iEconomy: This Is How Apple Distorts The Market

Tyler Durden's picture




 

As rumors of the imminent iPad3 (and FoxConn hacking) spread across the web and a general sense of cult-like euphoria washes away the reality of a considerably weaker earnings picture (and outlook) than even downgraded expectations had prepared for, we present two charts, via JPMorgan, of just how grossly distorted the picture of US economic health (implicitly via US corporate earnings) has become, thanks to Apple. While ignoring Apple as a provider of 'wealth' is akin to Monty Python's "What Have The Romans Ever Done For Us?" comment, we worry that so much 'expectations' burden should fall on the shoulders of a company that relies on constant 'successful' innovation and constant low cost wages (no growth) to merely maintain current growth and earnings while facing constant and massive competitive threats from every side of its business (especially with austerity/recession/credit-constrained Europe as the largest sequential growth driver in the last surprising quarter). While 'Let Them Eat PSI' is the clear message for the Greeks, it would appear the US investor is truly satisfied by its extra large helping of iPad meals, even as 'explicit' job creation in the US via this main driver of US earnings remains de minimus (recognizing of course the peripheral impact of developers into this infrastructure that however do not amount to too much in terms of earnings as is painfully obvious from these charts). As goes AAPL, so goes the US?

 

 

 

Source: JP Morgan

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Thu, 02/09/2012 - 11:53 | 2141856 Badabing
Badabing's picture

i love fake numbers

Thu, 02/09/2012 - 12:11 | 2141954 Village Smithy
Village Smithy's picture

Hey! How'd you do that?

Thu, 02/09/2012 - 12:17 | 2141987 Badabing
Badabing's picture

JPM let me borrow a algorithm.

Thu, 02/09/2012 - 12:55 | 2142241 chrispycrunch
chrispycrunch's picture

It's pretty cool how your avatar makes it look like all your posts are a + but with Apple one must be skeptical. If it's too good to be true, the mantra goes, it probably is. Apple understandably created a single unified friendly device that people will buy. There are quiet rumblings that people who cannot afford it, can. It is this consumer base that is worrisome.

 

I've seen people with iPads typing away with their two fingers. I don't understand why they show no frustration. They must be the most patient people in the world! iPhone. They break more than other devices (by my own observation only). Form over function. Apple understandably caters to these "clumsy" users. These users line up at the stores. The stores are busy. People see the busy stores. People buy the devices on this perceived mis-information.

So long as the illusion self-perpetuates, Apple will be a heavy-weight. But like all things big, like all things centrally-controlled, something's gotta give. Someone's going to wake up. Someone's going to write about it. Maybe then, the tide will turn.

Thu, 02/09/2012 - 15:17 | 2143040 smiler03
smiler03's picture

I think you over estimate the intelligence of the consumer.

Thu, 02/09/2012 - 11:55 | 2141865 GeneMarchbanks
GeneMarchbanks's picture

'As goes AAPL, so goes the US?'

Upon reading this, I threw my six year old iPod to the floor and stomped it OfficeSpace style. It's possible that I over-reacted but 'twas liberating.

Thu, 02/09/2012 - 11:58 | 2141893 Mr Lennon Hendrix
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Bullish!

Thu, 02/09/2012 - 12:06 | 2141929 augie
augie's picture

genius. Now the purchase of a *new Ipod is justifable. I'm begining to understand the consumerist model goes well beyond planned obselesence. 

Thu, 02/09/2012 - 12:13 | 2141963 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Back when I was studying economics I went in to see my Prof to lay out my thesis of where the economy was headed and why.  She met me there carrying a new mac.  Her colleague walked in and she picked the mac above her head and said while smiling manically, "I'm doing my best to help the economy!"

Keynesians are more than idiots.  I can't even put into words how I feel about them.

Thu, 02/09/2012 - 12:37 | 2142113 augie
augie's picture

know the feeling...FUBAR

Thu, 02/09/2012 - 12:06 | 2141931 Manthong
Manthong's picture

"You'll never get fired for buying an Apple."    ???

Thu, 02/09/2012 - 12:02 | 2141907 tarsubil
tarsubil's picture

No clip?

Thu, 02/09/2012 - 12:17 | 2141990 Everybodys All ...
Everybodys All American's picture

sizable component of the NASDAQ, NDX100, etc.

Thu, 02/09/2012 - 15:42 | 2143143 resurger
resurger's picture

I should do the same, but i can not since it's a gift from my wife Zzzzzzzzzz

Thu, 02/09/2012 - 11:54 | 2141867 HedgeFun
HedgeFun's picture

73.8% of all statistics are indeed fake.

Thu, 02/09/2012 - 12:19 | 2141998 Dr. Engali
Dr. Engali's picture

I think you're making that up.

Thu, 02/09/2012 - 12:21 | 2142009 Hman
Hman's picture

How Ironic that you refer to statistics to proof you argument that 73% of all statistics are fake!

Thu, 02/09/2012 - 15:16 | 2143038 ceilidh_trail
ceilidh_trail's picture

Be accurate when you throw statistics around! EVERYBODY (or at least 93.289% of us) KNOWS that the number is actually 73.78795%! If you are gonna use stats, use them correctly!!!!!

Thu, 02/09/2012 - 11:56 | 2141876 TimmyM
TimmyM's picture

"As goes AAPL, so goes China"

Fixed it!

Thu, 02/09/2012 - 12:02 | 2141906 GeneMarchbanks
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Chimerica, you can't tell where one begins and the other ends.

Thu, 02/09/2012 - 11:56 | 2141877 CvlDobd
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iPad3? That's why AAPL is up today? I could have told you iPad 3 was coming the day 2 was released. Ah fuck this!

Thu, 02/09/2012 - 11:57 | 2141887 scatterbrains
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Looks like the algos have figured out how many ipods the 2k per person foreclosure settlement buys this morning.

Thu, 02/09/2012 - 12:00 | 2141888 williambanzai7
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I don't think Apple does anything to the market. The "market", if that is what we chose to call it, does it to itself. 

Thu, 02/09/2012 - 12:11 | 2141940 Mercury
Mercury's picture

Maybe, but anyone who thinks that Apple without Steve Jobs is going to be anything like Apple with Steve Jobs is fooling themselves.

Thu, 02/09/2012 - 12:28 | 2142049 X86BSD
X86BSD's picture

I disagree. As an owner of AAPL things will not be the same. But they won't be marginally different either. Tim cook has been groomed for years into taking Apple into the future by Steve himself. Johnny Ive has been given free range to innovate in the lab without interference from anyone at Apple. Steve saw to that personally. They have setup an internal university to ensure that upper management was taught the "Apple Way" of things. Steve undertook many projects internally to ensure the creativity, innovation and ideas that made Apple great was part of their backbone and ingrained into everyone working there. It's their culture, its indoctrinated into everyone there. So I don't feel like Apple is in any danger of straying from their kick ass, innovative, design oriented way. If I did I would dump the stock. Apple is going to be just fine without Steve. And for those that think otherwise you will be proven wrong like all the other pundits that thought the ipod was going to be a flop, or that the iphone was an over priced piece of shit, and that android would dominate the iphone, or that the ipad would never take off, or that the iTMS would be a flop since no one was paying for music, etc.. etc.. etc..
The amount of people who simply are incapable of understanding Apple, its philosophy and its motives lay by the wayside like the body county after Hiroshima. This is nothing new and will not change. I however will continue to reap the rewards by betting with Apple. Enjoy your dirt sandwich.

Sat, 02/11/2012 - 15:08 | 2149537 Death and Gravity
Death and Gravity's picture

And much as you have a major, true point, you're also conflating engineering excellence with brand-name consumer herd mentality as the chief cause of Apples business success.

What's APPLs P/E again?

Thu, 02/09/2012 - 12:31 | 2142072 williambanzai7
williambanzai7's picture

You are going to see a company increasingly focused on executing design features targeting wealthy Asian consumers. The high end sweet spot going forward.

Thu, 02/09/2012 - 15:55 | 2143200 tarsubil
tarsubil's picture

Exactly. The market needs to stop it or it is going to go blind.

Thu, 02/09/2012 - 16:21 | 2143334 Hugh_Jorgan
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  • Superior marketing (the quintessential cult of personality for the early 21st century... high tech, but approachable)
  • A ponzi economy where 70% of GDP is based on consumer spending.
  • A population that medicates itself by spending on the latest electronic doo-dads.

 

What are the dependencies that could derail this phenomenon... Hmm.

 

Thu, 02/09/2012 - 11:57 | 2141889 hedgeless_horseman
hedgeless_horseman's picture

 

 

Anyone remember a company called Microsoft?

Thu, 02/09/2012 - 12:53 | 2142212 ZeroPower
ZeroPower's picture

Nasdaq at multi-year highs. All you need to know.

Thu, 02/09/2012 - 15:22 | 2143062 smiler03
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Microsoft??? Are they the weird new kids on the block who pay dividends?

Thu, 02/09/2012 - 11:58 | 2141892 SeverinSlade
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Is it just me that sees AAPL suffering a fall similar (albiet much less exaggerated) to NFLX, GMCR, etc?  Yes, AAPL has massive cash levels.  Yes, they have an extremely loyal customer base.  But given the amount of the economy that's currently being driven by maxing out credit cards, how much longer can AAPL continue to blow out earnings? 

At some point (perhaps when Europe implodes?) AAPL's slightly upgraded devices won't be enough to fuel continued growth.  It perplexes me that Americans continually go out and spend hundreds (if not thousands) of dollars buying a SLIGHT upgrade of a device they ALREADY OWN.  Yes, because the slightly faster iPad2 is definitely worth the money.  ZH, as well as others, have also continually pointed out that AAPL is basically a "grown up" version of Hasbro.  The iPad is nothing but a cool toy.

At this point I think AAPL's only hope is to use their cash to basically try and monopolize it's business.  Relying solely on consumer electronics isn't going to cut it forever.

Thu, 02/09/2012 - 12:00 | 2141901 Mr Lennon Hendrix
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Gens X, Y, and Z will go in debt, not pay loans, and steal for Apple products.

Thu, 02/09/2012 - 12:03 | 2141915 SeverinSlade
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Guess those tin-foil hat enthusiasts may be onto something when pointing to Apple (and it's logo) being the "forbidden fruit." 

Thu, 02/09/2012 - 12:15 | 2141977 Mr Lennon Hendrix
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The elite circle jerk to the fact that everyone and their grandma spend their wages buying toys called "apples".  The Illuminatti get their mojo from us inviting them in, and asking them for our lashes. 

Thu, 02/09/2012 - 12:03 | 2141917 defn8Dog
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WSJ says Americans are foregoing the cost of regular health checkups in order to buy iThings.

Thu, 02/09/2012 - 12:19 | 2142000 Bam_Man
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Most Americans don't need a health check up. They can look in the mirror and see that they are fat and diabetic.

Thu, 02/09/2012 - 12:09 | 2141944 SilverIsKing
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Gens X, Y, and Z will go in debt, not pay loans, and kill for Apple products.

Thu, 02/09/2012 - 14:44 | 2142869 piceridu
piceridu's picture

Remember when thugs would mug someone for their shoes (Jordans)? No doubt...having an iPhone and being able to show your friends and talk about it is the swap for not having been loved by your parents.

Thu, 02/09/2012 - 12:04 | 2141918 lotsoffun
lotsoffun's picture

and they have a huge following of people not paying mortgage and spending whatever money they have on this junk.  and they also just got a 2,000 dollar boost from obama

 

Thu, 02/09/2012 - 12:07 | 2141935 SeverinSlade
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I have a friend that buys every new Apple product and always ridicules me for sticking to PCs.  He's in massive amounts of debt.  I'm debt free.  He constantly tells me how much greater his devices are than mine.  My response?  "With the money I didn't waste buying Apple products, I've used to buy physical gold and silver."

His purchases will essentially be worthless in a few Apple upgrade cycles.  Mine?  Well, I'm sure all ZHers know where PMs are ultimately headed.

Thu, 02/09/2012 - 12:26 | 2142038 Chump
Chump's picture

Your friend seems like the sort of person I would avoid telling about my metals.  Just sayin'.

Thu, 02/09/2012 - 12:26 | 2142041 Ahwooga
Ahwooga's picture

Apple users are like door to door religious types, always trying to push their ideas onto everyone around them. "What do you mean you don't like apple? You must get on board, no viruses you know!" The £700 price difference pays for a lot of years of mcafee subscriptions and more I tell them...

Its a fanaticism, and sadly I have to say I dont know when it will wear off. It would take a brave type to short AAPL.

Thu, 02/09/2012 - 12:06 | 2141927 Xkwisetly Paneful
Xkwisetly Paneful's picture

and someday Bayer will make the majority of their earnings from something other than aspirin,

or so the bloggers have been saying for 100yrs.

Thu, 02/09/2012 - 12:10 | 2141945 SeverinSlade
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I think that's a pretty simplistic statement.  Bayer also makes highly profitable prescription drugs (which it lobbies the government for favorable legislation).  So unless Apple begins lobbying for the Feds to give a tax incentive for buying iProducts or for legislation to put MSFT out of business, I fail to see the comparison.

Apple's entire business model relies on constant innovation and its customers continually paying top dollar for slight product upgrades. 

Thu, 02/09/2012 - 12:31 | 2142017 Xkwisetly Paneful
Xkwisetly Paneful's picture

Not simplistic at all, the majority of the Bayer's earnings still come from aspirin.

The simplistic thing is ignoring that Ipads are taking over offices and replacing desk top computers.

The simplistic thing is iIgnoring that APPL is huge in education brainwashing to their brand name at age 5yo.

The simplistic thing is ignoring Americans rushing out to buy the next great gadget fuels the great gadgets for the rest of the world.

The simplistic thing was calling an IPAD the next Walkman and looked what happened to Sony trying to protect their product.

Putting Hasbro in the same sentence as a leading edge tech company, which is where  organic ecnomic growth comes from-don't grow an economy by adding toll takers and mini mart register operators is beyond simplistic.

It is OK though, I get a huge kick out of people paying premium prices for largely like product with German cars, Swiss watches and French wines too.

Thu, 02/09/2012 - 12:38 | 2142123 X86BSD
X86BSD's picture

Also remember that in most of the markets they are in, they only control a small fraction of the market. Like PC's. They only have what? 10%? market share but earn the vast majority of profits. They have huge growth potential in the desktop PC market. The same goes for most of their markets. They have small market share but the majority of profits from those markets. Apple is not going to use their cash to do insane things like try and and "monopolize" its business. The only thing Apple is going to do with its mountain! of cash is to use it to buy up large swaths of components like flash memory each year choking out the other guys and creating delays for their products, and to make strategic buyouts of companies that will directly benefit them. They don't just buy out competition. Or they would own adobe, and google. You just dont understand Apple. And neither does ZH if they think Apple is an adult hasbro.

Thu, 02/09/2012 - 11:59 | 2141895 defn8Dog
defn8Dog's picture

whoops, up goes the market.  ZH having profound effect.  Self-loathing to follow.

Thu, 02/09/2012 - 12:02 | 2141909 Mr Lennon Hendrix
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Please get back to us when you learn how to corralate PM to equity in nominal and real terms. 

Please, get back to us.

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