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Sandy Lighthouse's  Instablog

Sandy Lighthouse
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Self employed for 35 years in construction. PHD from school of hard knocks. Tend to have a macro macro perspective.
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  • The Fed Has It's Eye On The Wrong Ball

    First, a brief recap on the last fifteen years for the US economy and stock market, IMHO.

    The tech wreck of '01 was a speculative bubble that popped, rather than a reflection of fundamental economic weakness. It drives me crazy to this day to hear about the recession of '02. There was no recession. Unemployment might have bumped up a point when the spoiled techies went underwater on their stock options and quit throwing money into the broader economy. But the broader economy was basically fine.

    That didn't stop Greenspan from lowering interest rates unnecessarily, setting up the near worldwide depression of '08. That was a massive liquidity crisis caused by excess leverage and risk in credit markets of all kinds, but particularly in mortgage markets. The TARP programs were ugly but necessary, and worked. The EU meanwhile, pursued more conservative economic measures based on fiscal restraint.

    So which response to the crisis was more effective? Conventional thinking seems to favor the Keynesian stimulus of the US over the EU's more Austrian response. I'm not so sure they didn't both work in their own way.

    I think that shale oil and gas discoveries and development were the real game changer for the US, not fed easy money policy. Jobs were created, energy costs were stabilized, and a productive foundation was created for the economy. Meanwhile Germany was playing games with "green" energy because of the Fukishima disaster. So the US caught a break and Germany shot itself in the foot.

    But the fed embarked on quantitative easing, which in my opinion was totally unnecessary, and is creating major imbalances in credit and equity markets worldwide. "Risk on" is backstopped by the fed's policies, and is setting the stage for some nasty speculative bubbles and their inevitable bursting.

    I think the fed is grossly over estimating the need for further economic stimulus, while grossly under estimating the damage it is going to cause. The fed has it's eye on the economy ball instead of excess liquidity ball.

    The best investment opportunity I see on the horizon is to be patient and wait for bubbles to burst, and buy assets then, rather than count on improving fundamentals in the economy to push markets higher. Years of improvement are already priced into the markets.

    Aug 19 5:40 PM | Link | Comment!
  • My Perspective On Apple

    I started building a position in Apple (aapl) in 2001 and started working out of that position in early 2012, so I've been following the stock for a prolonged period of time. The stock sold off on Friday and closed at about $430, a new yearly low. Following are some observations and opinions that I hope can be of some use for those interested in the stock.

    Out of the massive amount of information about Apple available on the web (most of which is click bait), the two following articles offer the most insight to me:

    First, Henry Blodget at Business Insider-

    then, Charlie Wolf of Needham via Fortune-

    Also, is always good, as is

    Now my take:

    Apple derives most of it's sales and profits from mobile internet devices, a category that it revolutionized with the iphone and ipad. It also captures most of the profits of this market worldwide. As this category matures, Apple's sales growth and gross margins have declined- indeed Apple's overall profits for this quarter are projected to decline year-over-year. The question going forward is how much gross margins will decline, and whether earnings growth will resume and by how much.

    Broadly speaking, it comes down to how successfully Apple can innovate in the phone and tablet markets. Can Apple innovate without Steve Jobs? Jobs was definitely involved in Apple's innovation process, but my opinion is that his contribution in this area is over rated. Jobs was a genius, but he was not god. He could be very wrong, but could be persuaded to change his mind. Jobs was dead set against making the ipod compatible with Windows. It took a lot of pressure inside the company to get him to relent and make the decision that sparked Apple's meteoric growth. Jobs was wrong on plenty of other things too.

    In my opinion, innovation is not the crux issue at Apple. Leadership is. Steve Jobs' largest contribution was leadership, by a mile. He had the ability to attract top talent. Steve was a great general made even greater by his great lieutenants. So can ex-lieutenant Cook become a great general? Time will tell, but my opinion is that he will. Indeed, I believe his skill set may be more appropriate for the massive company that Apple has become than Jobs' would have been. His tenure so far has been characterized by excellent decision making. Cook's biggest challenge will be to attract future lieutenants. The misfire with the hiring of Browett as head of retail is concerning, though Cook did remove him. Removing Forster in software and retaining Mansfild in hardware were the right decisions, IMO. A company of Apple's size requires a deep pool of talent in upper management to succeed. This is a long term issue and will be exposed over years, not months.

    Apple's competition, provided mainly by Google's Android and Samsung's hardware is very strong. Keeping up with it will be challenging but do-able. The main challenge is in the prolific number of form factors the competition offers. This is where Apple's ability to innovate (or not) will come into play. In my opinion, Apple is a clear leader in ecosystem and hardware quality. Google has the lead in software ( voice recognition and maps for example), but not enough to create a better overall user experience. There also appears to be some cracks in the Google-Samsung marriage which I think will prove to very problematic in the future.

    itv and iwatch? Show me. Should Apple move downmarket? Only if management can identify a clear opportunity

    AAPL's stock price is another large issue. I think Charlie Wolf's model for valuation is fairly accurate. Wolf's $710 overall with about $140 in cash being given zero value by the market (according to David Einhorn and others) equaling about $570. This makes $430 look cheap, unless profits continue to decline. Einhorn's "ipreferred" idea was spot on described by Cook as a "silly sideshow". I think Cook and the board of directors will address returning some portion of cash to shareholders in one form or another, though I don't think it will move the stock price much. I like the 10 for 1 stock split idea, though I have no idea of it's likelihood of happening. I remember Larry Ellison repeatedly doing 3 for 2 splits at Oracle (orcl) in the '90s to push up the stock price.

    I'm no technician, but my guess is that there's a lot of potential selling into any rally in AAPL, whether the rally is driven by fundamentals, sentiment, or both. AAPL moving above $500 in the next year looks tough to me, and $550 may be out of reach for several years under even ideal circumstances. Downside risk is anybody's guess, though I haven't seen the panic selling that characterizes many price bottoms.

    I hope I have offered some ideas here that may be of use. These opinions of mine could all be proven to be completely wrong. Time will tell.

    Disclosure: I am long AAPL.

    Additional disclosure: Any investor would be crazy to invest on the basis of the information provided in any one article, especially if that article is written by a nobody like me.

    Mar 02 12:21 PM | Link | Comment!
  • My Two Cents On Amazon

    Amazon (NASDAQ:AMZN) certainly is a hot topic here on Seeking Alpha. The opinions and perspectives are all over the graph. Comparing Jeff Bezos and Steve Jobs is a common theme, both being founding CEO's of massively disruptive companies.

    The big difference between the two is that Jobs was a "saver" and Bezos is a "spender". Jobs was disciplined and Bezos is undisciplined when it comes to focusing their company's financial and intellectual resources. Bezos has always been a dreamer who just can't say no to a myriad of fascinating possibilities. Bottom line, Bezos will always find ways to spend available capital on "the next idea" putting a cap on long term profitability, and occasionally get caught being over-extended financially.

    Amazon is on a spending spree right now, and looks to me to be somewhat overvalued. My best case scenario is for Amazon's stock price to be relatively flat for several years, before heading higher.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: AMZN
    Oct 21 8:27 PM | Link | Comment!
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