At the beginning of the year I was adamant that higher fuel prices were negative for the overall economy and in turn beneficial for both Walmart and in particular Dollar General. Today, with the decreased price at the pump one could lean towards the opposite end of the spectrum, arguing that with more money in the consumers pocket they will upgrade their spending habits. This assumption is wrong. Over the last few years in the time of this dire recession, Americans habits have changed. Americans have become more money conscious without even realizing it, they have learned to pinch penny’s without even attempting to. With continued lower prices at the pump we will see overall better sales in the lower end, in names such as Walmart and Dollar General.
Walmart prides itself on having some of the best prices around and some days Dollar General goes as far as to beat them at this game (due to smaller square footage, aka less overhead). Either way these entities are set up to make a killing in the recent environment that has surfaced. The key to the coming success is their access to consumers. Walmart and Dollar General have a strong consumer base that they have established through the rough part of the recession. Now these consumers will have a few extra dollars in there pockets. So in turn Walmart and D.G. will have a few extra in theirs as well. We will see the consumer base step up and not only purchase more items, but possibly step up to name brand items, that are higher margin. This suggests that even with a somewhat bettering economy both Walmart and Dollar General are places to be (possibly Target, but that’s an article for another day).
In the world in which we live and flourish, perception means everything. We buy certian cars, houses and clothes to give others a certain perception of us. We attend specific universities and pay in $100 bills to imprint our identity on those around us. Perception rules our lives. The perception of Facebook since their lift off has been nothing but horrific. Does this perception mean they deserve to lose over $40 billion of market cap? No. Though, perception rules our world and as of late Facebook has a negative perception in the eyes of many (or those that matter in the investing world). In due time the perception will reverse and the social media bulls will be rewarded.
The plight of Facebook has not been helped by the talking heads or the investors that don’t even understand the workings of Facebook. I constantly hear comparisons between Myspace and Facebook. At this point I find it ridiculous. It just goes to show how many investors fail to understand the ins and outs of a company before they invest. It shows how ignorance encompases the field of investing. Would you have bought into Apple for the iPhone if you had no idea what a smart phone was? A smart investor would have gone to the store, seen the hype, and explored the product prior to putting money behind his or her thesis. So for all you fools that claim that Myspace and Facebook are one in the same, I have nothing to say to you. You have failed yourself as an investor, because these products are galaxies apart. My mother and her generation did not even know what Myspace was but today she checks her Facebook daily on her iPhone. Event planning for a mass majority of individuals is done via Facebook. That is just a mere example of what separates Facebook from Myspace, oh yeah and the difference of about 870 million users at there peak (though Facebook is still growing strong).
the hatred for the Instagram deal astounds me. Everyone fails to grasp how great of a move it is. Facebook just made an aggressive move against Twitter. Instagram has a majority of their postings on twitter or is linked to twitter. Zuckerberg showed some cojones and marked his territory and now the world is mad at him. The best tech companies are the ones that protect their best interest and hinder that of their competition. A picture says a thousand words, or rather, a picture says everything a profile description says. Facebook wasn’t going to miss out on the next thing, it’s going to integrate it to be part of its platform. The move was pricey, but a must, and it shows that Facebook is here to stay one way or another.
For those you that are not so familiar with the social media environment, Facebook’s competition twitter is set to make a billion in about two years. This should come as a giant surprise to many being that Facebook and all other social media stocks are headed directly to zero. For those of you who believe in the story of Facebook, that has been far from a fairy tale, this should be some conformation in your beliefs. These companies are making money and growing at rapid rates. Though Facebook has failed to monetize mobile yet, it will, and it will do so at the same time as protecting the user experience. Zuckerberg understands that there is a need to balance profits and user experience, because without users Facebook has nothing.
Don’t believe the talking heads or the poorly written articles by individuals that have never traded or held stocks. I rode LinkedIn down from $80 to $60 last year then back up, pulling out my hair, fearing for a portion of my portfolio the whole way. Do you know what the know it all skeptics said? They said it was worth $0.00. It was worth nothing, absolutely nothing. Now, today, it is the social media stock to own. So don’t get your panties all in a wad, perception can change overnight. In due time Facebook will prevail because it didn’t become a giant by luck. It may be a long road, but Facebook will be a stand out in the end.
After this morning it seems as though the world has ceased to be the world we know. Today things seem bad, real bad, but before you capitulate lets take a look at some of the macro data from this past week and attempt to put everything into perspective. As you digest the information in which I am about to share with you, you must also realize that though the beautiful economic data that we immersed ourselves in at the beginning of the year may be faltering, the U.S. remains the best of the worse. Though the rest of the world may be falling apart and many around you capitulating, the U.S. stands to benefit from the misfortunes of those around the world. As the rest of the equities markets will be plagued with horrible economic data in the future, here at home, we seem to be making some progress (or at least not getting worse).
Lets begin with the most important data point, the employment situation. It is by no means as good as anticipated. Though many fail to look at this glass half full, we are nowhere near the grotesque situation we experienced in 2008 and 2009. So what if the recovery takes some extra time, we aren’t falling apart like our neighbors across the pond. We in fact are holding up quite nicely compared to the Europeans who employment situation is horrendous.
If you have read any of my previous work, you will know I am very bearish on the housing market as a whole, as I believe the U.S. housing market has been destroyed for a generation. What I am proud to share with you is that the housing market has finally stopped destroying my property value. No one is getting rich via equity of there home any time soon, but it looks like the months of 10 % losses are something of the past. So to sit there and say things are horrible is laughable. Things were horrible and the stabilization we are witnessing is a blessing that we should relish in.
Since jobs seem to be so important, lets take a quick look at the jobless claims. Last year I remember telling my colleagues how I would be much more comfortable with our economic situation if, and only if we get could get jobless under 400k. Look at the above image, we have done that and held nicely. Over the next year if we continue this trend my portfolio will likely have an inverse trend to the above chart.
Another point in which the masses seem to be quite preoccupied with, the GDP. Yes the GDP was revised downward a smidgen. The significance of the number 2 seems to be quite overblown in my opinion. We are by no means even looking at stepping in a negative direction. The GDP has fluctuated around this era for a majority of the recovery and will do so for some time. This negative revision suggests things are not on a steep uptrend in which some idiot analysts previously suggested. Though the number suggests things are just fine. Just like all the above data points suggest, things are just fine. Our economic data is not falling apart due to Europe. Though if the ridiculousness continues across the pond the equity markets will continue to fall apart. At the end of the day we will remain the best of the worse here in the United States and this will benefit our equity markets.
Disclaimer:For those of you ridiculously bullish on Apple (believe it can do no wrong) do not waste your time or my bandwidth reading this article.
Investors and consumers alike are truly in love with Apple. Some are new to this love affair, while others are veterans of a great run. Either way, the remaining part of 2012 lends itself to some interesting action in the stock. I will not serve to bore you with the news you already know, the items in the pipeline, rather, I will bring up a few concerns I have looking at the future of the tech giant. My first concern focuses on the release of the iTV and where it leads Apple.Concern number two revolves around the growing popularity of the iPhone and how this may serve to hinder Apple in the future.
Apple products scream cool and sophisticated. When I think about the Apple stock, all I can think about is wads of hundreds and fast cars. Apple has handily earned the previously mentioned perception, they have done very well for consumers and investors alike. That being said, the iTV has set itself up to revolutionize the television industry. It has been set to do so by both the executives in the Apple boardroom and the masses throughout the world. Assuming that the iTV lives up to the hype, which by looking at Apples previous success, one can give the benefit of the doubt on, will Apple live up to the investors hype? Apple has blown away the investing public time and time again with its extroadinary iPhone sales numbers, but will it be able to replicate that with the iTV? One can take the side of the arguement that the iTV will simply serve as an addition to the many other successful Apple products, meaning that it is merely the icing on the cake. Though if you want to make the argument that the iTV is the next “IT” product for Apple, things are not so clear. To begin with, one must realize that the other television production companies will not go without a lot of kicking and screaming. RIMM merely handed over its market share as if we live in a socialist society, Sony and the other big players will not. Secondly one needs to be very concerned about the price point of the product. The iPhone was able to sell massive amounts of phones because the phone carriers supplemented a majority of the cost. One must ask, what will happen without supplements for the iTV? With the clout that Apple has, they will make the cable companies pick up some of the bill, all this has yet to be seen. So I sit patiently waiting to see how the iTV will play out for investors.
My next concern deals directly with the Apple flagship product, the iPhone. Don’t get the wrong impression, I have one sitting beside me as I write this post. My concerns actually stem from the success of the product. What seperates a Range Rover from a Explorer, or a Porsche 911 from a Mustang? Your first thought is likely the cost difference, which is correct, but more importantly the exclusivity that comes with a higher price. Many Americans can go out and get a Mustang or Explorer tomorrow with the help of the bank, very few can do that with a Porsche or Range Rover. The iPhone for the longest time has marketed itself has the foreign car of the smart phone world, attempting to sell itself to the upper echelons of society. What happens when everyone (waitresses to grocery store attendants) from all walks of life has this prestigious product? The iPhone ceases to be exclusive. This may have some negative effects in the future, as Apple suggests as of yesterday, that it will continue to have one size screen (meaning just one new product). I had hoped that they would come out with different sizes and price points, they don’t seem to want to. You can sit there and argue that the old version of the iPhone serves as the lower end price point. This may have some merit, but the fact remains the iPhone at $200 is no longer exclusive. A portion of its appeal has disappeared. If everyone can have caviar and Cristal for dinner (or lunch as I prefer), it no longer has the same allure. This may be remedied in the future through the phone carriers giving up supplementing the cost of the iPhone, increasing the price to make it out of the grasp of many. Again we will have to wait and see how this plays out, in the meantime I will go FaceTime my 14 year old niece on her iPhone.
Though I sit here, in deep thought, worrying about the future of Apple, I am still very bullish short term. Apple has held up nicely compared to the devastation that Fecesbook and other social media players have seen. Apple has continue to hold up fairly nicely in this market and I may look to get in soon.
Soon a moment will come when all will capitulate and those standing with hoards of cash will look to make a killing. We have seen the story play out time and time again, when the worst slaps you in the face, those who are willing to take on risk prevail. Look back to the summer and fall of last year when every investor was running away with the fear of the indices going to zero. Those that got into the quality names around that time and held into the rally of early 2012 were handsomely rewarded. Don’t misunderstand me, those that bought bad companies were left with just that, bad companies (RIMM). So make sure you trim the fat off that portfolio, companies that will likely keep weighing down as the European hangover remains for some time. It looks like this hangover could continue to resurface in the years to come and the recession may last a decade.
At a certain point the markets become numb to the mess. If you get punched in the face again and again, at a certain point you throw up a block. Things are bad across the pond, but we have known this for a LONG time. There is a slim chance the end of the world (European Union) will come, but we have known this for a LONG time. At a certain point the markets are going to shrug it off as they have done before (many times). Those that are prepared to buy into the fear will prevail. At a certain point, which I am waiting patiently for, one should buy and prepare for greener pastures.
