I do not like to make a big deal about 9/11. Longtime readers recall my experiences. Instead of the orgiastic media coverage, I would much prefer a few moments of silence and quiet contemplation. At this point, I want to look forward, not back. Sorry, but thats just the way I feel.

Anyway, we have lots of items on our agenda, and for the 2nd day in a row, the LIRR has seen to it that I have lots of time to think about it. Here are some random thoughts:

• The Apple critics are astonishingly clueless. By all means, do tell us why the most successful tech company in the world who invented the space you didn’t know even existed 5 years ago is doing it all wrong. (#FAIL)

• A peaceful resolution of the Syria chemical weapons via diplomacy is a huge win — for the American people, for the deficit, for the America’s reputation, and for the Syrian people.

• So far, the markets have had a much better handle on the outcome of Syria than all of the pundits on TV combined. Fox News seems to find new ways to embarrass itself on this daily.

• I have no idea of the date when the Federal Reserve will taper their QE purchases, but I guess it will happen sooner rather than later. The spike in yields this summer was the bond market (imprecisely) anticipating this.

• I don’t know what will happen, but it would be amusing to see the equity markets continue to gain ground even after the Taper, if only to watch the anti-Fed zealots heads collectively explode. Or implode. In high def slow motion.

• I am starting to suspect that the Larry Summers lock on the Fed Cheif position is less of a lock than previously believed. Its not just that he is an ass who does not get along with others and lacks the temperament to be Fed chief, or that his judgement is awful, or that he is one of the major deregulators who helped cause the crisis, and lacks support amongst key Democratic Senators.

Oh wait, IT IS ALL those things.

• Markets remain neither cheap nor expensive. At these levels, future growth of equities is dependent upon 1) Earnings growth; 2) Psychology 3) Random events.

• Overall, this remains the least loved cyclical equity rally in my lifetime. So long as so many people continue to fight it, hate it, disbelieve it, blame/credit the Fed for it, refuse to participate in it, talk smack about it, significant upside remains.

Looks like I will be in the office late again so Reads are likely to be delayed as well. Blame the LIRR, now running 60+ minutes late . . .

Category: Investing, Markets, War/Defense

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

42 Responses to “Random Thoughts”

  1. rd says:

    Another good reason to eliminate most agricultural subsidies and insurance programs: http://www.bloomberg.com/news/2013-09-11/fraud-stealing-100-million-shows-flaws-in-u-s-crop-insurance.html

    The Apple critics are right if they think Apple will be bereft of new products over the next 5 years the way Blackberry was, so that another company can step in and fill the new product void. I think Apple probably still has the team to develop at least one more segment-making product but only time will tell. Controlling home entertainment systems so that you don’t need a PhD in electrical engineering to get the TV to work would be one possible candidate. Providing 2013 interfaces for cars with high security and operating safety features would be another – I can’t see a car company coming up with that.

    Your chart from yesterday superimposing stock market and bond yields shows that the stock market could continue going up in the face of rising yields but only if companies revenues are growing the way they did from 1946 to 1966.

    • Thank you for your twin forecasts of what Apple critics might say and whether or not that will come true.

      Those predictions, plus $2.50, will get you a subway to Brooklyn . . .

      • MiloD says:

        [OMFG, I'm old] When I was a kid growing up in Brooklyn a subway token cost a dime and it was the size of a dime. Everyone was outraged when it went to 35 cents. I don’t know if I ever paid more than that for a subway ride. Of course, it’s been 30 years since I’ve lived in NY.[/OMFG, I'm old]

      • rd says:

        Its why I am not a fan of investing in the technology sector other than as an indexed asset class. The turn cycle on the technologies is so short due to innovation that a company misses one product cycle and it can be out of business. A RIMM had a great idea and was unable to come up with a second and they are potentiallly done.

        Can Apple become an IBM, Intel, etc. and continue on through another tech generation in the absence of Steve Jobs? That is more of a management culture question than anything else. Many tech firms have been failing in their management tests but the sector as a whole keeps ploughing forward breaking new ground.

  2. ironman says:

    The stock market also anticipated the earlier-rather-than-later QE tapering. (Important reference – the “probability” chart in the link above is based on the percentage of the distance that the daily change in the year-over-year growth rate of stock prices (dashed blue line) traveled from the green to red lines shown in the chart here). We anticipate that equity markets will indeed gain ground as the Fed’s QE taper becomes a certainty.

  3. Jim says:

    While I don’t think it was touched on at the Apple event yesterday, iBeacons utilizing Blue Tooth Low Energy (BTLE) will become an integral part of their ecosystem. It will go a long way to helping Apple with indoor mapping for instance. I imagine Starbucks & other retailers will utilize it to speed up your ordering and paying with your fingerprint.
    More on iBeacons http://www.theverge.com/2013/9/11/4718082/ios-7-ibeacons-could-solve-indoor-mapping-make-shopping-better

  4. g1veupthegh0st says:

    Lol. Well articulated sir.

  5. RW says:

    We must be as Janus, the Roman god of passages, who looked forward and back at the same time: Moving ahead is illuminated but not wholly governed by what is left behind; our will [and a bit of luck] is what makes the difference.

    What I remember most about 9/11 other than the horror (and rage) was how a great opportunity to unite the country was lost. It was starting to look like Obama was committing the same failure; glad there was a break in the game, however it arrived.

  6. rallip3 says:

    Re equities after the taper decision:
    My suspicion is that the Fed will slide into ‘anti-exuberant mode’ proporitonally as the S&P500 goes higher above 1700; the last thing they want to encourage is a boom-and-bust. And maybe the easiest way for them to manage exuberance is by talkng tough on taper.
    In fact if there is a boom, it should be accompanied by a positive surprise on the fiscal deficit which will reduce supply of new Treasuries; less supply makes the Fed’s continued ‘bid’ on long bonds unnecessary.

  7. Stock Soup says:

    I challenge you Barry – go out and buy a $199 Nexus 4 and sign up for prepay on T-mobile and use the device for one month. Then Compare that to the $500 5C.

    What I noticed about iOS7 is almost identical to this analysis: http://www.theverge.com/2013/6/11/4418188/apple-ios-7-design-influences

    Nothing new or innovative. Just a mash-up of existing designs and technologies. (The whole control center design was first introduced in touchscreen devices with the Win8RT tablet, for example.)

    My theory is when u have a huge installed base of non-technical regular peeps, keeping your OS UI design familiar is key to your brand.

    Brand is a powerful thing and it will carry Apple for a decade like the Walkman carried Sony, but within a few years Panasonics were just as good.

  8. large J says:

    I just wanted to write that I read your piece about 9-11 each year, on this date, and enjoy it a little more each time. Thanks for all the posts…please keep them coming.

  9. Petey Wheatstraw says:

    One minor quibble, BR:

    Summers is an asshole, not an ass.

    Calling him an ass insults the innocent donkeys of the world.

  10. BennyProfane says:

    I heard this report on NPR this morning about how family members of the WTC 9/11 dead are receiving bits and pieces of the deceased as they are identified, still, after all this time. We’re talking small bones, and even single teeth. Some are actually opening up graves and depositing these items in them. Horrible story, and I hope some of them have the option of just telling whomever is in charge of this to stop this torture, but, it seems that a few interviewed are participating willingly.

    This is always a sad day.

  11. Stock Soup says:

    My theory on the Fed taper is this:
    1) QE is having very little growth effect on the economy currently. (10 year treasuries at 4% yield does not slow growth normally, so why would 3%?)
    2) therefore when tapering QE, effect on the economy will be slight
    3) when the market realizes this, it will be very bullish. the long tail risk of increased money supply leading massive inflation will diminish

    Remember the old rule, when the market realizes the coast is clear and it’s OK to have an aggressive long allocation, the bull market is already 2/3 over. The bull market is happening NOW.

  12. VennData says:

    I don’t know how the Syria will go down near-term, mid-term, long term, but the Fox News guys and their “Different philosophical argument a day” may shake a few of their serene genuflectors loose.

    Arguments like “So you’re States Right for things like Medicaid, why aren’t you for States Rights for marijuana?” don’t resonate because of the temporal delay. Over long time periods the genuflectors are spoon fed a new “philosophy” to apply to this argument in the current conditions.

    But this Syrian thing they’re emotions are “for-attack” to “against-attack”, “Don’t let irresponsible Obama use our military” to “Obama must use military”, “He should have attacked sooner” to “He should attack later.”

    Not most, but some, may see the silliness in this anti-Obama-persistence on “principle” being nothing more than gain-saying. I think Fox looses a slice or two of their over-65 demographic,

    It’s like that NFL films Coaches segment, “Watch the fake, watch the run, watch the pass… and they got Marv Levy shouting, “Watch Everything!”

  13. RW says:

    On a more amusing note, I’m glad this didn’t disappear down the memory hole: Brad DeLong reminds us of a most excellent takedown (posted in March so this isn’t an anniversary but) …

    Barry Ritholz on Donald Luskin: Washington Post #completefail Edition

    It’s been exactly [5 years] since the single dumbest newspaper column ever published appeared in The Washington Post. Breathtaking in its ignorance, shocking in its fallibility, astonishing in its author’s perversely misperceived world view, it stands as a monument to sheer cluelessness as an economic discipline…

  14. jackshelp says:

    Thanks Barry, nice to know there is someone else that agrees with me on these issues. Unfortunately though, gun rights activists are winning in CO recalls, a MO lawmaker is raffling an AR15 to campaign supporters, and MO is attempting to invalidate federal gun legislation (if this is successful, other states may follow):
    http://blogs.wsj.com/law/2013/09/04/missouri-ag-vows-to-distance-himself-from-controversial-gun-bill/

  15. McDaniel says:

    Re: Summers… spot on. Who would be your pick, where do you put the odds now?

    Re: Apple… I am firmly in the camp that creating ‘the space’ over and over again is a tall order; even for Apple. Many who have created ‘the space’ are dying.

    Re: bonds, market, etc… I think our GDP rests on the value of the US Dollar and gas prices. We need strong dollar.

  16. sditulli says:

    Biggest problem with Larry Summers isn’t even that he’s an ass or was a chief deregulater.

    His biggest problem is he’s not a monetary policy expert. He lacks the right training for the job. He’s not a central banker. This would be perfectly fine if we were not at the zlb any idiot can do interest rate targeting fairly effectively, but you need an expert to run monetary policy when rates are at zero. Yellen fits that description.

  17. Livermore Shimervore says:

    BR,

    Apple didn’t invent the space you are referring to. Actually I can’t think of many things they’ve actually invented other than rounded corners. Other players were in that space for years, most notably Palm. But just like in asset management, it’s a matter of execution. Apple take refinement — NOT innovation — to a level so damn good that the casual observer, and one not very familiar with tech in general, will believe that refinement to be invention of wholly new technologies.
    To those of us who were using super slim Palm devices (with no sign of Apple anywhere) with mobile apps (yes they existed before the iPhone) like Handango that loaded web content, much like Pulse, Pocket and Flipboard today, wayyy back in dark ages of the year 2000, we know Apple didn’t invent this mobile “experience” (to use Apple speak). I used that app every day to sync the latest web content onto a small device with a large screen, long before EDGE or 3G networks were common. It was the closest thing to having my modern day Nexus 7 HD tablet. Then Palm came out with one these hand-held devices that A) had apps and B) could actually make phone calls! Amazing right??
    People who were hip to mobile devices loved these things. So along came the Dyson of mobile computing (Apple) to refine not vacuum cleaners but smartphones and tablets, and scored a massive hit, the Ipod, which was later tweaked bigger (iPad) and added cellular hardware (iPhone) along with a legit browser. But make no mistake, if Apple had gone under, we’d all be using super slim Palm OS powered smartphones and tablets. These devices were already under way before Apple and a competitive market for tech would have refined them eventually. We had super slim Sony VAIO laptops available to anyone before anyone coined the term ultrabook or anyone ever saw a Macbook Air. My guess is that the VAIO division would have turned their attention to mobile devices with a partner like Palm. Point is the notion that this space would not have beein invented or refined — if not for Apple — is based on exactly what?

    Apple deserve credit for hiring smart people and harnessing the power of repressed labor in communist dictatorships (which all others except maybe for Google/MotoX plants in Texas are guility of). But invention? Hardly. Today Apple are reliably providing yesterday’s hardware at next year’s prices. And I’d be leary about using an fingerprint devices on a cellular network in light of recent news.

    • neddyj says:

      Amen Livermore – I’m no Apple hater at all, but the fanboys get under my skin for sure.

      Barry – is the market wrong on Apple today? Are the haters the analysts who downgraded the stock today? Please explain who got it all wrong. Yes, they’ve been the most successful tech company in the world – but as you said in a reply earlier, all good things come to an end.

      I don’t claim to be an expert on the history of this technology, but I remember all of the tech that Livermore speaks of, and it all predated even the Ipod (but maybe not the Newton). The tech had been out there, but Apple created an unbelievably popular set of devices that grew the market for such devices exponentially. That’s an awesome accomplishment and very admirable. But I also remember when Apple was competing for market share in the PC market back in the 80s and I was fortunate enough to own an Apple IIc. Those things were way more expensive than a PC made by IBM (a big player at the time) or a Packard Bell (I feel like I just typed an artifact). Apple chose to sue anyone making a PC based on Apple’s designs and we all know who won the PC war. Now we have the smart device war going on – and Apple is much more established and respected than ever before….but they’re still suing competitors and meanwhile cheaper devices that do the same thing are proliferating around the world.

      So maybe the haters got it all wrong, or maybe the lovers are in denial….

      No disrespect Barry, I know my opinion plus $2.50 can buy me 2 1/2 songs on itunes…if i choose to be a prisoner of their ecosystem that is…

      • neddyj says:

        a fair point for sure, and congrats on your early entry into the name. But the inefficient market can be wrong in the other direction too. Plus no one was watching it then. Now everyone and their mother are watching it, developing new metrics to track growth, fantasizing about new markets, buying big stakes so they can advise Apple on what to do with their warchest of cash, etc – which put Apple at a much higher valuation.

        Is the stock overvalued on sales / earnings / balance sheet strength – heck no. But margin erosion is a cancer…and they have a mild case of it now that they’re hoping it doesn’t get worse.

      • If everyone is watching now it only means the crowd of ignorance is that much higher

      • Livermore Shimervore says:

        That is awesome BR. But once again back in 1999 I purchased a Creative Labs MP3 player the size of two flash drives stacked together. Listening to a whopping one hour’s worth of music on a pocketable device — with no moving parts — was my transcendant momment. I ran over to my buddies place, he had this crazy expensive B&O CD player. He plugged his aux plug into my new device, as he jumped from track to track, in crystal clear sound, he was blown away. This changes everything! The cost? $99 on egghead.com. Moving songs from WinAmp/Napster to the device was a piece of cake. Who bought this thing? Nobody!! They were all stuck following the herd mentality (that now pervades Apple) using the same exact thing: a Sony Discman. Once again Apple comes along and “Dysons” the MP3 device into a slick looking Ipod. Except nobody buys it because its a brick. But then Apple refines it further until it slim and ergo. That’s what they do. Again,what did they invent? Not much. They refined.

        p.s.
        Apple stock is still a buy. It will cross $700 for sure, and then its off to the races long-term.
        I think they’re a lot like Tesla Motors now. First they clean with a highend product like a premium priced smartphone. Then they use that experience to clean up in the budget waters, or should I say budget ocean, with a device that can be bought for $80 at Wal-Mart on AT&T/Verizon contract or even better: on a installment payment plan for the device itself like with T-mobil (if I’m not mistaken). There are far more buyers at $80 then there are at $199. The experience is identical for either device, even if for the first time Apple are downgrading the hardware of the entry level phone instead of simply offering the old version. Point is once more consumers in the $15K – $40K income group start buying iPhones the whole market cap situation changes. But as far as China, a cheap iPhone still costs double what their standby, the Mi3 sells for. Not enough fanboys in China to justify a 100% mark up. I also wonder if nationalism comes into play, as in why buy the American designed product for twice the cost when our home-grown product does all of the same?
        Look for the next Apple born and raised in China. That’s going to be the investment of the century.

  18. Concerned Neighbour says:

    Most likely viewed as one of those “anti-Fed zealots” to which you refer, I see this taper talk as totally overblown. Any taper is likely to be in tiny increments. Will going from $85B to $75B per month in “man the pumps” funds have any significant effect? Unlikely, in my view, especially when one considers all the other “pump the equity market at all costs” funds put in play by other central banks worldwide that aren’t tapering. So, the perma-bulls are set up for a good long while yet in my view, perhaps in perpetuity or close enough. I have been right since the market lows, and suspect the absurdity to continue indefinitely, well into new “market” highs.

    No doubt this is why these “markets” are never overbought, even after rising 7 days in a row. Contrast that with when the “markets” dip >1%, the media is plastered with messages that “markets” are oversold and now is the buying opportunity of a lifetime. The media is in on the game as usual, and I have no doubt that those that can afford to speculate regardless of underlying fundamentals (and with central bank funds) are having a grand old time.

  19. Livermore Shimervore says:

    p.s.
    Today, there are companies in China that will eventually eat Samsung and Apple for lunch. See the recent poaching of Android’s chief exec — from Google to Pudong. They’ll be providing all of the latest tech at a fraction of the premiums charged by the Korean and U.S. smartphone companies. But for now they’ll let Apple enjoy their huge mark ups and massive profits that only first world people insisst on paying. The best example being the mini iPad. An out-dated screen and hardware that comes with a $100 price premium over a significantly better hardware package from ASUS running the latest Android OS which Apple is now lifting features from for their own iOS7. and even at 30% higher pricing for inferior hardware Apple can’t sell enough of these mini iPads. Emerging markets like those in China seem to be immune to Fanboy’ism and see this as throwing away money. The point being that their market will eventually dwarf ours, evenif Apple and Samsung are surging in the ranks of the “top 1%” global consumers — that’s not where the REAL growth is.

  20. george lomost says:

    I’m not a critic of AAPL but the probability that it will continue to out-innovate its competitors is minuscule. The analogy that comes to mind is the photography industry. Years ago it was dominated by German companies that charged extraordinary prices (when the Ford Mustang first came out it cost less than a Leica M5). Then the Japanese came on in the 1970s and every new issue of Modern Photography revealed new cameras with better lenses, shutters and exposure meters. But they eventually ran out of ideas. The only difference between between my old Pentax ME (1985?) and my trusty Canon (2010) is that the former used expensive film while the Canon can take hundreds of pictures with one memory chip, erase the crappy ones and take hundreds more, everything fitting on the same chip.

    The business about the ‘least loved equity rally in our lifetime …’ brings to mind another analogy: in astrophysics you have observable galaxies, star clusters, etc. but they don’t seem to behave the way they should according to current physics. This has led to speculation that there is some mysterious “dark matter” which may make up the bulk of matter in the universe. The galaxies, etc. are profit margins, market multiples, moving averages, etc, and the market is “dark matter” only better: The Market has an all-seeing mind that reads the minds of us ‘dumb-money’ suckers and moves prices to confound us and break our spirit. Wow!

  21. MayorQuimby says:

    Barry you continue to impress. FYI NJ Transit is not much better!

  22. Frilton Miedman says:

    The ONLY thing I think that matters with Summers is his refusal to acknowledge deregulation’s role in 2008 – even Greenspan made some controversial reversals in his ideological stance on taxes and regulation after the fact.

    By default, that makes Summers a pompous ass who’s broadcasting his willingness to continue being a pompous ass at any price.

    On market valuation, maybe I’m wrong, but the days of conspicuous consumption on the credit card are over – I’m watching U/E & wages, and in light of the reality, I’m short froth, long undervalued sectors, short treasuries for insurance (though I recently took some profit from 10yr 1.6% to 2.8%)

  23. mpetrosian says:

    Even now in 2013, there are more televisions in the U.S. than there are cellphones. Americans watch something like 30 hours of television per week on average. Apple it seems has more important things to work on is my point. Apple is a company with a corporate culture aiming to put a dent in the universe, not sell the most product. It would be interesting though to hear what negatives, if any, Barry feels there are
    right now with Apple.

  24. Molesworth says:

    Excellent musings. I suggest we ensure Barry Ritholtz continues riding the LIRR and hope that it continues to be late.

  25. Moss says:

    At what point does the ‘cyclical’ become the secular?
    A very strong case can be made that the March 2009 low was in fact a secular low.

  26. Taz says:

    Well I have heard Mr. Summers is an excellent napper during even the most stimulating meetings – perhaps a non presence could be interesting ;-)

  27. victor says:

    A peaceful resolution of the Syria chemical weapons via diplomacy is (replace with) would be a huge win.
    AAPL: Icahn says “no brainer”.

  28. [...] said, I mentioned something yesterday which perhaps I could expand upon further: The strong September rally as [...]