so I’m building a long position in oil, base metals and shorting the REITs into oblivion in anticipation of what I believe will be an erosion/collapse of the New York real estate market that will come to pass in the next nine months. To me tech looks like dead money to me. If you’ve got a position, great, then call write against it and if you get assigned, then no loss since I believe that the market will come right back to your price because we are channel bound.

The financials are apparently insolvent and because they are insolvent .gov isn’t passing legislation for increased transparency because if they did and everybody learned what those L3 assets are, everybody would realize that the world banking system is insolvent and the banks would collapse in the ensuing chaos that would follow. I’m fine with the elephant in the room simply because flat money has no intrinsic value other than our trust and if all the central bankers have agreed to play by these rules, who am I to argue? Notwithstanding, tech cannot follow a sustained rally without the financials participating and because of that phenomenon, I know that any rally without the financials participating is in point of fact a head fake. As such the challenge the street, .gov types and central bankers have is convincing everybody else to trust in the new rules of the elephant.

Eric Landstrom - 03 February 2009 12:46 AM

... For the record, I called $78 as a bottom several months ago. Thus far the market has come within twenty cents setting a low of $78.20 ...

This call is meaningless unless you specify the timeframe of the bottom.  Is it a multi-month or a multi-year bottom?  I would send you a MacBook Air if you’re correct that $78.20 is a multi-year bottom.

Mace - 03 February 2009 02:34 AM

Eric Landstrom - 03 February 2009 12:46 AM

... For the record, I called $78 as a bottom several months ago. Thus far the market has come within twenty cents setting a low of $78.20 ...

This call is meaningless unless you specify the timeframe of the bottom.  Is it a multi-month or a multi-year bottom?  I would send you a MacBook Air if you’re correct that $78.20 is a multi-year bottom.

I did not offer a timeframe at the time that I suggested $78.00 as a low but I had in mind that housing would bottom in Oct. ‘09 along the lines of the ‘74 S&P thesis I’ve shared in the past (and subsequent market conditions following ‘74). At any-rate, I had a year long time frame at the time that I expected $78 and unless new products are released I expect AAPL to trade in a range from $82-95 into May.

FWIW, I’m not interested in an MBA.  Architectural books are welcome.