Apple

With the record first quarter in the books we perform a quick postmortem and find some stunning things, the first of which is that the 12% YTD growth in the S&P YTD has been entirely due to multiple expansion: consensus 2012 EPS has declined by 2% since the start of 2012. Why multiple expansion? Because as Goldman (this would be "bad" Goldman in the face of David Kostin, not "good" Goldman ala Peter Oppenheimer who top ticked the market two weeks ago by telling everyone to get out of bonds and into stocks) which still has a 1250 year end price target says "the ECB reduced “tail risk” via the LTRO." Which means that as of today, the market is officially overvalued: "Since December the forward P/E multiple has expanded by 10% from 12.1x to 13.2x, above its 35-year average of 12.9x" even as EPS estimates have actually declined by 2% since the beginning of the year! It gets funnier when one accounts for the outsized impact of just one company. Apple. "Apple continues to have a significant impact on sector- and index-level results. Info Tech contributed 399 bp of the S&P 500 12% YTD return, but AAPL alone accounted for 179 bp or 15% of the rise in S&P 500 during 1Q. The company constitutes 22% of the Info  Tech sector’s market cap and generates 22% of its earnings. Consensus expects year/year EPS growth in 1Q 2012 of 6% for S&P 500 and 12% for Info Tech, but excluding AAPL these expectations fall to 4% for both Tech and the index. While Information Technology was the only sector to see margin growth in 4Q 2011, margins declined without Apple. In 1Q 2012, Tech margins are expected to grow by 16 bp YoY in total, but fall 33 bp without AAPL." Finally as the chart below shows, 2012 forward EPS have been declining ever since July, when they peaked just short of 114, and are now down to just about 105. In other words: without Apple and the margin boosting impact of the LTRO, the quarter (and really last two quarters) would have been a disaster. As noted earlier (and to Spain's detriment) the LTRO effect has now phased out. How long until the Apple mania meets the same fate?

• Portugal Says Some Town Halls May Need to Restructure Their Debt (Bloomberg)
• Draghi Scotches ECB Exit Talk as Spain Keeps Crisis Alive (Bloomberg)
• China PBOC Injects Net CNY25 Bln Into Money Market This Week (WSJ)
• BoE warns on mortgage limits (FT)
• Apple investigating new iPad WiFi issues, tells AppleCare to replace affected units (9to5Mac)
• Juppé promises French hard line in EU (FT)
• ECB liquidity fuels high stakes hedging (FT)
• Fed’s Lacker Says Markets Saw Odds of Policy Easing as Too High (Bloomberg)
• Japan minister to ask for nuclear reactor restart: media (Reuters)

• Low cost era over for China's workshops to the world (Reuters)
• The HFT scourge never ends: SEC Probes Ties to High-Speed Traders (WSJ)
• Rehn says Portugal may need "bridge" (Reuters)
• China's GDP likely to have slowed in the first quarter (China Daily)
• Chinese Premier Blasts Banks (WSJ)

Back in the start of March, before the vertical ascent part of the parabolic move in Apple stock truly took off, we pointed out that out of nowhere, Dan Loeb, long well-known for being quite persuasive in getting his hedge fund friends to piggyback on his ideas, had made the iPad maker his Top 5th position as of the end of February, despite not owning one share two months prior. Well as of the end of March, per the firm's just released update of its top positions, Apple is no longer in the Top 5, even as it was his 2nd best performer of the month on March 15. Has Loeb, acutely aware of such things as blow off tops and manias, merely trimmed his position, or has he cut his exposure entirely? As a reminder, this wont be the first time Loeb "rented in" and out of the AAPL hedge fund hotel, having done so most recently in Q2 of 2011. And if Third Point is gone, are Loeb's idea dinner buddies out as well?

• China's Central Banker to Fed: Act Responsibly (WSJ)
• Spain's debt to jump to 78 percent of GDP: De Guindos (Reuters)
• Rajoy Needs All the Luck He Can Get (WSJ)
• Spain Faces Risks in Budget Refit (WSJ)
• Top JP Morgan banker resigns to fight abuse fine (Reuters)
• Reinhart-Rogoff See No Quick U.S. Recovery Even as Data Improve (Bloomberg)
• Program to help spur spending in domestic sector (China Daily)
• Barnier hits out at lobbying ‘rearguard’ (FT)
• U.S. CEOs' take-home pay climbs on stock awards (Reuters)

What a quarter! The Dow up 8% and enjoying a record quarter in terms of points — 994 of them to be exact and in percent terms, now just 7% off attaining a new all-time high. The S&P 500 surged 12% (and 3.1% for March; 28% from the October 2011 lows), which was the best performance since 1998. It seems so strange to draw comparisons to 1998, which was the infancy of the Internet revolution; a period of fiscal stability, 5% risk-free rates, sustained 4% real growth in the economy, strong housing markets, political stability, sub-5% unemployment, a stable and predictable central bank. And look at the composition of the rally. Apple soared 48% and accounted for nearly 20% of the appreciation in the S&P 500. But outside of Apple, what led the rally were the low-quality names that got so beat up last year, such as Bank of America bouncing 72% (it was the Dow's worst performer in 2011; financials in aggregate rose 22%). Sears Holdings have skyrocketed 108% this year even though the company doesn't expect to make money this year or next. What does that tell you? What it says is that this bull run was really more about pricing out a possible financial disaster coming out of Europe than anything that could really be described as positive on the global macroeconomic front. What is most fascinating is how the private client sector simply refuses to drink from the Fed liquidity spiked punch bowl, having been burnt by two central bank-induced bubbles separated less than a decade apart leaving David Rosenberg, of Gluskin Sheff, still rightly focused on benefiting from his long-term 3-D view of deleveraging, demographics, and deflation - as he notes US data is on notably shaky ground. This appears to have been very much a trader's rally as he reminds us that liquidity is not an antidote for fundamentals.

While US stocks hover at 1.400, Europe is starting to break down again in a big way. Here are the lines to watch.

Think the Fed's policy of market intervention is only impacting savers and investors? Think again: courtesy of ZIRP, companies are investing increasingly less in CapEx, and thus long-term growth, and merely focusing on instant bang for the buck projects, like M&A and dividends. Sustainable? You decide.

• Mixed signals from China's factories in March (Reuters)
• EU wants G20 to boost IMF funds after Eurogroup move (Reuters)
• Euro Leaders Seek Global Help After Firewall Boosted (Bloomberg)
• Euro-Region Unemployment Surges to Highest in More Than 14 Years (Bloomberg)
• Big banks prepare to pay back LTRO loans (FT) ... don't hold your breath
• Coty Inc. Proposes to Acquire Avon Products, Inc. for $23.25 Per Share in Cash (PRnewswire)
• Spain Record Home Price Drop Seen With Bank Pressure (Bloomberg)
• Firm dropped by Visa says under 1.5 million card numbers stolen (Reuters)
• Japan Tankan Stagnates With Yen Seen as Threat (Bloomberg)
• Fed to buy $44 billion Treasuries in April, sell $43 billion (Reuters)

Now that the Mega Millions Jackpot has just hit a record $640 million, people, mostly those in the lower and middle classes, are coming out in droves and buying lottery tickets with hopes of striking it rich. After all, with $640 million one can even afford a few shares of Apple stock. Naturally, we wish the lucky winner all the (non-diluted) best. There is, however, a small problem here when one steps back from the Sino Forest trees. As ConvergEx' Nicholas Colas explains, "Lotteries essentially target and encourage lower-income individuals into a cycle that directly prevents them from improving their financial status and leverages their desire to escape poverty.  Yes, that’s a bit harsh, and yes, people have the right to make their own decisions.  Even bad ones…  Also, many people tend to significantly overestimate the odds of winning because we tend to assess the likelihood of an event occurring based on how frequently we hear about it happening.  The technical name for this is the Availability Heuristic, which means the more we hear about big winners in the press, the less uncommon a big payday begins to seem." Call it that, or call it what one wishes, the end result is that the lottery is nothing but society's perfectly efficient way of, to use a term from the vernacular, keeping the poor man down while dangling hopes and dreams of escaping into the world of the loathsome and oh so very detested "1% ers". Alas, the probability of the latter happening to "you" is virtually non-existant.

It appears the miracle of unionization has not penetrated Chinese labor markets. Contrary to expectations that suicidal workers would be elated at news that the world's second biggest employer in the world (after Wal Mart) with 1.2 million workers, FoxConn, has given employees "landmark concessions" the reality is actually different. Very, very different. "At the Foxconn factory gates, many workers seemed unconvinced that their pay wouldn't be cut along with their hours. For some Chinese factory workers - who make much of their income from long hours of overtime - the idea of less work for the same pay could take getting used to. "We are worried we will have less money to spend. Of course, if we work less overtime, it would mean less money," said Wu, a 23-year-old employee from Hunan province in south China. Foxconn said it will reduce working hours to 49 per week, including overtime. "We are here to work and not to play, so our income is very important," said Chen Yamei, 25, a Foxconn worker from Hunan who said she had worked at the factory for four years." Hold on, Hold on... You mean to say that whatever values are cherished in the good old US of lazy A, such as bathroom, coffee and cigarette breaks, not to mention "democracy", "American Idol", "high cholesterol", $0.99 apps" and "liberated oil" just may not be appropriate to the 95% of other people around the world? But... But... how will America spread its deeply unique "humanitarian" values of globalized freedom and trade interchange (funded by cheap credit of course - those global debt slaves won't enslave themselves on their own - for more see here), and occasionally using kinetic intervention (never war: one needs Congressional approval for that) when said people dare to express a different outlook, and set of values on life? Preposterous. Nay, Inconceivable!

The S&P 500 has turned red led by Technology stocks as Apple drops below $600 once again. Chatter is the report posted here yesterday is doing the rounds and bringing doubt to Apple's omnipotence. Perhaps, just perhaps, it is time for the NASDAPPLE to consider an amicable reweighing? It must be time for more iQE soon, surely. Despite all the media propaganda, perhaps yesterday's FOXCONN news was less than uberbullish after all.

Why save when one can spend (and, more importantly, why save when one has ZIRP)? This appears to have been the motto of American consumers in the past three months when the US Savings rate has plunged from 4.7% in December to a tiny 3.7% in February: the lowest since December 2007's 2.6%, and just as the recession and the market crash was about to send everyone scrambling for the safety of bank savings. The reason: in February personal spending soared by 0.8% on expectations of a 0.6% rise, while incomes barely rose by 0.2% on a consensus rise of 0.4%. Which means the balance had to be savings funded. So even as we have seen retail weakness in the past three months, we now know that it was not only credit funded, but also forced US consumers to burn through their meager savings. And all this before the gasoline price shock hit. The question then is: with the remainder of US savings about to be tapped out on gasoline purchases, just where will the money come to fund all those priced in NEW iPad acquisitions? Or will Apple finally use up its cash hoard and start a captive lending unit, giving consumers credit to purchase its products?  At the rate the US consumer is going broke it may soon have no other option.

All you need to read and more.

• Greek PM does not rule out new bailout package (Reuters)
• Euro zone agrees temporary boost to rescue capacity (Reuters)
• Madrid Commits to Reforms Despite Strike (FT)
• China PBOC: To Keep Reasonable Social Financing, Prudent Monetary Policy In 2012 (WSJ)
• Germany Launches Strategy to Counter ECB Largesse (Telegraph)
• Iran Sanctions Fuel 'Junk for Oil' Barter With China, India (Bloomberg)
• BRICS Nations Threaten IMF Funding (FT)
• Bernanke Optimistic on Long-Term Economic Growth (AP)