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The Apple economy

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Unread 05.22.16, 10:18 PM
@PersonalLiberty @PersonalLiberty is offline
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The Apple economy

05.22.16 09:01 PM

Establishment voices are singing the praises of growth. But the underlying facts are supremely different.

I’m starting to think we should start calling this an Apple economy.

That’s not to say Apple is alone in this. Many big firms are playing a shell game with investors. Bankers are going along with it because they’re promoting this ‘feel-good’ optimism.

Let me explain the Apple economy. Itís a situation where everyone represents a bullish picture of their business, but the fundamentals donít give any weight to their claims.

Apple primarily sells phones. How does a company become a dominant global company selling phones?

It becomes dominant because Wall Street determined that it and its ilk are investments they can make ‘reliable’ by manipulating the markets.

Yes, Apple stock is ‘cheap’ at current prices, but the point is, every single Wall Street firm owns Apple. It’s in the Nasdaq 100 and S&P 500… itís the top holding in the S&P 500 SPIDR. Vanguard, BlackRock, Goldman Sachs, JP Morgan and State Street funds own hundreds of millions of shares

And because Apple is one of largest firms in the world by market capitalization (more below), it makes up a significant portion of the Nasdaq 100 and S&P 500 averages. Both are capitalization weighted averages, which means the bigger the market cap, the bigger the representation.

The Dow Industrial is a price-weighted average. That means the price of the stock (which is absolutely arbitrary) determines the amount of representation in the index. For example, a company with a $33 share price would have one-third less representation than a stock with a $100 share price. They could have the exact same market cap, but simply because of its share price, it would have a third less influence.

But that doesn’t make capitalization-weighted indexes the better choice. Market cap is simply the total value of all a company’s outstanding shares. But if Wall Street is rigging the winners and losers, the market value is distorted. And that’s where we are today.

Turns out, a free market isn’t just distorted by government intervention. We have evolved to the point where the free market also falls victim to the capitalism that is practiced today by the bankers and billionaires.

A chaotic, free flowing stock market is not predictable and makes it difficult for money to make money ó there’s too much risk. But if you allow the illusion of a free market while building a shadow market that is controlled by the richest and most powerful, individuals may suspect something is fishy but can’t put their finger on it, so they stop thinking about it.

The Apple economy is shorthand for a distorted market that is being manipulated beyond the global economic reality to prop up big business, financial institutions and banks.

The masses only see the system after it gets built up and collapses under its own weight. You and I pay the price. That means, if you’re starting to prepare now for the end of the Apple economy, you’ll be much better off than trying to play catch-up.

Here’s what we know at this point:
  • U.S. manufacturing has been signaling recession for more than a year. Recently the U.S. Department of Commerce just upped tariffs on Chinese cold rolled steel by more than 500 percent to prevent dumping.
I recently saw an interview with a long-haul trucker in the Midwest in which he talked about how more and more of the companies he hauls for are in worse shape every time he stops by. So while you and I can get cheap goods made in China, our manufacturing base will have to pay higher prices for steel and that price gets passed down. We stop buying and those firms vanish.

So U.S. manufacturing is in deep trouble, with no easy fix.
  • The energy industry is also just starting to reveal the depths of its problems. Remember when the financial crisis hit? It took about a year before the impact of what happened in those few short weeks was felt across the economy.
Some major firms are reeling from the sustained pressure of low oil prices. Shale energy poster child Linn Energy has now filed for bankruptcy with nearly $90 billion in outstanding debt that the banks will have to eat.

Another one, SandRidge Energy just filed for bankruptcy and has nearly $4 billion in debt. Ensco, a major driller, just cut 350 more jobs in Houston and is cold stacking mobile offshore drilling rigs and moving them out of the Gulf of Mexico.

These are just the bellwethers. There are scores of smaller firms that have already headed for the hills.
  • Retail is getting hammered as consumers change their spending habits. Thanks to mobile devices and better Internet connectivity and bandwidth, consumers are now shopping via their phones rather than heading to the mall.
That means big department stores are sitting on a lot of costly real estate and support far too many employees in those stores to remain profitable and competitive. Even comeback retailer Target missed the mark. Get ready for the layoffs.
  • Tech stocks are not living up to their high expectations.
Intel has given up on the PC market and is pivoting to mobile. Apple sales have slowed and the iWatch isn’t faring well. Microsoft is transitioning from a PC model to a cloud model. As I explained in my last article, offshoring assets is also going to hurt the U.S. economy.

But few of these get into the big media news as harbingers of danger. The talking heads are more like the Sirens singing the economy to its doom on the rocks.

Where to look for opportunity?

The one bright spot in this market may well be the logistics companies like UPS, FedEx and DHL. They will continue to benefit from increasing online sales and they are not as linked in to the challenges hitting other sectors of the markets.

Plus, low gas prices mean better margins. These firms, and some select transports, are the best long-term strategy in the markets today.

Amazon is also a smart way to play the post-Apple economy. Its online retail continues to expand and its cloud-based services business is growing like kudzu.

— Gregg Early

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