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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Badabing's picture

i love fake numbers

Badabing's picture

JPM let me borrow a algorithm.

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.

smiler03's picture

I think you over estimate the intelligence of the consumer.

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.

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. 

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.

Manthong's picture

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

Everybodys All American's picture

sizable component of the NASDAQ, NDX100, etc.

resurger's picture

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

HedgeFun's picture

73.8% of all statistics are indeed fake.

Dr. Engali's picture

I think you're making that up.

Hman's picture

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

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!!!!!

TimmyM's picture

"As goes AAPL, so goes China"

Fixed it!

GeneMarchbanks's picture

Chimerica, you can't tell where one begins and the other ends.

CvlDobd's picture

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!

scatterbrains's picture

Looks like the algos have figured out how many ipods the 2k per person foreclosure settlement buys this morning.

williambanzai7's picture

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. 

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.

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.

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?

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.

tarsubil's picture

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

Hugh_Jorgan's picture
  • 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.


hedgeless_horseman's picture



Anyone remember a company called Microsoft?

ZeroPower's picture

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

smiler03's picture

Microsoft??? Are they the weird new kids on the block who pay dividends?

SeverinSlade's picture

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.

Mr Lennon Hendrix's picture

Gens X, Y, and Z will go in debt, not pay loans, and steal for Apple products.

SeverinSlade's picture

Guess those tin-foil hat enthusiasts may be onto something when pointing to Apple (and it's logo) being the "forbidden fruit." 

Mr Lennon Hendrix's picture

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. 

defn8Dog's picture

WSJ says Americans are foregoing the cost of regular health checkups in order to buy iThings.

Bam_Man's picture

Most Americans don't need a health check up. They can look in the mirror and see that they are fat and diabetic.

SilverIsKing's picture

Gens X, Y, and Z will go in debt, not pay loans, and kill for Apple products.

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.

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


SeverinSlade's picture

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.

Chump's picture

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

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.

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.

SeverinSlade's picture

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. 

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.

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.

defn8Dog's picture

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

Mr Lennon Hendrix's picture

Please get back to us when you learn how to corralate PM to equity in nominal and real terms. 

Please, get back to us.