The words of Federal Reserve Chairman Ben Bernanke and Apple (AAPL) COO Tim Cook today and yesterday have been like a breath of fresh air for the markets.
Ben Bernanke: Of all the players involved in the financial crisis, Bernanke has come out looking like the rock of stability. This guy never gets rattled. Many expected that Congress would really come at him in full attack mode today, and they did, but he handled it calmly and intelligently. When Ron Paul demanded an audit of the Fed, Bernanke said he would have no problem with increased transparency. When they discusses interest rates, he calmed the market by saying rates need to remain low for an extended period. When they discussed inflation, he showed conviction in the Fed's ability to fight it when the time comes.
The biggest worry today was that Bernanke might derail the housing recovery by indirectly raising mortgage rates at the end of March. Again, he calmed the markets by reiterating his plan to maintain such programs for an extended period. He remarked that unemployment looks poised for a rebound.
I have long known Bernanke to be a serious student of the Great Depression and am confident he won't do anything that would put the recovery in jeopardy. He understands we are still in a fragile stage. Because of the volatility of the last month and because of the rise in the emergency funds rate, we all needed to hear these words come out of Bernanke's mouth today. Although the actions of the Fed are difficult to quantify, there is no reason why this news shouldn't be at the top of our economic timing indicators. Very positive comments from the Fed.
Tim Cook: After listening to Cook, a few points stand out.
(1) He mentioned he has been using the iPad for six months and described it as "absolutely incredible." He added, "there are a number of things that are appreciably better than anything available today" and listed browsing, email and photo display as examples. Cook also referred to the iPad as the "Internet in your hands."
Apple wanted to design it in a way that makes the device invisible so that you literally can put your fingers right into the Internet through the touch screen. No netbook or computer allows for this kind of user experience. At $499, available in Best Buy (BBY) and Apple Stores, this thing will surpass the highest of expectations. Add this to the list of variables not priced into Apple stock.
(2) Apple plans to ramp up retail expansion by opening 50 new stores this year. The new stores were described by Cook as "jaw dropping." The amazing thing is that Apple has been able to take advantage of the recession by getting the best locations at prices they never thought imaginable. Good luck finding a company that has improved its position as much as Apple over the last two years.
(3) The Mac OS is "hugely scalable." Cook called this Apple's huge competitive advantage as it allows them to innovate at an enormously fast speed. What did he mean by this? It means that Apple can come out with multi-function mobile and desktop devices without a hitch. Software and hardware are both a part of Apple's DNA.
(4) The ceiling for Mac market share is still far off. Apple sold 10 million Macs in 2009 compared to 200 million PCs sold worldwide. Apple is still working to get users to switch from Windows and it's working.
During this January/February market correction, one of the popular arguments against Apple has been the size of its market cap. Apple shorts suggest that Apple is now mature and has reached its peak market cap. Nothing could be further from the truth. If stocks traded on market cap, then every stock would run out of gas at set levels. This never happens. The average market caps of today are way different than they were 5, 10, 20, 50 years ago. Market cap is a variable that evolves with the times.
Growth and p/e ratios, however, are time tested elements that determine stock price action. The growth trajectory that Apple is on with the iPad and market share gains with the Mac and iPhone are like nothing else we have seen.
In conclusion, the comments from Bernanke and Cook were a breath of fresh air for the markets because both men were able to accurately portray the current environment. The fact that investors are finally responding to such news is a great sign. Our Apple/QQQQ long trade is back on and we will keep it in place until Apple sells off hard against an up market. Stay a little nimble as we finish out Q1 but know that the overall picture of the economy and Apple are looking better and better each day.
Disclosure: Long AAPL, QQQQ