1/18/12…losing your head

…today’s slug has a dual meaning. First, Apple’s announcement that CEO/founder Steve Jobs has taken an ‘indefinite’ leave as he battles the rare form of cancer that got him seven years ago and effects of the liver transplant he had two years ago. Now, as then, the stock is reacting to the news as hit sits at a record high and is up 345% (112% annualized) since 1/20/09…69% in the past 12 months. Long term growth rate is 19.84% which is clearly not sustainable – but when does it stop? That there is some concern is the fact that the estimated p/e is 17.6x but the p/e to growth rate is 0.9, which is characteristic of a value stock. We know one thing…no company can grow at that rate forever and Apple has succeeded on the wizardry of Jobs who has made ‘planned obsolescence’ in three months a watchword…which is not meant to detract the innovations he has inspired.

Lawyers say that Apple is not required to comment any further than they already have, and it is amazing that there is so much confidence in Jobs yet so little that the man has the ability to choose a successor that can carry on…although corporate infighting could evolve and derail the success. Apple is an amazing story but is it at it’s apogee???

The second story is the continuing saga of Goldamn Sachs and its Facebook private placement. For the second time in a year the company is showing that it may not be the ‘smartest guys in the room’ after all when it tried to bring a private placement of a company that is froth with hype, overvalued by any stretch – especially for a company whose value is being determined by the relatively miniscule private placement! The company says it will provide financials by 2012…you have to believe…don’t you? There is now so much hype about this company that it is being offered to the rich at prices rich even to the successful companies in this area. All this for an intellectual property whose assets go out the door every evening? My, my, if that is the case what is Goldamn worth??? Must be even more since they are the newly-crowned ‘smartest guys in the room.’

To those students of history…and there can’t be many left anymore as most think of history as studying charts to create trading algorithms of what a stock will do in the next ten minutes and the name for a person who still believes in ‘buy and hold’ is termed a loser…one only has to look at Charles Mackey’s Extraordinary Popular Delusions and the Madness of Crowds. In the chapter of ‘Tulipmania’ he points out the feeding frenzy hit a peak when a seaman sitting in a bar saw a bulb and thinking it was a garlic clove took a bite out of it. That single bulb would have equipped a ship and paid its captain and crew for one year.

Fortunately, nobody would be stupid enough to take a bite out of an ‘Apple.’

Poor old Citi…the scourge that thanks to its founder Sandy Weill, and henchman Robert Rubin, made the entire financial crisis of the past five years possible…hear, hear!!!

Well, it seems they missed…only a 46% gain…to Dimon’s 47% gain, But due to narrowing interest rate spreads…and to TB mismanagement of risk…the Q4 net was just 4 cents a share compared with estimates for 7 cents. Still this is the first ‘green’ quarter for CEO Vikram Pandit (who, unlike Dimon is not a banker and who made his way in a hedge fund he sold to Citi…think about that, will you?).

What is interesting about this is that it appears that what made Goldamn and success since becoming a bank (sic), was not its brokerage activities but arbitraging by borrowing at near zero rates from the taxpayers and buying longer-dated treasuries…but the question now that rates are rising dramatically (as a percentage from the low) is whether that trade should be…or may already have been unwound significantly. Note that short term borrowing rates are not up one iota but the price deterioration is offsetting the cost of carry…the curse of any short-seller or margin buyer. TB continues to believe that this will all end very badly.

Friday’s 0.5% gain on the Dow and 0.8% on the S&P 500 and Nasdaq indices (Russell 2000 was the winner at +0.9%!), masked a potential problem: while advance/declines and breadth were positive by 1.5x or more (except on the AMEX which was strangely and decidedly negative by about the same amount), and new 52 week highs ran their ‘usual’ near 500 level, new lows surged to 226…on Thursday they jumped to 100+ and prior to that had been steady at less than 20! In rallies, ‘a rising tide lifts all boats’ but when the players are tiring, some of those boats begin to take on water…watch closely.

. . . - - - . . .    . . . - - - . . . (S.O.S.)

Those watching the ‘love fest’ between the Dems and GOP got to see just how ‘real’ this is…as true to life as all reality shows including Sarah Palin’s Alaska. New York Senator Chuck Schumer (D) was on Meet the Press with his ‘buddy’ from Oklahoma, Tom Coburn ®. Chuck talked about the respect and desire to work together adding that he and a GOP senator had agreed to sit together during SOTU this week. Wonderful! But to every question that David Gregory asked, Coburn either said the opposite of Schumer…including the issue of 30 shot clips…or evaded the answer until Gregory had to ask him to please answer the question…which he didn’t do.

Sorry, folks, the stakes…both personal and political, are too high for these people to ALL work together for the common good…this is about money, power, and getting control of both Congress and the Oval Office.

Meanwhile on This Week, the entire show was on stage in Arizona…it was all about niceness. One tea party member said some things but merely stated his opinions…no big deal…but then after, a victim or someone who was at the shooting shouted out a threat of bodily harm to him and was arrested on misdemeanor assault charges. We learned nothing from this tragedy! People are too empowered to think about niceties…or for that matter common decency or respect for others views. Tom Friedman prophecied this in The Lexus and The Olive Tree. A pity.

God bless America…we sincerely need it.

Have a nice short workweek,


Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries...as he sees it...and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Copyright TBD Capital LLC, January 18, 2011.


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