Here are seven reasons why investors love to short Apple:

1- Apple is the market leader.  I don’t mean Apple is the leader of the PC market or the smartphone market, I’m talking about the stock market.  The Dow would have hit 11,000 by now if Apple was having a strong December.  This one stock has become so important to the market that its action is contagious.  This influence makes Apple a prized possession for both the longs and the shorts.  Knocking down an easier target like Research in Motion or Citigroup doesn’t generate the same snowball effect.  This begs the question, why would anybody want to keep a strong stock and a strong market down...which leads us to #2.   

2- Apple always bounces back.  If you can keep a good stock down then you are able to load up for the ride back up.  It’s like a slingshot.  The harder you pull, the more propulsion you generate.  Over the long run, Apple fundamentals will certainly take the stock higher but hedge funds want to maximize the ride.  Keeping a great stock down allows them to profit from quick predetermined trades rather than being fully invested all the time.  If they can control the price action on the downside, they can take even bigger risks during the inevitable periods of upside momentum.  After riding the Apple slingshot, the hedge funds go back and do it again and again.  

3-The predictability of Apple reduces a short’s risk.  Everyone on earth knows when the next iPod, iPhone, and iMac refreshes will hit.  This has turned into a calendar driven catalyst stock.  During the quiet time, the stock is vulnerable.  

4- New media has changed the game.  Anybody can say anything and the masses will believe it.  The topic of Apple currently dominates this new media.  There is no accountability or verification of sources like the old days.  In such an environment, hidden agendas can be pushed endlessly without disclosure.  On any given day you will find twenty different articles written about Apple with 99% of the content being speculative in nature.  The stock responds to this outside speculation in the absence of official clarification from the company.  

5- Apple secrecy.   As the unparalleled leader in tech innovation, Apple feels that it is necessary to keep future products veiled to all competitors, consumers, and investors.  I’m not here to criticize Apple for this practice because it certainly has its merits, but it does open the stock up to volatility. Apple has yet to sell a single Tablet and yet hedge funds have already made millions from rumors surrounding the product.  The lack of transparency from Apple creates a perfect storm for short term traders.  

6- Apple innovation.  This company is so good that it causes imaginations to run wild.  A hedge fund could float a story that Apple is thinking of buying Saturn in order to develop a new brand of Apple cars and people would go nuts. The name Saturn would instantly become a symbol of quality and innovation. If they floated a similar rumor about IBM, investors wouldn’t be as quick to jump.  The constant innovation coming out of Apple provides traders with endless material for believable speculation.  

7- Steve Jobs is the visionary of the century.  This one man is the single greatest asset in corporate america which causes Apple stock to trade with a Steve Jobs premium; a variable that the shorts can use as well.  Apple stock is always vulnerable to losing Steve Jobs.  If Steve Ballmer were to leave Microsoft nobody would care.  That doesn’t help the shorts.  Steve Jobs is different.  A hedge fund could float a factual article that gives statistics on liver transplant patients and it might move the stock.  

These seven reasons make Apple an ideal short play for sophisticated traders who want to make money coming and going.  The chaos of it all can cause individual investors to become frustrated with the volatility.  At www.applerevolution.com I will be tracking the daily rumors that come from the various Apple sites and separating the fact from the fiction.  Tracking the tone and volume of articles is a terrific way to distinguish the current direction of this stock’s movement.  If Apple won’t respond to the rumors than we’ll have to act as watchdogs ourselves.  

What would have happened if Bank of America, Goldman Sachs, Morgan Stanley, Wells Fargo, and JP Morgan were all operating without the restrictions of TARP while Citigroup tried to compete while hampered by the restrictions?  In this scenario we surely would have witnessed a mass exodus of executives away from Citi.  Has Dick Bove read the recent headlines about AIG’s unhappy management team?  (http://www.thebigmoney.com/features/todays-business-press/2009/12/07/aig-executives-threaten-quit-over-pay-again) The success or failure of a bank is directly correlated to the people who work there, Citigroup had to jump when everyone else was jumping if they wanted to remain competitive.  To paint the executive team as a group of greedy, self serving fat cats is too simple minded.  Government stakes in private banks was a bad plan to begin with, the sooner Citigroup can move on the better.  

The real story is that Citigroup was able to raise the $20.5 billion in the stock market.  Only 9 months ago that appeared inconceivable.  Are we supposed to be in shock that there wasn’t an appetite for the Treasury to sell an addition $5 billion at the same time?  This was already the largest offering in history.  Citigroup has a long road ahead of them  but it looks as if they will escape the clutches of government control within 6-12 months thereby allowing them to retain executives and maybe even hire some new talent.  This offering should be interpreted as progress, not as some ‘terrible error’ like Dick Bove is calling it. 

This came on the same day that the Wall Street Journal, the NY Times, and CNBC were each obsessing over yet another attempt by Google to release a relevant phone.  While these outlets were busy gossiping like a group of teenage girls, most people missed the only factual tech investment story of the day.  NPD reported that desktop Mac sales are up 74 percent in the first two months of the quarter (digitaldaily.allthingsd.com/20091214/des...; Now that’s a story worth reporting.  

The abundant news that is available on the Web makes is so difficult for investors to discern which news items are worthy of your attention and which are meaningless. Monday was a prime example of the major news outlets leading you astray.  Where have we heard these Apple attacks before?  They tried it with the Zune and that thing bombed, then they tried it with gPhone #1 and that thing bombed, then with the Droid and that thing bombed, now they're giving it another go around?  The interesting thing is that this kind of news originates from sources 'familiar with the situation' or hedge funds.  There is nothing these funds would like more than to be able to buy Apple in the $180's during the first week of January.  With the earnings report expected to clobber estimates and the Tablet set to arrive in early 2010 the next run might be a $40 run.  This hedge fund game was working as usual until surprisingly an Apple spokesman actually spoke up and defended the company. At www.economictiming.com we feel that providing investors with focused information is one of our primary responsibilities.  Of all the news that is out there, 99 percent of it will fool you into making bad investment decisions.  Make sure you have access to a professional filter of the news flow.  Especially when investing in a company like Apple that deals with daily rumors.  

1-www.economictiming.com update 12/9/09

The Apple Tablet talk is officially back.  And this appears to be more

than noise.  Oppenheimer analyst Yair Reiner, one of the most

respected Apple analysts, has issued a research note that suggests

Apple manufacturing will hit mass market production on the 10.1 inch

touchscreen Tablet by February.  This means that the unveiling of the

Tablet could come as soon as January and the product could be for sale

as soon as April. Reiner also mentions that Apple is offering

publishers a 30/70 split which is far more attractive that the typical

split at Amazon.  I maintain my view that the Tablet will become

Apple's flagship product as it redefines the way users access the

Internet and consume media.  I agree with Rupert Murdoch that the

Tablet will save the newspaper industry.

 As an analyst, Reiner has a solid track record; in contrast to the

questionable commentary coming out of well known analyst's Gene

Munster and Shawn Wu.  Reiner is the one who uncovered the true

subsidy that AT&T pays for the 3G iPhone, he has produced terrific

research about how the accounting changes from FASB will eventually

boost Apple stock, and about the importance of software over hardware

in the iPhone's success.  In May of 2009 he sat down with Apple

executives and reported a series of strategic measures that they may

employ to help grow iPhone market share in the booming smartphone

market.  Such access is highly uncharacteristic of Apple executives

and shows the respect they have for Reiner.  The fact that he is

telling us that the Tablet is coming is legitimate.

What does this mean for Apple stock?  It means that the momentum going

into January's earnings report will be doubled by Tablet anticipation.

 Because of these two catalysts we might be in the final stages of

seeing Apple stock below $200.

2-www.economictiming.com update 12/8/09

So much for the technical analysis guru's who were telling investors

yesterday that Apple was broken and that the uptrend was over.  This

is a stock driven by big money investors who like to buy low and sell

high.  This selloff began 8 trading days ago with the market up and

Apple down.  Perhaps today is the beginning of a reversal with Apple

up and the market down.  So far, today's Apple action is textbook

hedge fund buying.  I feel bad for all the individual investors who

sold into yesterday's weakness.  Too many lose money because they sell

low and buy high.  The only reason why Apple would suffer a

significant drop is if the fundamental picture significantly changed

for the company or the economy.  As of today, both fundamentals are

improving.

For those of you who saw Meredith Whitney on CNBC this morning talking

about a probable double dip for the market, my response is that she

doesn't understand the power of economic cycles.  It is so difficult

to fight the cycle.  During the past two years of worsening economic

conditions there wasn't a stock on Wall Street that could overcome the

cycle.  Investors need to be willing to adapt in this day and age of

volatility.

3-www.economictiming.com Update 12/7/09

Today marks the 7th day of the Apple selloff and you can tell that

mainstream investors are getting nervous.  Numerous blog posts are

floating around discussing the negative technical picture and trying

to tie some kind of news item with the fall.  Little do they realize,

this is the Apple pattern.  Last month was the exact same, only worse.

Last month's selloff lasted 8 trading days and the stock dropped to

$185.  Are the hedge funds selling today?  No way.  They sold at $205

and began the snowball that is now infecting mainstream Apple

investors.  E Weather is beginning our 20% buying this week with Apple

at $190 and possibly lower.  Keep in mind that buying at the low is

never an easy thing to do as the stock usually drops below your risk

tolerance.  However, take solace in the fact that you are averaging

into the best company on the planet in a stock with incredible

valuation.

As for gold, it is becoming more and more obvious that it is the new

investment vehicle of fear.  Without fear, gold goes down as it has

since the better than expected jobs report.  Gold has replaced oil as

this vehicle of fear.  Ask 10 gold investors why they are in and they

will give you ten different answers: all related to fear of inflation,

Obama, healthcare, the dollar, international currency issues, etc...

Each news outlet has multiple articles about gold, just like they used

to have about oil.  What does this mean?  It means as long as fear can

be manufactured in an improving economy gold will go up, if fear

cannot be manufactured gold will go down.  As such, it is the perfect

hedge for the portfolio.  It should never become a huge holding but it

can be used as a hedge.  Because gold has no real fundamentals and is

the ultimate 'emperor without clothes' it's important to stay very

cautious.  We averaged into a small position in the GLD and might look

to add some LEAPS in January.  It's much safer to make money on the

way down than it is on the way up in a bubble.