Guest Post: The Real Black Friday iPad Discount

Submitted by BigMacro & Co.

The Real Black Friday iPad Discount

I tend to harvest the internet for interesting stories on Apple as it has become such a bell weather for the capital markets. On a German forum I found the interesting case of Balda which I thought might be of interest.

The company itself has a completely uninteresting core business (plastic components) but it owns 16% of TPK Holding which is the company producing touch screen technology for amongst others, iPads. TPK was just listed and the value of the 16% TPK stake is now roughly 2x the market cap of Balda.

Given that the largest negative MoM changes in payrolls happened right about 99 weeks ago (more on that below), a lot of consumers with no jobs and nothing to spend might not be the most bullish case for Apple. But Balda has a net-debt of zero which lets you get in on the iPad for a 40% discount which seems cheap, even for an Apple-skeptic. Unfortunately one cannot do the perfect arbitrage and shorting TKP due to Taiwanese rules.

After going through the numbers, the only reason for this mispricing that I can find is that either the broader market has not yet come around to feast on this situation, or that indiscriminately option related selling of Balda has pushed the price out of wack with fundamentals. I did actually find a lot of listed leveraged warrants expiring on the 14th of December, where the market makers should have been sellers of the underlying stock. And if nothing else, TPK or its owners could buy back their own shares at a 50% discount by acquiring Balda.

What will happen next black Friday?

A lot of bullish 2011 forecasts coming out of sell side these days. Even the once that label themselves as out of consensus or surprise calls are usually on the bullish side.

It is pretty clear that job creation will be key. If job creation does not get going, who will contribute to the black Friday bonanza next year? Unfortunately people will have to start paying mortgages and rent again as the foreclosure machine will surely have started again and the possibility to live rent free pending legal proceedings will diminish. Savings are still very low and credit lines are probably tapped out as delinquency rates on consumer abs continues to linger at very high levels.

Also, large cohorts of unemployed people roll off their 99-week unemployment program. The large negative unemployment numbers came in early 2009, and with the assumption that a lot of the people laid of back than are still unemployed, as there has been no  rebound in unemployment; there should be a significant amount of people coming of unemployment benefits. Below is a chart rolling
the monthly change in non-farm payrolls 99 weeks forward. As you can see the bulk is concentrated in Q1 of next year but will linger on for the rest of the year if there will be no improvement.

Moreover, I am not sure how much of a black swan event it would be if the FED would loose its dual mandate and only have to focus on inflation. With Ron Paul as the new head of the monetary policy subcommittee I would not rule anything out.

Comments

[TheGoodDoctor]

Won't this end up killing the states then? Those that can't find jobs once unemployment is done will become welfare recipients then correct?

[tamboo]

lol at ron and his israelis first offspring.

a guy who raises a kid like that shouldnt be in charge of anything.

and what happened to the millions in ron 4 pres donations?

refunds are apparently not forthcoming.