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Why A Market Defined By Apple Is A Symptom Of Something Very Wrong
Must read commentary by BigMacro & Co.'s Daniel Somos on how "Apple is really taking over the world" which confirm why the entire market can be summarized by the following equation: APPLE = STOCKS = AUDUSD = GOLD.
From BigMacro & Co (full pdf)
When the NASDAQ index was “founded” they put a cap so that no company could be larger than 24% of the index. This was because Microsoft would have been dominating the index if they would not have capped it. Now, it’s Apple approaching the limit because of its rapid growth, currently it is 20% of Nasdaq. Now look at the chart below. It is the Australian dollar plotted against Apple. To my knowledge Apple as a company has no specific exposure to Australia large enough to account for the fact that in September they started to move in sync. This leads me to a simple equation:
APPLE = STOCKS = AUDUSD = GOLD
What do I mean by that? Seemingly uncorrelated assets start to correlate – this is a classic symptom of something being wrong. I believe the reason Apple and Australian dollar trade the same is because the market is now driven by a single factor – cheap dollars. This goes back to my first point.
Everything is moving based on the FED quantitative easing program, the market does not even care about other economic or company specific factors anymore. Is this a healthy market which will translate into a self sustained bull market? No!
And what does this say about the US. I believe growth - and I am not talking about Keynesian growth, I am talking about something that took you 2 hours to produce before now only takes 1 hour to produce, like GDP per capita per hour – comes from 2 factors: technological advances and lower barriers of effective capital allocation. We know that we can forget about lower barriers of effective capital allocation, which has banking and regulation as the two main components. US banking is mostly involved in capital miss-allocation, small banks are going out of business at record pace (yes, more than last year) and it is not like small business regulation and taxes are getting any better anytime soon. So the last hope is technology.
So once upon a time the biggest company in the Nasdaq index was Microsoft, and I think it’s pretty easy to argue that Excel and Word did make a lot of things more efficient (real growth) than compared to typewriters and whatever people used before Excel. So isn’t it great that Apple is growing like crazy. Well, I have an iPad and it actually makes some time savings for me. But overall, I think the growth behind Apple is not based on a massive industry spending motivated by increased efficiency, but rather consumers who stopped paying their mortgages and are now buying iPhone 4 with the money instead so they can play Angry Birds. So that does not make me very optimistic about the future of the US economy.
And the greatest trick that Apple ever pulled is not lost on at least a few out there: we have just learned that another stock is about to define its own host market: Brazil's Petrobras weighing in the MSCI Brazil Index will rise from 16% to 21%, and its weighing in the MSCI LatAm Index will increase from 11% to 14.5%.
Soon, the entire world GDP (because after all GDP is now only a reflection of the stock market) will be determined by a guy drilling for oil off Rio, renting Netflix movies on his 2,837th generation iPad, while buying cocaine on Amazon.
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Posted by Shox over at the oildrum...it is indeed a brave new world, fucking scary.
Social critic Neil Postman contrasts the worlds of Nineteen Eighty-Four and Brave New World in the foreword of his 1985 book Amusing Ourselves to Death. He writes:
What Orwell feared were those who would ban books. What Huxley feared was that there would be no reason to ban a book, for there would be no one who wanted to read one. Orwell feared those who would deprive us of information. Huxley feared those who would give us so much that we would be reduced to passivity and egoism. Orwell feared that the truth would be concealed from us. Huxley feared the truth would be drowned in a sea of irrelevance. Orwell feared we would become a captive culture. Huxley feared we would become a trivial culture, preoccupied with some equivalent of the feelies, the orgy porgy, and the centrifugal bumblepuppy. As Huxley remarked in Brave New World Revisited, the civil libertarians and rationalists who are ever on the alert to oppose tyranny "failed to take into account man's almost infinite appetite for distractions." In 1984, Orwell added, people are controlled by inflicting pain. In Brave New World, they are controlled by inflicting pleasure. In short, Orwell feared that what we fear will ruin us. Huxley feared that our desire will ruin us.
well, we are the home of the brave.
http://americandigest.org/aorwellvshuxley.jpg
Huxley was right! I also read the Postman foreword and thank you for posting this.
Welcome to the Matrix!
Now that you mention it, "iTouch" takes on a whole new dimention when referenced to a 13-year-old male, and within the context of the point you make! ;-)
listen you don't have to go camping or boating in boulder colorado, no wi fi or bars. ATnT has no coverage here and it is all being eaten up by the elite kids at university having nothing else to do cept play with iphone like it is their who who.
Boulder, that explains it.
Uhm, actually, if you take away all computing and communication devices away from our children, they will fall behind. Reading books was once thought to be a waste of time for the working class. Do you get freaked out when you see a group of people with their heads down, reading books, not talking to one another, having their heads filled with ideas from who knows what?
I suspect you're just having trouble keeping up.
My point was you're being watched and manipulated by them. So next time you're mind fucking youself with that slim, shiny black, hand held dildo, just remember one thing>>>You're naked and they are watching you. Better yet, while you're mind mastubating to Apple porn>>>they are watching you! They actually choose the porn for you because they got your profile. So with that said you wonder why Brian Sucks and co. is so eager to ramp Apple into oblivion? It's because investing tax payer dollars in APPLE is the same as a contribution to the CIA! Keep the sheeple under our spell and we will have control...
And no, I don't have any problems keeping up...Next time you see a moussed hair dweeb at starbucks displaying proudly his thinest i pad or his stainless steel Mac Book one thing is for sure... it won't be me. You want to communicate? we do it by smoke signals..Just build the fire and i'll instruct you from there.
you shouldn't patronize starbucks. they are worst than apple.
apple + starbucks = b a d
Then I guess my point was so what? Nothing new there. Used to be just your own neighbors always watching you, maybe accusing you of being a witch. People have always watched and manipulated one another. Better to move on. Get a device, hack it, and watch them back if you wish.
Awesome!!!
ORI
That would be Lotus123. Lotus was more efficient, anyone who can type and has entered large quantities of data knows this. Excel forces you to constantly take your hands off the keyboard and use the mouse. the / menu, very efficient.
Kinda fond of the old Quattro Pro myself, until the lawyers stepped in. I got your look & feel.
Wall Street needs volatility to make money. This trading range is killing them. Soon, they will slap Bernanke in the face and take the market down, and they will make a ton of money on the way down. Then they will buy the cheap shares from those who capitulate, and make ton of money on the way back up. Volatility is the most important thing for them.
Actually George, Wall Street needs stocks to go up for them to make money. They don't make money in bear markets.
".... growth comes from 2 factors: technological advances and lower barriers of effective capital allocation."
It's sad how few people, including smart insightful people like this author, don't get it.
The primary driver for growth is energy. Technology and capital result from the surplus wealth that energy enables.
I think the author was/is consciously referring to a slightly later part of the value chain.
Your observation is the root. Nearing the end of the value chain, those two factors are key.
ORI
http://aadivaahan.wordpress.com/2010/06/09/an-older-piece-pertinent/
Reconsider e=mc^2.
Without the proper capital in place, what can you do with energy? Try harvesting your "energy" without a power plant.
When I think of economic growth, the factors I come up with actually just end up defining what I mean by growth at that time. For instance, siding with the author is really just accepting his definition of growth. But your definition would be anything with a fuel source. Would a forest fire be considered growth?
quite wrong on the permanence of apple accessories. Nevermind the plastic carry cases. I own ipod 3 microphones and a radio transmitter (okay, Belkin brand, but sold at Apple store), none of which will plug into anything manufactured today. All of which cost $100 each.
Oh yeah, gotta love that battery too. Not just short cycle life, but the short life. I still have that ipod3. Of course, the battery's been dead since 1973 or so. There are lots of tech/engineering issues that Apple doesn't get right. Can you stay connected to an airport wireless router? Not for a whole work day you can't.
That said, I bought aapl at $80 and rode it to $220. Tragically, I did not buy any AUD.
Apple is not 20% of the NASDAQ Index, it is 20% of the NADAQ-100, they are two very different indexes. The author doesn't specify which is either an amature mistake or shows how little he knows.
It’s difficult to predict market impact of such companies as Apple without remembering the plantation-like world of their manufacturing partners…the necessary labor equation that provides for Apple’s market dominance. Steve Jobs on the stage in San Francisco with an iPad in his hand, clearly addressing future customers, makes one wonder how much comparative advantage there is to Americans from these foreign manufactured products made by a U.S-protected company.
In terms of market value, Apple is now the second-largest company in the world. As noted by Bloomberg, Apple is now valued at $265.8 billion ahead of PetroChina's $265.5 billion--only behind Exxon-Mobil, the largest company in the world, which had a value of $313.3 billion this past Thursday.
A line of suicides and consistent reports recently of sweatshop working conditions have plagued Apple’s Chinese manufacturing partner, Foxconn.
Steve Jobs and other company officials continue to duck the charges after one hour preliminary interviews of a handful of current employees “found nothing out of the orginary.”
That’s not the real story, says JonT of Shenzhen Post (Guangzhou/Hong Kong/Shenzhen).
Foxconn Technology Group is a Taiwanese multinational company with its main plant operating out of Shenzhen, China. FoxConn, with a workforce of 800,000 in China alone, is hands down the largest manufacturer of electronics, computers and computer components in the world. They produce items such as the Mac mini, iPod, iPad, iPhone, Dell Computers, HP motherboards, Wii, Xbox 360, Playstation 3, Amazon kindle, and Cisco Equipment just to name a few.
Says JonT: “I happen to know personally a few of the past and current management as well as line employees that have shared freely on this topic. What I’ve come to learn is a far different story from that of what is found on publication for the general public. You see, employees will say one thing to reporters and to investigators under threat of the company’s pendulum and a whole another thing to a friend of a friend over a Johnny Walker.
“Happy, is a nineteen year old assembly-line worker from a poor region of China.
“She is the eldest sister of four and sends as much money as she can back home from her 1000rmb ($150) per month salary. I have listed just some of her complaints and odd requirements with its penalties that this company would enforce if she breaks these unwritten policies. The oddity is that most workers feel upper management either doesn’t know these practices are taking place or doesn’t care…
“If she is late, she will be charged 100rmb per minute. If she refuses or can’t work overtime when needed, she will be removed from work line-up for over a month or until she can come up with the fee for reinstatement. That means no money to send home for a month. That means don’t think about getting sick. If you talk during working hours you get penalized 100rmb. No Cell phones on duty, so what happens in a family emergency? She even had to borrow money once to pay the negative balance from her salary. Imagine working for a whole month then ending up having to pay instead of getting paid.
“The first month’s salary is kept as a deposit for the uniform and other items. They say it will be returned once you leave as last-pay. But she hasn’t heard of anyone getting back the full amount, there instinctively will be something wrong with the uniform or some other problem that will warrant a large deduction.
“Personal items must be purchased at a pre-designated store on site. If found that you have another brand then it will be thrown out.
“She had to pay to get this 18/hr a day job with one day off a month and must pay 100rmb per month to keep it. It does seem that a middleman is making off like a bandit with this set up.
“There are 12 other dorm-mates that share her small room; however she can’t understand them nor even know their names or wants to. They are all from different parts of China speaking a different dialect…
“I happen to know for a fact that there are facilities at the factory for down-time such as swimming pool, tennis court, basketball court, gym, coffee shop, and a spa. She claims to never have seen it, doesn’t know where it is, and if it does exist then it would be for upper-management and not for the employees. Furthermore, even if they did let us use it, she says, it would only be for two minutes anyway. Since when work is finished your thinking about getting washed up as fast as you can before the hot water is gone and getting some shut-eye before you’re rushing to get to your station again. She tends to forgo breakfast to get a little more sleep.
"She was approached by a certain manager offering favors and incentives; if she refused these advances then she would have had a very hard time at the factory. Needless to say she came into this factory as a girl but left a woman…
“Since none of these claims can be substantiated nor refuted, I can only elicit these claims as hearsay and offer the reader a choice to believe or not to believe (that is not the question). The question is are we really better off with these things, with supply and demand, that it takes the most sacred of innocence of adolescent and early adulthood, trust?” JonT
http://www.szcpost.com/2010/05/foxconn-suicides.html
Truly valuable comment. Hope they adopt it as a post! What you describe is the Globalization model that we're supposed to embrace... and it's crap for all but the scumbags...
It won't last.
And it won't end well.
JR, hate to agree with you but I have seen it with my own eyes before. Media
coverage will never uncover the truth of these stories.
If one refuse to buy "blood diamond", iPhone is probably 100x worse!
Are you saying that Happy was forced to work at Foxconn? It looks to me like she probably had it worse at home and left her community in search of something better. What she found was better, but also has a steep price for joining. If you remove Foxconn, what happens to Happy then?
JR i am so glad you took your time to post this story. it is just sickening to read, what is happening to the exploited poor and minorities. we know this is true and probably more horror happening by the minute, everywhere. conditions sound somewhat like the gas chambers just different kind of equipment. of course it isn't covered. only fiction is covered any more by the media.
After 14 suicide attempts, 11 that were successful Foxconn passed out agreements to the employees for signature specifying that the employee would agree not to commit suicide. Apparently signed agreements mean allot more in China than they do in the US.
http://www.nytimes.com/2010/06/07/business/global/07suicide.html
http://www.huffingtonpost.com/2010/05/27/foxconn-suicides-continue_n_591616.html
http://online.wsj.com/article/SB10001424052748704269204575270031332376238.html
Rapid change from an agricultural economy to industrial.
Tomorrow is a POMO day,and this is what is probably holding the market up in what otherwise would have been a down day.AAPL chart to me looks terrible,it is after a pullback, currently sitting on top the upper support trendline of the rectangle it broke out of on the 23rd.
Could yesterdays huge drop have been a warning of a top?Interesting times.
the problem with most commentators from the USA, and this guy is no exception, is that they're so US-centric... maybe because only 20% of americans hold passports or something... but there is a world outside the USA... and whereas AAPL used to maybe sell to 1bln consumers... it now sells to 4bln... chinese and indians etc... the sooner peopel on ZH in general wake up to the fact that the USA/Western Europe DO NOT DRIVE THE GLOBAL ECONOMY anymore... the better... pull your collective head out of your collective old world arse and wake up to today and tomorrow... this is not the 90's anymore people.