Which is a Bigger Story: iPhone 3G or Tanking Banks?

Which is a bigger story, the biggest consumer electronic release in history, or the banking system on the verge of a total collapse? Let’s start with the bad news and then end on an up-note, shall we?

This past weekend the United States Government went on an all out PR campaign to talk up the economy. First, there was the Freddie (FRE) and Fannie  (FNM)show, Treasury Secretary Henry Paulson telling us every thing’s fine, don’t worry, we got a plan. This was followed by Uncle Ben loosening the purse strings. Isn’t that how these lenders got into trouble in the first place? And if all’s well, why do they need more money?

Sunday futures were way up from this Fed stuff. Apparently the markets were looking for any slice of good news, and the market opened Monday morning on a huge high. Like all good sugar highs, the euphoria was short lived and the markets started to tumble. Then the President makes a cameo appearance and tried to give the markets a lift by lifting the ban on offshore drilling. I wonder how that helps our economy in the near term? Seems to me it’s a long term solution destined for endless political squabbling. Well the market was mildly amused, then went back to the business of punishing the banks. The $BKX was down 8% today.

The screws are tightening. We’ve got the banks on the ropes, and oil in our face. Speaking of oil, it just won’t give in, slowly inching higher towards that $150 a barrel. This puts incredible pressure on our economy, driving inflation up and dragging consumer confidence down. With the PPI on deck today, followed by the CPI on Wednesday, we’ll see just how tight those screws are on consumers.

click to enlarge image

This chart shows the $VIX or the volatility index, Traders generally use this chart to measure the amount of fear in the market place. The black candles are days of capitulation, the day counter trend rallies ensued.

So all this wonderful news leads us investors to one question. When can we expect capitulation? You know, the last straw, the breaking point, the event resulting in a strong counter trend rally. It always happens when things get the most bleak. Traders use the euphemism known as sentiment to describe this feeling of fear. Just when things seem that they can’t get any worse, they do, then everything flips. The indicators used to measure fear, like the $VIX, and Put-call ratio, are at peak levels. Some of these indicators like the RSI, which measures how overbought or oversold the market is, has been oversold for seven weeks, and at historic levels. We are truly on the verge of a bubble about to burst. But when? I hope soon.

Ok, that’s enough for the bad news, not onto the good stuff.  The 3G iPhone was introduced into 21 countries this weekend. The original number was 22, but France has delayed the release until July 17 for unknown reasons. And Apple made history by laying claim to the largest consumer electronics release in history. That’s right, Apple reported to have sold 1 million of the 3G iPhones in just three days! They also reported 10 million downloads from the App Store! This great news was muted by faulty reports from Piper Jaffray’s Gene Munster and CNBC’s  Jim Goldman, that claimed that Apple had sold only half that amount. Both analysts quickly recanted their faulty numbers and reissued corrections, here’s Munster’s new numbers.

There’s always some level of misreporting, though I’m surprised by these two gentlemen, as they are normally quite accurate and fair in their reporting. To their credit, they quickly fixed their original numbers and apologized for the error. Then there are those simply looking to grab headlines, like this bozo from ChannelWeb that leads with the headline, “6.7 Billion Say No to the iPhone.” It’s obviously tongue in cheek reporting, or is it?

The release was not without its glitches though. There were server activation problems that were fixed by Saturday. Seems that no matter how much you prepare, there’s always a challenge. And of course Apple blamed AT&T (T) and AT&T blamed Apple. Par for the course.

So, how did Apple’s stock (AAPL) do in the market? It started out great, like most stocks, opening around 179, but gave up most of those gains steadily throughout the day, but ended higher than the previous close at 173.88 +1.30 (0.75%). So all in all, it was a relatively strong showing. Since the S&P lost critical support at 1240 and ended at 1228.30 -11.19 (0.90%), I would expect the Bears to be emboldened and try to take out the current support at 1225, and bring it down to the next level of support which is 1175. That would naturally put downside pressure on AAPL. Let’s hope capitulation is near.

Disclosure: Author holds a long position in AAPL

Comments

[Toni:]

"The indicators used to measure fear, like the $VIX [...] are at peak levels."

VIX need to shoot up in the range 32-35 intraday.

Until then, the market will go down.

2008 Jul 15 08:33 AM

[Offgrid:]

See the Hang Seng this morningv? Big drop coming today. Hopefully Apple will not drop too far.

2008 Jul 15 08:51 AM

[Neil Anderson:]

A million iPhones sold already!

Christmas came early this year to Apple.

2008 Jul 15 11:26 AM

[Blad_Rnr:]

I understand the US economy is very complex, but it really comes down to the fact that we left the gold standard many years ago, and what we have now is fiat currency, where the government can print as much money as it wants at will. This is driving down the value of our currency and allowing foreign companies to buy up our assets (Budweiser, for example). What we need is someone in this government to put a hold on printing paper money and stop loaning T-bills at ridiculously low rates. Do foreign governments really think we can pay these back when we are in debt up to our eyeballs?

We are at war and yet we all seem to forget that. We don't have a war-based economy like we did during WWII, where people made sacrifices. No, we want to support a war (right or wrong) and have our cake (spend like it doesn't matter). We need to realize that our government can't just spend and spend and spend more than we have in the bank. I am not an expert in the financial markets, but I know enough simple economics (Friedman) to know this is not going to be good in the long run. The government's takeover of IndyMac Bank yesterday could be just the tip of the banking industry's collapse.

2008 Jul 15 12:08 PM

[Toni:]

"iphone canada"

good call, big drop!

any prediction for tomorrow ?

2008 Jul 15 03:15 PM

[Tom B:]

When capitulation comes, we'll still be buying iPhones-- by the barter system, trading homespun and chickens.

2008 Jul 15 03:54 PM

[F. J. Taylor:]

Unfortunately Blad_Rnr has a very good point - and one I have seldom seen on these sites, albeit he (?) has somewhat simplified an extremely complex problem.

Now as it happens, though a big Apple fan myself and a shareholder, and thus happy to see all the buzz, I am also strongly opposed to the regime's war of choice (especially in Iraq) which is exacerbating the present problems, as well as breaking our military, whatever moral standing we had left with the world at large (little enough, I fear), and will inevitably break our bank - which, as he points out, is largely smoke and mirrors anyway.

(BTW, full disclosure here: I am a retired Marine, and a veteran of close personal ground combat.)

While I am not a big fan of Friedman's, this bit is bang on. (Though the points about gold and fiat currency, which agree with, seems more like von Mises' theories than Friedman's work...)

In any case, I fear we have just scratched the surface of the "fear factor" - and that if we do not rapidly mend our collective ways as a nation and as individuals, we are facing a disaster of great magnitude.
I am not at all certain that we will survive it as a nation, or at least in the form we are accustomed to in the US...

BTW, Blad_Rnr - even those who support this war (for whatever to me unfathomable reasons of their own) are not, for the most part, sacrificing anything - because they have no personal or abiding interest in it. Only a relatively small number of people are involved or even have a family member involved, and there is no draft (unless you count the economic "back-door draft" nature of our present volunteer armed forces).

Only a few of the wealthy (or politicians) have anyone serving in the armed forces, let alone combat.

I might add that there is no "war economy" other than operations like Halliburton) because we simply don't have much industry left here. Many parts or even entire systems are made, or assembled or acquired from off-shore sources. (The Marines are even getting their bayonets from Germany!)

Pity more people haven't grasped these and other critical facts. As the title of the article asks, which IS the bigger story...? Americans don't really seem to care as long as they have their MTV, American Idol, McMansions, Hummers, etc.

2008 Jul 16 01:45 AM

[mollytjm:]

i agree...fiat $ only 'works' when you pay the bills in full. fear has driven this country into the ground. the present administration used fear of terrorists to get away with a lot. now we have fear killing the market. but before that, incredible greed and stupidity, and no reins, let lenders and borrowers topple the economy. However... i think we will survive this. Hopefully to end up smarter, but that might be hoping for too much.
Apple is such a good company...so fiscally responsible, having NO debt and huge cash reserves and producing fine products with wonderful tech support and it's sad to have it struggle to make it's stock price rise to the level it should, when in even a moderately good economy, it would be soaring.
but one upnote... businesses with large IT sections will be moving to Apple eventually, because IT is VERY expensive and Apple products need a lot less tech support than PC products. that will be good for Apple. Needing less IT also means less wasted employee hours as they 'wait for IT to fix the glitch'. better bottom line.

2008 Jul 16 09:18 AM

[Tom B:]

"businesses with large IT sections will be moving to Apple eventually, because IT is VERY expensive and Apple products need a lot less tech support than PC products"

Yes, it will happen over time. But the IT guys will drag their feet as much as they possibly can, to preserve their jobs, just as they have done for almost 25 years. Given that the quality gap between Mac OS and Windows (look at Vista) has been getting wider pretty fast since 2000, though, I don't think IT departments will be able to resist change forever.

2008 Jul 16 09:30 AM