"Chess is mental torture." -- Garry Kasparov
Cupertino, We Have Liftoff
Consensus expectations were for $1.57. The "whisper" number was $1.61. The fear on the street was that we would see something of a cosmetic beat that would fall short of the whisper, sparking an overnight selloff. Survey says, no way. Have you ever heard an apple roar? Maybe not, but now you've heard Apple (AAPL) roar. The shares of this Action Alerts PLUS portfolio holding were trading with a $148 handle with little more than half an hour left until the final bell tolled at 11 Wall Street. Somebody knew something, or maybe some of the shorts got scared. For good measure. The stock price ran more than a dollar to reach levels above $150. Then that bell went off. Pencils down, students.
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The firm beat on both the top and the bottom lines. It wasn't close. It was pretty. A 10-cent beat for EPS, and a beat on revenue that swelled to more than half a billion dollars, revenue that climbed more than 7% year over year. Corporate performance is good this quarter overall, averaging revenue growth of over 5%, but 7%? The stock traded at $153 late last week. Why stop there? It is trading above 159 in the wee hours of Wednesday morning. Everyone say "Nice job, Tim Cook". I was a doubter. I own the shares, without really liking the products all that much. Remember during the roundtable at The Street yesterday, when I mentioned Apple services? That one slice of their business is why I am invested in the name. We were hoping for growth of 18%. That business line showed growth of 22%. The iPad and iPhone business lines grew, but in a far more pedestrian way. Let's not forget that this is still ahead of what some see as the iPhone 8 super-cycle. "Huzzah", says the crowd. The firm guided revenue for its fiscal fourth quarter (this was the third quarter) to a range between $49 billion and $52 billion. That is versus original expectations for $49.21 billion. Whoa. Is that all? Not really, shipments grew by great measure. I do not really judge shipments until they turn into revenue, but back to revenue, how about those cash levels?
Apple's cash level increased by $4.7 billion to $261.5 billion, despite paying dividends of $3.4 billion and buying back $4.5 billion worth of the company's shares. If run to completion, and target date, the firm's buyback program still has to buy a rough $77 billion worth of its own shares over the next seven quarters. Hmmm. Now imagine tax reform that allows a cash repatriation holiday at a greatly reduced rate. Hmmm. Nearly all of Apple's cash is held overseas. Hmmm. I have no intention of selling this name.
A Brand New Car?
July auto sales appeared rather ugly as the numbers rolled out from the manufacturers on Tuesday. General Motors (GM) sales were down 15% year over year. Ford Motor (F) -7.4%, Fiat Chrysler (FCAU) -10%. In each and every case, a miss versus estimates. Industry-wide. A 7% drop from a year earlier. Still, the aggregate number came in at an annualized 16.7 million units, down from 16.8 million in June. The problems for the industry are several-fold. First and foremost, sales have grown every year since 2009. This makes comparisons awfully tough. It also makes for higher inventories, which compound the problem. In 2014, you would have drooled for a 16.7 million print. In 2017, not so much.
Now, the automakers are left to extend discounting into the summer as they contend with their own inventories. They are also competing against a flood of three-year-old used cars as their own lease programs, which account for nearly a third of all sales, come back to haunt the business. Maybe aggressive leasing wasn't such a hot idea.
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You may be able to head down to your local dealership today and wrangle yourself a nice deal, but this creates problems for the economy going into the later part of the year. What does this do to headline retail sales? What does this do to industrial production, or capacity utilization? The railroads? We've all seen how the transports have behaved of late. Those railroads specifically rely on moving autos around the country to help support their businesses. I watch the rails all the time, waiting for an opportunity. Are lower prices for CSX (CSX) , which is my favorite, Norfolk Southern (NSC) and Union Pacific (UNP) justified given that earnings did not stink? Now we know why.
Bottom line? This slowdown will also slow the velocity of money, which is so crucial right now as far as economic growth and interest rate policy are concerned. Anyone else notice the complete lack of growth for June personal income in yesterday's numbers? How does this extend to the rest of the economy? Somewhere in Washington, a central banker born in Brooklyn weeps.
Digital Currency, Y'all
Live trading commenced. Oh boy! Several hours later, the first transactions were confirmed to the blockchain, and Bitcoin Cash was reality, although there had actually been some light trading ahead of the official launch. Many exchanges are not supporting the newer version of Bitcoin. They will not go to the trouble, unless the infant breathes on its own. I have a feeling that it will. Once this new, faster version survives for a few weeks, why would there not be increased demand from the retail investors who simply could not afford to own one entire original Bitcoin? Then again, I am no expert on digital currency, nor do I pretend to be.
Early trading was indeed volatile. From what I see, Bitcoin Cash traded in a range that spanned at least $153 dollars, from $247 to $400. The original version took something of a hit on Tuesday. These early days will be pivotal to the survival of this idea. Will more exchanges adopt the new currency? Will there be enough miners to support the transactions? Will any selloff provoke a panic? Possibly yes is the answer in each and every case. One thing is certain. Like cell phones, and the internet itself, this story does not go away anytime soon. At some point, do nations with established, stable currencies start to look at the digital as competition?