Well that could hardly have gone better!
We got a huge spike down, EVEN THOUGH the Fed gave us a huge cut. That allowed us to exit puts, take out some callers, roll down our longer calls, add at low prices and then watch the Dow gain 400 points – who says this investing stuff is complicated?
So a big thank you to Uncle Ben for rewarding us for being too bullish but now what? That rate cut is not going to help the people who are upside down on their mortgages or who don't qualify for refinances because they already missed a payment or two (and you don't see many broker ads anymore that say "bad credit – no problem!"). I don't see the credit card companies rushing to lower their rates so the average American owes $4,000 on their credit cards and pays $600 a month in interest on those cards. In fact, MA was one of our best poppers of the day as they celebrated the start of consumer gouge-fest '08 thanks to the good old Fed.
Remember, the Federal Reserve is there to protect the banks, not you! As I said right at 9:30: "I really have to go with the conspiracy theory on this one as I can’t believe it’s possible for them to act this ineptly by accident."
We picked up a few calls during the day but the Dow finished below the 12,000 mark we were using as an indicator so we 1/2 covered into the close (I have already called for DIA covers well before that) and I hardly think anything else matters as Apple really disappointed the markets with lowered Q1 (Q2 for them) guidance.
At 11:06 we set levels: "Let’s watch the Nasdaq, right on the line at 20% off the highs, as well as the Dow trying to get back over 12,000 (but way over the 20% line). S&P 1,309 is just off our “Feeling Better” level at 1,311 so that’s another one to watch." The S&P managed to exactly disappoint us, finishing at 1,310.50. Tomorrow we will be worried about the DAX again, which must hold 6,753, which they closed just over at 6,781.
My hopes today were that the government had some clue that earnings were going to be good tonight, which may give a positive (as opposed to conspiratorial) explanation. At 12:55 I said: "It simply does not make sense to make such a dramatic announcement (or to have held it off) unless the timing was critical because they knew there was going to be spin. I know I’m giving them a lot of credit but we have to hope that SOMEONE has SOMETHING on the ball or we are just screwed." Well, looking at the after market action, it turns out NO ONE has ANYTHING on the ball and we are just screwed!
Our DIA covers of choice were the DIA Mar $120 puts at $4.85 and I said when we picked them up: "As I’m worried on the upside I’m recovering with the DIA Mar $120 puts, now $4.85. Same old rolling rules and I HOPE to lose money on these as the virtual portfolio appreciates and they’ll gain about .50 per 100 pt drop and cost me about $1 on a 300 point gain so I can live with that. XXX" We'll see how much damage Apple does to the markets tomorrow morning but we can expect more Fed action next week so we'll be selling into the initial excitement and moving towards more cash – perhaps even a little more bargain hunting.
Speaking of bargains, our brand new Bargain Basement Virtual Portfolio made it's first two trades yesterday as we picked up MRVL May $10s at $1.60 along with SU Mar $90s at $5.15, which we half covered with the Feb $85s at $5.20. As the Basic Membership site isn't quite ready yet, intraday comments relating to the BBP are available on the Free site until the programmers get their act together (hint, hint boys!). As there was also a lot of interest in individual subrcriptions to the new $25K Virtual Portfolio, I've copied those over too for now. We intitiated our Q1 $25KP with the same MRVL trade along with AMGN Apr $47.50s at $2.35, which we half covered with Feb $47.50s at $1.
Apple dropped 10% after hours and we are going to BUYBUYBUY on tomorrow's dip and I'll very likely be selling puts as I'd be quite pleased to own Apple at $135 (selling $140 puts for $5+) since they are on track to earn $5 for the year and I don't mind paying a p/e of 27 for a company that is growing sales at 30% and profits at 25% a year.
The headline failure at Apple is a miss in IPod shipments at 22.1M vs 25M expected. But Apple was on target with their own forecast and, in yet another example of how analysts are idiots, Apple's concentration on higer-end IPods, including the ITouch, led to a 17% IPod revenue increase over last year with an average unit price of $181 vs $172 last year. Sell more IPods for more money per IPod – it would seem simple enough for even a CNBC anchor to understand but you would think Apple released the Zune the way they were treated on TV this evening!
As CFO Peter Oppenheimer said in last night's conference call: "One of our primary goals for this holiday season was to establish an entirely new type of iPod in the marketplace, the iPod Touch. This new iPod has the potential to grow the iPod from being just a music and video player into being the first mainstream WiFi mobile platform running all kinds of mobile applications. Because of the higher cost associated with the large touch screen and more powerful processor required to run applications like Safari, this was the most expensive iPod we’ve brought to market for some time. So we had the challenge of establishing a completely new type of iPod at the top of the line at a price point above where we’ve been for quite some time, and we succeeded."
Another little tidbit about $136Bn market cap Apple: While revenues were UP $2.5Bn for the Quarter to $9.2Bn ($180Bn market cap Google, by comparison has $4.2Bn in quarterly revenues) they also "deferred" an additional $508M in revenues for the quarter on IPhones and Apple TV (something we've discussed in the past), bringing their deferred revenue total up to $1.44Bn. Revenue at Apple Stores grew 53% with revenue per 201 stores now averaging $8.5M vs. $6.6M last quarter. Those stores pumped out 504,000 Macs, 64% more than last year and 50% of the buyers were first-time Mac purchasers. 38.4M people visited Apple stores during the quarter, a 35% traffic increase from last year.
Cash increased by over $3Bn, giving Apple $18.4Bn in cash at the quarter's end with $2.76Bn in free cash flow. Apple's projection for the next quarter is a 29% increase over last year whereas the year before Q2 grew 21% from the prior year. So Apple is, in fact, projecting accelerating revenue growth – they are simply being punished for runaway expectations but, when push comes to shove, this company is executing and I will buy at $140 and I will buy at $120 and I will buy at $100 (I wish) and if it drops below that I will probably sell everything else I own and buy them too, at which point I will retire from the markets for the duration of the depression (as that is what is would take) and come back when I'm back with a double.
Disclosure – I am long on Apple and myself and some members of my family own the stock!
