Another oblivion morning… first five minutes were hell… I think the largest interday drop for the Dow ever.

To the point I was making in my, “Investing Is Easy, eh?” post this weekend… about it not being as bad for Chinese consumers as the headlines say… which means it’s not as bad for AAPL as the headlines infer:

Tim Cook made a rare statement about his business in China this morning.

“As you know, we don’t give mid-quarter updates and we rarely comment on moves in Apple stock,” Cook wrote. “But I know your question is on the minds of many investors.”

“I get updates on our performance in China every day, including this morning, and I can tell you that we have continued to experience strong growth for our business in China through July and August. Growth in iPhone activations has actually accelerated over the past few weeks, and we have had the best performance of the year for the App Store in China during the last 2 weeks.”

“Obviously I can’t predict the future, but our performance so far this quarter is reassuring. Additionally, I continue to believe that China represents an unprecedented opportunity over the long term as LTE penetration is very low and most importantly the growth of the middle class over the next several years will be huge,” Cook added.

However, I think Tim Cook did more than put the China situation into perspective for AAPL investors…

… I believe he may have single-handedly stabilized a global meltdown.

Wow.

Wanted to take a moment to acknowledge the three American’s that put themselves in harm’s way.

Spencer Stone, Alek Skarlatos, and Anthony Sadler were on a train in Europe when they saw a terrorist trying to unjam his AK-47.

Instead of hiding, they lept into action… overpowered the terrorist… and saved the day.

Hero’s, all of them.

P.S.  Reminds me of the solution a comedian came up with to stop this kind of thing:  Give everyone a baseball bat before they board a plane or train.  Now THAT would be a deterrent, the prospects of getting beaten to death by an angry mob!

One quick, disturbing observation:  Some of the news reports had a picture of the terrorist.  Seriously, he looks like a happy guy… a good guy.  It’s one thing recruiting mean-looking “terrorist” types… it’s going to be a whole other problem battling people that look like they could a great friend.

Right.

Not for the faint of heart.

On days like Thursday and Friday — where the market was pounded into oblivion — it’s good to take a step back and test popular thinking.

There are two themes driving the market:  China and oil.

China

China is slowing down.  Which businesses are affected?  Certainly the infrastructure businesses.  The fall out?  The commodity free fall.  (Yet another thing pressuring oil downward.)  What about Chinese consumers?  Not so much, China is still growing at 6-7% — considered hypergrowth for just about everyone else — so obviously the Chinese working class is still benefiting.  Remembering that the ills in the Shanghai stock market only affects 1 in 10 Chinese consumers… which (I’m concluding something obvious for emphasis) leaves 9 of 10 unaffected by the volatility… and I suspect consumer spending in China probably feels like Silicon Valley restaurants during the last two stock market crashes:  Still packed.

Oil

Oil is going down, which some people think is bearish because they believe it’s an indication that the world has stopped growing.  I won’t say that’s a good thing…

… but cheaper energy prices means more money in everyone’s pocket… which means everyone can buy more things… like highly desirable iPhones and such… and that means higher corporate profits…

… which is a great thing.

So, weird to me that people are weirded out by falling oil prices… that’s something to celebrate.

BTW, falling oil prices are less a function of lessening demand and more a function of greater supply.  We’re producing more than the world needs right now, no wonder oil prices are coming down.

More Responsible At Home?

On top of all of this, U.S. consumers seem to be acting more responsibly… check a news item that seems to have slipped through the cracks on Friday:

The national average FICO score is now 695 — the highest it has been in at least a decade, according to the latest analysis from Fair Isaac Corporation, the score’s creator.

In Summary

I disagree with the major themes driving the market.

The Chinese consumer isn’t history.

Lower oil prices are good for everyone except for those in the oil business (sorry oil business!).

And, as painful as it is to say, blowing off steam isn’t the worst thing in a bull market that’s lasted as long as this one… in fact, it’s kinda healthy.

What makes politics so hard?

One word:  Spin.

Both side do it… spin.  Both sides create sound bites that, while maybe not outright lies, certain bend the truth to accommodate their position.

More than that, the media does the same thing.

Said another way, how in the world can you tell who’s telling the truth?

It’s more than disheartening… it’s disgusting.

The Republicans were on all the talk shows Sunday morning screaming how horrible the Iran deal is because we’re going to give them $150 billion… whether the deal goes through or not!

That incensed me.  It just sounds completely idiotic.  I figured Obama is probably paying them back for the revenues they lost during the sanctions?  That sounds consistent with all the other idiotic things we do as a nation… for example, blow up cities in the Middle East only to have to re-build them on our dime.

This sounded so idiotic that I decided to look it up.

I found this headline from USA Today:

          “Lawmakers alarmed over Iranian nuclear windfall

The opening line:  “WASHINGTON — A $150 billion windfall Iran would get after a deal to curb its nuclear program is raising new alarms in Congress that it will use the money to boost terrorist funding across the Middle East.”

“Windfall” — used twice in rapid succession — sounds like they’re getting something really, really great… like a lotto win.

However, digging into the article more:  “The White House has estimated the value of Iran’s foreign accounts frozen by nuclear sanctions at $150 billion.”

Huh?  We’re giving them back THEIR money?

None of the Republican verbiage or reporting sounds like we’re actually giving them back the money we TOOK from them… which is fundamentally a MASSIVE difference in meaning.

Yet — because of spin — who knew?

Certainly not the average American citizen doing their best to stay informed… and hoping both the candidates and the media are trustworthy.

P.S.  Note that I’m not saying Iran shouldn’t pay monetary penalties to the U.S., the U.N., to just about everyone.  But sequestering all $150 billion is a bit like outright stealing, no?  

People are weirded out because the iPhone “lost” its marketshare leadership position in China.  (Here.)

But are high-end products really supposed to be marketshare leaders?

I think not.

There’s not a business school prof or business textbook in the world that thinks so, either.

What investors should be focusing on is not that Apple “lost” their #1 marketshare ranking…

… but rather how utterly amazing it is that the high-end supplier in the market is anywhere close to the #1 ranking…

… especially during their OFF-CYCLE!

Now that speaks to the phenomenal momentum Apple has in China.

I can’t understand why AAPL recently touched $110 and isn’t instead cruisin’ up to the $140’s by now.

I mean, I intellectually understand why people might be worried about China…

…. but not really…

… the China stock market “crash” happened so fast I can’t believe anyone actually noticed.  Even with the crash, the market is still up about a third year-over-year, so most investors (as opposed to traders) are still holding on to nice gains.  But to further minimize any effect on the Chinese consumer, 90% of Chinese households don’t even own stock.

On the other hand, there are some pretty irresistible AAPL drivers right now, including:

  •  AAPL has a consensus P/E of 12.7 vs. 17.7 for the S&P… however, Apple is increasing EPS a whopping 45% vs. a paltry 7.9% for the S&P… hardly seems fair, eh?
  • AAPL has upgraded only 27% of their existing iPhone installed base… which gives them a lot of room for continued organic growth
  • AAPL still has very large external targets, though… for example, India… and a bunch of unhappy Android users
  • Oh, yeah, AAPL has other billion dollar products, too
  • AAPL may be set to release iOS TV… which could do to the TV biz what the iPhone did to the cell biz… which is, of course, completely turn a huge, massive industry on its ear
  • AAPL has more money in the bank than, well, everyone

.

All of which is why — with full disclosure! — I’m back on the AAPL bandwagon.  <smile>

Falling oil prices give me a sense of comfort that current economic growth can continue.  Why?  Because that means the cost of everything is less, which means we can all buy more.

In contrast, everything I’m reading about oil — yet again — is negative… everyone seems to think the decline is somehow bad for the economy.

Huh?

Finally, I just read something from someone who has articulated the benefit of falling oil prices rather nicely:

Forget quantitative easing and low base rates, the REAL great global stimulus—tumbling prices in commodities and, most importantly, oil— continues and it’s hard to see what’s going to change any time soon.

This huge transfer of wealth from commodity producers to consumers has shown little sign of abating despite a brief spring rally off the lows, which are once again being challenged in products from copper to iron.

If consumers are the bulk of GNP… essentially the engine for commerce in the world… why is it so bad that we have more money in our pockets to spend?

Seems like that’s a good thing for corporate profits, too.

P.S.  Stephen Sedgwick’s article was really about, “why it might be different this time”… meaning conditions that are contributing to lower oil prices today really are different than in the past… essentially the world has a lot more production capabilities… and new sources of oil (shale)… and that in turn is driving a completely different attitude about holding on to marketshare... i.e., a real live price war.

HOWEVER, what I also love about this article is Stephen pointing out the contrarian view… that is everyone is so convinced that oil is going lower — as they were a few years back when oil was raging above $100 and everyone was absolutely convinced that it was going to keep going higher — that something is bound to happen to change everyone’s thinking.

Could be something as simple as OPEC realizing they have a scarce commodity and that it might be better to sit on the sidelines — even for a very short while?  That alone would probably increase oil prices by 20%-50% seemingly overnight.

BTW, I think we’ll have to be staring at the real possibility of a 2 handle on crude oil before anyone flinches… it really may be an incredibly high-stakes game of “chicken” after all!