Is Europe Dead? Is Apple A Hedgefund?

Aug. 05, 2013 3:58 AM ETAAPL4 Comments
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Contributor Since 2012


Another denied SA article becoming a blog post. I should be writing garbage that loses investors a lot of money but causing big flame wars and lots of page hits. Well, never mind.

European equities lagging their US counterparts for sometime now, especially those in problematic countries like Spain, Italy, Portugal, and Greece. Germany, UK, and France are doing better. Recent economic indicators are signaling positive developments in the Eurozone in general. Unemployment finally ticked down, confidence ticked up, and some signs of inflation albeit quite small. Banking system is still fragile. Nevertheless in my opinion Europe has bottomed, and it is not dead. My plan is to invest in France as it relatively is better than Italy, Spain, Portugal and Greece, but prices are still beaten down unlike Germany and UK. Recent earnings surprise of Societe Generale is also a positive sign. As a macro investor I usually go with the indexes. I believe for someone with a 1-2 year investment horizon it is a good bet. Downside is limited to 10% with the Draghi put and strong resistance line.

Europe train is not as pressing as my next topic. You still have time to follow the economic indicators and delay the decision of buying European equities to a more favorable time.

Apple (AAPL) had the biggest non-bank private debt issuance a few months ago. I was talking about the need for such a move way before that and been grilled by some SA contributers. 17 billion dollar bond issuance (14bln with a fixed rate, 3bln with 2043 maturity) when the interest rates are their lowest levels was plain genius. Many people were focusing on tax repatriation issues, but in fact the whole thing is a hedge-fund move. Apple is at the moment one of the biggest hedge funds in the world (you thought it was a hardware/software/media company?) with hundreds of billions of dollars of cash. As US government rates will edge higher and higher, private sector bonds will follow. The Apple bonds are now trading up to 12% discount depending on their maturities. I conjecture that in a few years Apple will buy back its debt from the market for half the value. I invite you to calculate the PNL effect. Thanks to FED who pumped so much free money in the market, enabled an environment so that companies like Apple could replace their expensive equity base with a once in a life time dirt cheap debt, letting dollar holders/suckers to hold the bag when the interest rates edge up.

Apple has very solid financials and it has been covered way too many times in SA, so I won't repeat that. I just would like to mention one thing that is overlooked. Many people are focusing on earnings growth. Yes, earnings growth is very important, and if earnings are growing it makes your decision to buy easy. Nevertheless many people are ignoring the fact that the liquidation value of this company is rising every day. I think we are on the verge of Apple's new massive bull run. The probability of positive surprises in the next 3 months is so high that one should be invested now in order to enjoy the initial sweet jump. New product cycle, Christmas, China Mobile deal possibility, together with the massive share buyback program will be great catalysts. Of course the important point is that these catalysts are very near, and it is always a good idea to buy the stock close to positive surprises so that you will not sit on the stock for years before anything happens like a chicken sitting on its egg. To summarize: new product cycle, holiday season, China deal, stock buy back, dividend, profit from hedge-fund activities, day by day increasing liquidation value. Go for it.

Disclosure: I am long AAPL.

Additional disclosure: I am long Nikkei.

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