Archive for the ‘China’ Category

We have a LOT of problems in the United States.  All of them are important… but, realistically, if we can’t PRIORITIZE correctly, we’re shooting ourselves in the foot… and maybe the head.

It’s this prioritization that has strangled the Republican party… or should I say “hijacked.”

The greatest example of this is pro-life and pro-choice.  Clearly this is a hugely important issue… but it’s a hugely important PERSONAL issue… and as such should actually stay out of politics. 

Practically speaking, the Republican party has alienated large numbers of Americans on this single issue… meaning, no matter how intelligent the rest of the republican agenda may be, regulating right-to-choose is a complete and utter deal-breaker for many voters.

I would hope the Republican party would have learned this lesson by now.

But — unbelievably — Trump just created a SECOND complete and utter deal-breaker:  Climate change.

From Business Insider this morning:

The US officially tells the UN it is quitting the Paris climate change deal

Are you kidding me?

Whether you agree there’s people-made climate change or not… whether you agree this is good for business or not… Trump has just created YET ANOTHER deal-breaking issue for a mass of voters.

How stupid.

P.S.  My take on climate change?  Go live in Beijing for a couple months — A COUPLE OF DAYS — and then give me your opinion.

In 2014, China launched a war on pollution, vowing to cut down on hazardous emissions of PM 2.5. It's hard to do that amid a growing economy, but so far, Beijing has been able to shut down coal plants within city limits, and has tried to curb car emissions by limiting the number of license plates.

A report out from Drexel Hamilton this morning about AAPL… his rationale sounds familar!

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Drexel Hamilton analyst Brian White (formerly at Cantor Fitzgerald) initiates coverage on Apple (NASDAQ: AAPL) with a Buy rating and a price target of $200.00 (Street High)

White highlighted:

  • The sharp correction in Apple’s stock this summer represents an attractive entry point as we believe fears surrounding China are overblown, concerns around difficult iPhone comparisons are short-sighted and the appreciation for the implications of this transformational super cycle is surprisingly muted.
  • Trading at just 8.2x our CY:16 EPS projection (ex-cash) and well below the 14.7x for the S&P 500 Index, Apple remains one of the most undervalued technology stocks in the world.
  • In our view, Apple’s successful transition to a larger form factor iPhone with the iPhone 6/6 Plus is the start of a sustainable upgrade cycle that has already catapulted the company to the #1 position in China’s smartphone market for the first time ever during 1Q:15 and we estimate the company will gain share in the global smartphone market in 2015.
  • Despite a slowing economic backdrop, our recent trip to China further supports our view that Apple fever is alive and well across the country. For example, we believe Apple is planning a bigger push into Tier 3-5 cities (80-90% of China’s households) across Mainland China over the next 12-24 months and the country’s 4G network is only 12% penetrated.
  • We expect the next big iPhone market that could open up for Apple is India and we view the country at a similar stage as China was for Apple in 2010. With a population of 1.25 billion, India is similar in size to China’s 1.36 billion and enjoys a wireless subscriber base of 980.8 million users as of the end of June (source: Telecom Regulatory Authority of India).
  • For the first time in five years, Apple entered into a new product category this year with the launch of Apple Watch in April, marking company’s initial push into the wearable technology market. We believe Apple Watch will be a major hit this holiday season.
  • In our view, Apple is innovating like never before with entry into the first new product category in five years with Apple Watch, the launch of new services such as Apple Pay, an expanded effort in the TV market with the all-new Apple TV and investment in big, new industries such as the auto market that we believe could eventually lead to an “Apple Car”.

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.

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.

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 get there is a lot screwed up about the Chinese stock market… top of which is government intervention.

However, there’s just something extra weird about the Chinese stock market “bust.”

As in, it happened so fast, I wonder how people even noticed?

Most bubbles take years to inflate.  That is significant because the longer something is inflating, the more people get sucked into the action that eventually get hurt.

But the bubble portion of the Chinese Shanghai market rose & fell within a few months… that’s like the blink of an eye.

Sure, over the last year the Shanghai has about doubled… and it’s reasonably to call that frothy.  But how about over the last five years?  It’s only up about 30% — TOTAL — for an economy that has been growing in double digits.

In contrast, most of the U.S. indices have about doubled during that same five years… for an economy that has only had low single-digit growth.

With a longer-term perspective, can we really say China’s stock market didn’t deserve at least some kind of fractional growth?  

But what is the effect on Chinese consumers?

Even with the recent fall, the Shanghai is still up over about a third year-to-date… which should make a lot of investors (not traders) still feel pretty good.

And to further minimize damage to the investing public, apparently 90% of Chinese families do not even own stocks.

So you wonder how a spike & “crash” that happened that quickly… that affects only a minority of buyers… and for the most part probably affects them in a positive way… could really wreck that much consumer buying havoc?

Of course, the reason I bring this up is because of AAPL… analysts are worried that Apple’s big Chinese growth engine is going to come to a screeching halt.

I just don’t see it.

Note that after our last two stock market crashes in the U.S. — and despite unemployment — spending actually went up.  Cheap energy was the reason… which we have now again.

So while I don’t disagree that the Chinese stock market — and the Chinese economy for that matter — may be really screwed up, I wonder if those people bailing on AAPL aren’t looking at this all wrong?