Throughout the financial crisis I argued that we were in good hands with Ben Bernanke guiding the economy. I believe those who conclude that the efforts of QE1 were a failure are 100% wrong. The primary purpose of the Fed is to stimulate confidence in times of economic contraction and to temper inflation in times of economic growth. As much as we all want to believe that our economy is built upon a rock of fundamental safety, it is not. All economies do well in times of confidence and suffer from the lack thereof. Bernanke understands this and has consistently been able to provide the economy with jolts of confidence when it needs it most. QE1 policy was the reason we avoided a Depression. Although it didn’t propel us to high growth or result in a return to lower unemployment it did put a stop to the free fall of both data points. That in and of itself was a big, big deal.
Now we get QE2 at a time when the recovery had stalled. Stage one of the market recovery lasted from the March 2009 low until the end of the year. Stage two of the market recovery could never get off the ground. It has been stuck in neutral (tight trading range) for 10 months as housing, unemployment, eurozone crisis, tight lending, etc... keep a cap on the cycle. Read these words from Mr. Bernanke himself regarding QE2.
This is a man who is in tune with the economic confidence of our country. The stock market obviously approves of the plan he has come up with. Stage two of the market recovery has officially commenced thanks to QE2. Before adding to current positions we wanted to see confirmation that the market agreed with Bernanke’s actual plan and we have gotten it. This is now the stage that brings us back towards the 2007 highs of Dow 14,000. This is a stage that allows Apple to reach the lofty projections of analysts such as Morgan Stanley who put a 10 month ‘bull case’ price target of $500 on the stock based on better than expected demand of Apple products; Huberty forecast 80 million iPhones and 40 million iPads sold in CY 2011. A stock like Apple needs solid market footing to be able to make that kind of a jump and it appears Bernanke is laying the foundation of confidence brick by brick.
We are buying a 5% allocation of February 2011 calls, a 5% allocation AAPL January 2013 $350 calls and a 2.5% allocation AAPL December 2010 calls. This takes our cash to 41% of the portfolio. Excellent job by the Chairman.
Disclosure: Long AAPL