by: Andrew Wilkes
Whenever the New York Yankees go on a short term losing streak, does anybody still ever lose complete belief that they will win again? Of course not. The reason the Yankees have the success over the course of their franchises can be pointed to one thing that has the ability to stay constant, fundamentals. The Yankee way it is known as.
Well I’m coining the phrase, “The Apple Way.”
The Apple Way is simply the underlying assertion that they will break through in some way or fashion through game changing innovation capabilities. No matter how much I despise the Yankees, I will not put my money against the Yankee management and no matter how many analyst want to see a new player in technology come in, I will not put my money against Apple.
If anything, I’d put my money on Apple. After a 7 month stock tumble from its high of above $700 the past is behind. We can face reality, Apple makes a great product, the iPhone and iPad changed the game but now that everybody has one why buy a new one? That seems like a reason to sell Apple stock, they have sold the market dry and already own a tremendous share after their culture changing products. But this is where the Apple Way comes in. We know what kind of growth potential is possible from Apple. We know what kind of fundamentals they have in place. We know that we live in a technology driven market where one product can be targeted to improve the lives of each person in the world. This demand of technology leaves a big opportunity for suppliers and Apple is the leading candidate. If you wait until the official press release of new products you will have already been too late. Watch the Apple way run its course and see the stock’s price rise with it.
Here We Go Again
Remember the congressional circus of the “fiscal cliff” last december? Well get ready for cliff number two with the “Debt Ceiling.”
What is the debt ceiling? The national debt ceiling is a level imposed by Congress on how much debt the U.S. can carry at any given time
Today, President Obama held a special press conference to address this issue. He warned of the consequences that would occur without congress passing a bill to raise the debt ceiling.
“We’ve got to stop lurching from crisis to crisis to crisis,” Obama told reporters at the White House.
The President even threatened to take authority over the issue of the bill was rejected. Just as we saw during the pre “fiscal cliff”, the volatility and uncertainty of politics affect the stock market negatively. So far today, stocks are relative flat and $APPL dipped below $500.
If government spending is such an issue, then why is it so important that the debt ceiling be raised? Even though the government is in debt 16 trillion dollars, bills still must be paid. The 16.4 trillion dollar debt ceiling is expected to hit as soon as mid February.
“Raising the debt ceiling does not authorize more spending,” he said. “It just allows the country to pay the bills it’s already committed to.”
“The consequences of us not paying our bills would be disastrous,” he said.
Washington Is Still Split
Obama said it is possible that the Republican led House of Representatives could vote against raising the debt ceiling. If a government shutdown results, he said, “it will damage our economy.”
“They will not collect a ransom in exchange for not crashing the economy,” he said. “The full faith and credit of the United States of America is not a bargaining chip. And they better decide quickly because time is running short.”
Obama believes the country us making progress toward reducing the mountainous deficit but cutting spending alone will not do the job.
“We are poised for a good year if we make good decisions and sound investments,” the president said.
Therefore, expect stocks to be shaky while Washington is shaky. But what is new? Republicans are threating a government shutdown and Democrats extending benefits and increasing the deficit. But where will the debt ceiling end? If government never accepts its credit debt, when will they become responsible? I suppose we will do what American politics are best at, kicking the can down the road and worry about the problem when it starts to damage the economy.
As I sit here at my desk writing this article, I am dying a little bit with each word, but the truth is the truth. I grew up in the midst of Best Buy’s technology retailing dominance and I could spend hours in Best Buy as an 8 year old playing with all the cool gadgets, games and seeing the TVs. I cannot put a specific date on it but I believe this is as certain as Mark Sanchez throwing an interception, Best Buy is headed for the exits.
Even though their competitors such as Circuit City have beat them to bankruptcy, their earnings are gradually getting more and more depressing. In 2011, Best Buy’s market cap lost $9 billion and the company’s stock lost 40% of its market its value.
To buy in store, or to buy online?
While Apple’s products are being bought mainly from the additional number of Apple stores and online, Best Buy does not have the big drawing product. Amazon dominates TVs where you can buy a television up to $400 cheaper on some sets. Therefore, with the decrease of Apple products sells, the flat line of PC sells and online controlling majority of TV sells, Best Buy is not bringing in the profits they used to. After all why not walk into a Best Buy store and look at the 55′ Sony you want then go buy the same TV from Amazon for $200 cheaper. This is a critical problem for Best Buy as televisions have always been a major part of their revenue
With the increase of critics about the company’s management, there is not much Best Buy has been able to do to counter the downfall.
Low Net Margins are Obvious
Since it has established such an iconic brand name in electronics retailing, the company can continue to thrive if can adapt to the changing environment. Current management appears to understand this. The company is shutting down many of its large under performing big box locations and focusing on growing much smaller, mall-based “Best Buy Mobile” shops. These smaller stores cost a fraction to set up and focus on selling mobile equipment, which is the fastest and most profitable segment of the electronics industry. But doing this is incredibly easier said than done.
The large stores are part of the problem for Best Buy right now. Big rent notes, high electricity bills and also the payroll of the large staff at each store. Who can they appeal to? Why should I buy my laptop or television from Best Buy instead of online or a brand store like the ever profitable Apple Store? These are tough questions to ask and the future is dim for Best Buy.
Remember two weeks ago when stocks were dropping in the fear of falling from the fiscal cliff? Nobody dared to jump in the market and investors were holding onto their money like Adrian Peterson as he holds on to the rock while breaking NFL rushing records.
Now, after the resolution of the fiscal cliff, investors finally realize the double digit returns the market yielded last year. I suppose the fiscal cliff clouded all of our brains and we forgot all the good that had already took place along with the momentum which has been built up heading into the new year.
Fresh off of 5 year high in stocks long term equity and mutual funds enjoyed 22 billion in increased investments this week, according to Bank of America Merrill Lynch. That was the second-highest amount on record after the $22.8 billion that went into all equity funds in September 2007.
But enter the market with caution.
“I’m a little skeptical,” Art Cashin of UBS told CNBC on Friday. “I want to see if they continue.”
The fiscal cliff created a nightmare for investors and it halted investing confidence in its tracks, which in turn had a profound effect on stocks in the final month of 2012. With the congress circus of the fiscal cliff resolved, investors finally know what to expect from government regulations and can investment with more clarity.
And investing they are, by the billions.
Of that $22 billion inflow, $8.9 billion were into hedge funds, the biggest weekly influx in 12 years. Bofa/Merrill Lynch, which uses a composite from Lipper, EPFR and other services, has the data going back to 1992.
The S&P 500 jumped 13 percent in 2012, its biggest gain in three years and likely quite the eye catcher on the front page of newspapers and inside investment account statements.