MorningWord 9/13/12: Last night on Fast Money we spent the first 13 minutes discussing the merits of of AAPL’s new iPhone release and what it means for the company and the stock, I was hoping for the full hour, but I guess to be responsible we had to touch on the FOMC! The lead up to the launch and then the basically non-event Event seemed a bit anti-climatic to me, and the phone while a nice upgrade to a very dated iPhone 4 & 4s, was nothing more than evolutionary. I mention this because what I find most interesting about the iPhone 5 intro is that it comes on the heels of AAPL’s patent victory over Samsung, and the irony that the iPhone 5 is basically just adding features such as 4G service and larger size at 4 inches which have been the standard on Samsung’s top of the line Smartphones for more than a year.
The price action in the stock leading up to the event and once concluded was muted to say the least, and in hindsight it appears there was very little that the company could do or say that would send the stock sharply lower. The stock essentially traded in a 2% peak to trough range, closing at the dead high of the session as it felt like investors were waiting for a drop but when it didn’t come they said screw it, what’s next. And the what’s next is probably what sets the stage for the next 50-100 points in the stock, the iPad “Mini” which has been rumored to be introduced sometime in Oct or Nov in time for the holiday season.
But there was some interesting tidbits in yesterday’s release that could and should shed some light on potential price point of such a device. AAPL introduced new iPod Touches, which are essentially tricked-out 4inch iPhones with out the phone, but they start at $299. AAPL currently sells 2 models of iPads, the New iPad, which has a 9.5 inch screen and starts at $499, and then they sell the iPad2 of the same size, which starts at $399. So I guess my question is, where the hell do they slip in the iPad “Mini” into this equation without cannibalizing 2 very new products (New iTouch and New iPad)?? So to refresh, they have iTouch at $299, iPad2 at $399 and New iPad at $499 (those are all starting prices). The logical answer is that once the iPad2 inventory is gone, the product will be discontinued and then the iPad “Mini” slots into the $399 range, but if it is a 7inch screen to compete with recently introduced models by AMZN, MSFT and GOOG, those products start at $199. Now AAPL will tell you that their product is head and shoulders above the competition, and it likely will be, but it still doesn’t change the fact that AAPL is creating its own competition among its own devices, and at some point their intention to offer consumers greater choice to stave off competition could be the final nail in the coffin for disproportionate amount of profit AAPL enjoys of the entire tablet pie. Again, I have no axe to grind here, I have plenty of AAPL products, I still contend that the best electronics that I have ever bought are the 2 MacAirs that I own, but as some of you know, after owning all 5 iPhones to date I just switched to the Samsung Galaxy IIIs and so far so good.
MorningWord 9/12/12: It’s all becoming very clear now, the fix is in. The price action in global equities, both developed and emerging has been one way since the ECB has articulated it’s plan to save the Eurozone and since Friday’s U.S. employment data was so bad that it was good for QE on this side of the Atlantic. Central bankers in Europe are once again going down a path to stem systemic risks without addressing the issues of stimulating growth, while the U.S. Fed is going to try to “QE” growth again back into our economy for the 3rd time in so many years. At this point I think it is safe to say that it is time to try something new!
So back to the Fix Being In, the obvious trade this week is to NOT Fight the Fed……why would you when we saw last weeks reaction to the ECB plan? I honestly can’t think of a good reason to do so, and at this point of the year, all systems could be a go until we get through the election in early Nov and start to focus on a grand compromise on the so called “fiscal cliff”.
As we head into the end of Q3, with the SPX up 14% ytd, earnings guidance for Q4 will likely hold the key to the continuation of the rally, but given the few peeks at Q3 (FDX, INTC, TXN, KFT) it appears that earnings visibility is going to be clear as mud. I think there is a huge distinction that needs to be made between equity markets that are trading at multi-year highs and economies that are seeing weakness that rivals that of pre-financial crisis levels. Weak earnings visibility, Obama re-election, fears relating to fiscal cliff and some fairly unforeseen global macro event could through a tiny little wrinkle back into the rosy equity return environment, my sense is that it would be prudent to be a tad cautious when it appears the investment world is complacent.
One more things: I bought a Galaxy III s last night and put down my iPhone4s, and at first blush I love it. My biggest issues are work around with all of my data and content that are very much intertwined into the iTunes/Mac halo thingy. This will be work in progress, but the irony here is that AAPL won a huge victory against Samsung for patent infringement, when it is clear that the Galaxy is the far more innovative phone from a hardware and software standpoint. If AAPL does not release a game changer today, get ready for more and more litigation.
Also Last night in Brooklyn I saw one of my favorite fairly new bands, We Were Promised Jetpacks at the Bell House, they opened with Keeping Warm, here is a clip from my new tricked out Samsung Smartphone: