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Market: Spooked Today, But Panic Attack Is Likely Temporary

Sometimes one has to go beyond checking things like commodity prices to find the reason for a downday in the market. Friday had its share of bad news. The first thing to look at is the V shaped rally in stock prices. I have read so many times from so many sources we are in a V shaped recovery since March.

It has been a long time since March and in my opinion a V shaped recovery would be consumer spending at levels far higher than what they are today. Many investors are starting to think the same thing. We have seen a V shaped increase in stock prices but the economic recovery is more like an L. I would not be surprised to see stock prices reflecting the reality that the V shaped recovery is not happening.

But you were looking for reasons on Friday why the market was down. Could it be because a Goldman Sachs newsletter said the S&P would end the year at 1060 which was lower than Fridays high?

Could it be a drop in consumer spending of .5 percent when everyone has invested in a V shaped recovery and recovery that looks to be slip, sliding away?

Could it be that oil prices have jumped from 30 a barrel to over 80 a barrel since December even as they are running out of places to store all the extra oil being pumped, sucking money from consumers that might have been used to purchase goods and services?

Could it be incomes were reported to be down. Not sure how a V shaped recovery can happen with declining incomes and increased costs of things like gasoline as consumers only have so much money to spend.

Could it be economists after seeing the GDP numbers and looking at the downtick in car sales from the aftermath of the Clunkers program, rachetted down their future GDP forcasts. Another stick in the V shaped recovery mud.

Could it be the three big bright spots in the GDP report, car sales, home construction and consumer spending were all splashed with recent news of car sales dropped, 14 percent decline in mortgage apps, a few percent decline in home sales, and a .5 percent drop in consumer spending? Not leaving much left for the bright spots of the GDP report.

Could it be wholesale is seeing increased spending on building inventories but retail is not seeing increased spending to buy up all that additional inventory? Another trend that can not continue for long.

Overall one might think that some investors who were enjoying the fact GDP was growing, going to grow and a V shaped recovery are now waking up to the fact the taxpayers spent huge money to loan real cheap money to banks to increase lending only to see lending reduced and interest rates jacked up higher for consumer credit cards to fatten bankster profits and bonuses.

My opinion is the recovery is showing itself to be not as most investors were expecting it to be so they might just adjust their investment portfolios accordingly. That combined with the end of the year where many investors who are happy to see their investments return to higher levels once again, may now be worried they might see the market decline on the new views growth might send the market lower and they might want to lock in their profits before the market resets once again.

Of course with banks not loaning out as much money and consumers trying to pay back as much as they can on credit cards that had interest rates jacked way up by the Banksters, the banks have more and more money each month they have to invest somewhere so they could keep buying stocks and keep the market rising regardless of dropping consumer spending on goods and services.

But watch out below if the banksters decide to use all that tax payer liquidity they have to invest in the downside of the market because of a lack of confidence that the current state of the recovery warrents the current prices of stocks.

Jon Markman sees just enough parallels between now and 18 years ago to get pretty excited, and prompts investors: Get ready to party like it's 1991.

Tack, I believe you are wrong about interest rates. I have a 30 year fixed rate mortgage refied a few years ago at 5.25 percent interest with 0 points and I missed the bottom by a little at the time. Looking back at the interest rate data for 2003 you will find a spell of just over 5 percent interest rates and also for a period during 2004. When I look at the data for the year you mention of 8 percent interest for 2007 I only see 30 year fixed rates in the 6 percent range all year. Not sure what data you are looking at to find 8 percent home loans in 2007 but I could not find any. The info I just mentioned I found here: mortgage-x.com/general...

One thing to remember also is those years I believe the banks were giving away mortgages with 0 points and little fees to those with good credit. As that is what I recall my loan was. Now the loans come packed with fees and points as the banks added those to cover losses made to the sub prime crowd. So a 4.5 percent loan packed with extra fees and points is not as good a deal as a 5 percent 0 point low fee loan of a few years ago in my opinion.

While consumers do return to spending after fear subsides they usually do not return to spending on Credit when interest rates are increasing and they already have lots of outstanding credit. The big banks have big losses to cover so they are upping interest rates on Credit Cards even though the government is loaning them money at probably the cheapest price ever. While this process of increasing rates on Credit Cards is going on, most consumers with outstanding credit will cut back spending and pay off cards and reduce credit usage.

This process, like all will come to an end. Either the banks will stop raising rates on Credit Cards sometime in the future or people will have paid them down enough to resume spending without increasing Credit Cards balances. I have spoken to people who have had letters from credit card companies whose increased rates take effect in October so the process of raising rates on cards is not finished and some of the new rates have not shown up on consumers bills yet.

As far as the banks deploying their vast amounts of liquidity on new loans that is so simple if they wanted to. All they would need to do is go back to what they were doing a few years ago and offer all those 0 percent credit cards with a 2 percent transfer fee. The problem is they do not want to and have been in the process like Chase bank of increasing the charge to transfer balances to 5 percent and packing those cards with higher interest rates in an attempt to reduce credit usage.

Same goes for business loans. If the banks loaned money out to the businesses at prices they did just a few years ago the businesses would increase borrowing and use up that liquidity. But the businesses are being hit by higher rates from the banks as well as the banks need to cover all those losses.

On Sep 19 06:13 PM Tack wrote:

> >>Housing is in the best shape interest rate wise with interest rates
> that have at least maintained their low level of a few years ago
> but they have not dropped 3 percent like they did starting in 1991.
> <<
>
> This is just plain wrong.
>
> Interest rates on mortgages had crossed over 8% by 2007, and, now,
> they can be had for under 5% --even under 4% in some cases-- for
> qualified borrowers (the only kind who should be getting money, anyway).
>
>
> The principal reason that money isn't being employed, i.e., borrowed,
> to garner higher rates of return is because we've still had businesses
> and consumers in the debt contraction phase, so banks have not been
> able to deploy the vast, record-level liquidity they now hold. <br/>
>
> As the economy gradually turns and fear subsides, banks, businesses
> and consumers will all be seeking higher rates of return than offered
> by Treasuries and other short-term instruments. This will lead to
> new capital formation in the business sector and expanded borrowing
> in the consumer sector.
>
> It's a typical and normal cycle: the psychology changes from how
> not to lose money to how to make money.

Jon Markman sees just enough parallels between now and 18 years ago to get pretty excited, and prompts investors: Get ready to party like it's 1991.

Interesting the article makes a comparision with 1991 for a couple reasons off the top of my rusty old memory.

First is many economists have said this is the worst recession since the Great Depression. Sorry to say 1991 was not so it is not a good comparison.

Second and more important is the article focuses on the effects of how the feds money flowing into the market making lowered interest rates to cause companies to invest our way out of problems. This is not a comparision to be used with 1991 as long term interest rates were 10 percent or higher and the flooded money brought them down 3 percent. Also, companies had money borrowed at higher interest rates which they could reborrow at lower rates fattening profits further. Consumers were paying high interest on credit cards and saw interest rates dropping making it cheaper to borrow. All that money saved in interest payments was able to move into consuming.

Fast forward from 1991 to today. We are coming off of years of cheap fed money. Businesses and consumers borrowed huge amounts of money for next to nothing over the last about 8 years. All those offers of 0 percent interest for a year on credit cards might ring a bell. The flooded money to banks only resulted in higher interest rates, companies are seeing low interest rate loans refied to higher interest rate loans causing them to want to borrow less and expand less. Consumers are seeing credit card interest rates rising causing them to want to spend less. Housing is in the best shape interest rate wise with interest rates that have at least maintained their low level of a few years ago but they have not dropped 3 percent like they did starting in 1991. All that money going into paying additional interest payments is reducing consuming.

I do agree the flooded money by the feds is going to have a profound effect on the markets that can take the economy in a new direction. But for now all I see is the feds flooded money moving to the banks, the banks are increasing interest rates and buying stocks as stock price growth is outpacing earnings and revenue growth.

Market Outlook: The Bull and Bear Cases

Or you could go back to May of 99 where the Dow was within 100 points of Jan last year. Then the 27 percent gain would be a 3.375 percent year to year growth.

Market Outlook: The Bull and Bear Cases

Guess the glass is half empty or half full. The Dow is either up less then 27 percent in 6.5 years or it is up more then 27 percent in the last year and a half. At the less then 27 percent in 6.5 years it averages to 4.1 percent a year.

Think Twice Before Flipping Apple Around WWDC

Very nice Carl. I had been thinking some slight ups and downs may be coming this month but maybe not. It will be hard to tell and your analysis shows yep some downside could exist.

As for if Apple did sell all its phones to add the 22 million to revenues well that sure will not help the numbers much for the quarter. But then again it banks 66 million in revenues for next quarter without selling another phone. Nice.

It also means for the majority of stock holders who hold stocks for longer then a few days to get a percent or two off an up and down that 22 million to revenues means 264 million in the next years revenues without selling any product. Of course for a company the size of Apple that is not much to add to the years revenues but that does not include all the phones they will sell over the next year.

iPhone: Apple Making All the Wrong Moves

Providing the wrong information to people just to attempt to drive the Apple stock down. You must be short on Apple. Ha Ha.

You state (This also means that the 10 million units Apple plans to have sold by the end of 2008 will be done to 47 million AT&amp;T subscribers, meaning one in five will have one? Doubt it.) but you dont bother to mention the Iphone is targeted to go on sale in Europe this fall and in China early next year. I guess it does not need to sell 10 million units to 47 million AT+T customers after all.

Some fools might actually link your miss information to their readers as truth. Ha HA

The iPhone Effect: What Will Happen to Apple's Other Products?

Apple stock holders would love it if all purchases of Ipods were switched to the Iphone causing no one to ever purchase an Ipod ever again would be the best thing that would ever happen to Apple Stock. Lets see they sold 20 million Ipods last holiday season. And if they get a 30 percent year to year growth rate in sales from Ipods that would be 26 million Ipods sold this Holiday season.

If Apple gets a cut of say 200 dollars per phone from AT+T and lets say it is real costly to manufacture the Iphone and it cost them 200 dollars to make each phone that’s 300 profit off each phone. Add in Apples cut of the AT+T profit (which I saw mentioned on the web) of an estimated 200 dollars and hmm 500 dollar per phone profit traded for a loss of a Ipod sale. Hmm, looks like Apple and its Stock holders would be laughing all the way to the bank with 26 million Iphones sold in a quarter.

Actually, on release day the Iphone still has plenty of market. First the Ihone is only released for US sales to start leaving the entire rest of the world as customers for the Ipod. Thats a pretty good market alone. Next is some people in this country have no cell phone or phone at all so that adds to the people that can purchase Ipods. And finally some people will not pay the 500 dollars for a cell phone so they will remain as potential customers for the Ipods. So unfortunately, I guess Apple will not lose all of the projected 26 million sales of Ipods this Holiday season although they would love it if they did.

Emotion: The Enemy of Every Investor

Hi Todd. I am one of those who sold a lot of stock to load up on Apple stock in the last few months. I have held some for a couple years now but I had to purchase more. I am also a PC owner and haven’t owned an Apple computer for 18 years now. I currently have 6 computers/laptops all running Windows. Although I will be purchasing an Apple Laptop this year. If I find I it does all I need it to I may end up replacing all the computers with Macs and Laptops only time will tell. I don’t own an Ipod either but my wife has one and my daughter has one.

Researching Apple recently I discovered a lot about its potential over this year and next and for the next few years. First is the market share for laptops and Macs has been growing and will accelerate. This will be explained further. Next is the release of the Apple TV which will add some to revenues this holiday season. They are in the process of increasing the number of places to purchase Macs and Laptops from 5800 to 8000 this year. This will provide a nice boost to revenues this holiday season. Toss in upgrades to the Ipods and an upgrade to the OS which always increases near term sales and the holiday sales this year should be a nice boost from last year and make the current price of the stock look cheap.

Then I had to factor in the Iphone. First and foremost I agree that dropping the price will increase sales of the phone. I don’t think Apple should drop the price at all. I don’t expect Apple to have enough phones for demand anyway. I don’t think they can increase the amount of phones to meet demand until at least next year some time leaving many people who want to buy one without.

This demand is not made up of the older generations but they should purchase a fair number of the phones but most of the phones will be purchased by the 13 to 29 year old age group. Yes this is where Apple has the largest ownership of Ipods also. I was curious as to if a real market for the 500 dollar phone existed. I asked my 14 year old daughter if she heard of the Iphone. She told me yes it was the buzz at her school and several of her friends said they were going to get one. Ah being a parent I was like sure the parents are not going to fork out the dough for that phone. She then said Doh summer is coming and that is when us kids get most of our money to buy what we want.

This got me thinking. I read someone did a survey of 11 high schools, 500 kids and found an 83 percent ownership of Ipods. They don’t own the Ipods because they are cheaper because they are not. They don’t own them because they have more features as others like Microsoft spent a lot of money to build what they say is a more fully featured MP3 player. They own them because they are cool. This is where Microsoft has a problem. A kid can show several others his new Microsoft MP3 player and really try to impress them with the features but the kids will just shrug it off as but the Ipods are cool and they really like them. They won’t switch from Apple easy. I guess that is why Apple might sell 50 or 60 million Ipods this year and Microsoft 1 million MP3 players.

My daughter also reminded me the kids want the phones before they go back to school because the first day of school is important socially. This is when the kids meet again after the summer and show off what they have that is cool. (not real important to me but I do remember how important it was to some kids to be the coolest) Of course I then thought back to my days in High School so many years ago and remember kids including myself shelling out lots of cash for fancy car stereos. I spent 350 dollars on mine so many years ago. That’s probably 750 or so now. I worked part time here and there when in high school and was fully able to spend 500.00 on anything I wanted.

This got me thinking further. Hmm, probably a half million to one million kids will be going back to school in the fall with a cool Iphone. Passing it around showing it off. All I could see was desire being raised by those unfortunate enough to not have a cool phone. These kids will go back to mom and dad and start the whining process that they have to have this phone. With Christmas coming and kids begging parents for only one thing. Most of us can remember as a teenager when wanted that one thing and we just had to have it.

I had to do more numbers and checked the census. I found 16.8 million kids in High school alone. Some kids in 7th and 8th grades will be following the same process. Maybe more important and I am guessing here is 16 million kids in the next age group 18 to 22 who have jobs or student loans who can just purchase the phones if they want. This would also be a high percentage Ipod ownership group. Then the next four year group would also be a good group for the Iphones. For many just to be able to not have an Ipod in one pocket and a phone in the other will be worth the price.

If throw in a far smaller percentage of people in the older age groups like the 30s and 40s who will be purchasing the Iphones and I see a real demand for them. I know I will be purchasing one or maybe two for gifts this year. I also know a couple other people who will be purchasing the phones. I also know many people mostly who are in the 40s or 50s that believe the price is too high.

I would hate to guess but I believe Apple could sell 10 million phones in the Christmas quarter alone, that is if they can manufacture that many.

As for the price being to high I know many who pay 4 dollars for a cup of coffee when another shop sells a bottomless cup for 1 dollar. Then all the suv/lexus/high end car owners. They aren’t buying because the price is cheap but because it’s something they want. I also had to look at the crowds that show up at Nordstroms or other high end retailers to spend a few hundred on a pair of shoes or a shirt. They could just purchase a similar item for far less somewhere else but they choose to spend more on what makes them feel better. I remember Air Jordan tennis shoes being in demand for teens at 120 dollars for a pair when they could get a decent pair of tennis shoes for ten or twenty dollars. I could not believe parents would shell out that kind of money for a kids shoe that is going to wear out in 6 to 9 months but the kids had to have those shoes and Nike loved the profits.

Anyway I had to purchase additional Apple Stock I would hate to miss out on the low forecasts of those who don’t think a market exists for these phones. The best stock for me to purchase is one where a company sells far more then what is forecast and I see the Iphone as being one of those items. And besides if Apple hits the sales I expect them to with the Iphones the profits will be huge. I read where someone guessed Apple will get a cut from AT&amp;T for the phones and at the price of the phones they should make a nice profit margin. One guess I read was where Apple might make a 100 percent combined profit off each phone. Hmm, 10 million phones in a quarter at 500 dollar profit that’s what 5 billion dollars profit added to all the other products. If this happened it could drive the stock up a few dollars a share.

I almost forgot I know several PC owners that will be purchasing Apple Laptops and Macs this year. This is a first for me. I have recommended computers for many people and businesses over the years and this year is truly different. I have not seen so much interest in Apple Computers among the PC owners I know as I have over the last 6 months or so. Even, Great Grandma, who I spoke with a couple days ago, said, she saw an Apple Laptop at the school and the person showed her how she could run her PC applications on the Apple and then switch to using the Apple for surfing the web without getting viruses and such. She was actually excited. See she has had virus/worm problems on several occasions and her only resolution was to pay someone to fix her computer as the support she had for PCs wasn’t good. She is going to purchase her first Apple product ever this year. So I expect as PCs need to be replaced more and more sales will go to Apple.

I can’t tell you if this demand is the same around the country but I do know the Ipods has created a large number of new customers for the Apple Laptops and Macs among the 12 to 29 age groups. Most of these Ipod customers believe Apple makes great products and when they need to purchase a computer and if they want a great product well they will be looking at Apples. And these customers are telling others about how much they like the Apple computers. Word of mouth can be a wonderful thing to adding market share.

You are very correct in saying Apple could sell a larger number of phones if the price was lower but if they can’t build that many phones then the point is mute. They should keep the price high at least until an over supply exists. Well this is just my opinion but I will know if I am correct by Christmas. If Apple sells over 10 million phones this holiday season at least you will know where you read about it.

Its to bad so many gave you a hard time about your thoughts.