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Wednesday, February 29, 2012

Apple’s Market Cap $500 Billion

Today Apple (AAPL Charts and Quote) officially joined the very select list of six companies who have had their market  break the $500 billion mark. Market Cap is short for "Market capitalization", defined as the number of shares outstanding by the selling price per share.

Below are excerpts and some new commentary to go with my full article:
Apple's Market Cap Breaks $500 Billion Barrier; Can It Keep This Where All Others Have Failed?
The first five to break into this list are Microsoft, Cisco Systems, Intel, GE and Exxon Mobil.
ExxonMobil broke the $500B mark in 2007 when the price of oil soared to $147 per barrel. The others reached this mark during between 1999 and 2000 during the technology bubble.

The CNN says "Apple's valuation is now higher than the gross domestic product of Poland, Belgium, Sweden, Saudi Arabia, or Taiwan."

Update Feb 29, 2012 after submitting article to Seeking Alpha:  

On Today's CNBC "Fast Money" they gave the following statistics for other stocks that first hit $500B

Profit Margin
Apple Today 11.54 28.2%
Microsoft Q2 2000 22.6 9.15%
GE Q4 1999 47.9 9.51%

Update March 1, 2012:  Read my full article at:
Apple's Market Cap Breaks $500 Billion Barrier; Can It Keep This Where All Others Have Failed?
Apple is certainly profitable and their products are in high demand.

Monday, February 27, 2012

Will California Follow Greece into Insolvency?

This is a must read article for anyone who pays taxes in the US, especially California
California households owe an average $30,500 for public employee pension debt 
Key points to understand:
  •  The average California household's share of the debt for underfunded state and local government employee pensions comes to about $30,500.
  •  The Stanford studies -- written by public policy professor Joe Nation, a former Democratic assemblyman, and math and economics student Evan Storms -- help us understand the absurdity of a 7.75 percent projection and the effects of different assumptions.
  •  When pension systems assume a 7.75 percent return rate, they have only a 42 percent chance of meeting or exceeding that target. But even using that optimistic assumption, the systems are currently only 77 percent funded, with a $180 billion shortfall. That averages $14,500 for each of California's 12.4 million households. 
  •  Many argue that pension systems should base investment projections on much-less-risky bond rates, about 4.5 percent. The chance of reaching that goal is 81 percent. Using that rate, California pension systems are currently 48 percent funded, with a $658 billion shortfall, or about $53,000 per household.
  •  Investment gurus such as Warren Buffett have argued for a midpoint, about 6.2 percent. The chance of reaching that goal is 63 percent. Using that rate, California systems are currently 61 percent funded, with a $379 billion shortfall, or about $30,500 per household. 
  •  Households won't receive individual bills for their shares. Instead, they will lose government services and face demands for more taxes. Using the midpoint assumption, the $379 billion debt is equal to about 3½ years of base salaries for state and local government employees. That's a lot of lost service.
  • ... the numbers don't include the unfunded liability for promised retiree health benefits, which were estimated four years ago to be at least $118 billion. They're surely far more today.
Currently California taxes me a bit over $10,000 a year for my home, taxes my income at 9.3%  (CA Tax Rates) and charges a sales tax between 8.25 and 8.75%, depending on what county I purchase goods near me yet it doesn't have enough money to pay its current bills.  I also bought a new car last year where sales taxes and fees added over $5,000!   California also doesn't have enough money to fund its pension obligations.    I am not the magical "one percent" either.  Last year I made well under the cap on Social Security so I paid both sides of the Payroll Tax plus Federal income tax.  No matter how you slice it, I pay a ton of taxes and government still can't pay its bills or meet its future obligations.

I won't vote for higher state and local taxes until government workers (other than police and fire fighters) pay the same percentage of their income to their pensions as I do AND they don't get to retire until they are the age I am when I can collect Social Security.  I've noticed that many who argue people who think like me are wrong or "selfish" are retired government workers who are part of the problem.

Friday, February 24, 2012

ECRI Remains Bearish on US Economy - Recession Still Expected

Lakshman Achuthan, Co-Founder & Chief Operations Officer of the Economic Cycle Research Institute (ECRI - More about ECRI) appeared on CNBC this morning to discuss their economic outlook. The video is below.
In a nutshell ECRI remains bearish on the US economy with a continuing forecast for a recession. They believe economic growth doesn't really "muddle along" at sustained low rates.
Summary of Key Points:
Since September Recession Call, ALL of the data used to define recessions is slowing.
  • Year-over-year GDP Growth peaked in Q3 2010, fell to 1.5% in Q2 2011 and has been flat-line since then.
    (Annualized quarterly GDP growth for Q4-2011 was 2.8% but the year-over-year growth was only 1.6%)
  • Personal Income Growth and Broad Sales Growth see  Same kind of pattern
  • Industrial production at 22 month low
Put those into a COINCIDENT INDEX then it shows the growth has been slowing.  We have not had a decline like that in the Coincident Index without a recession in the last 50 years. 
Joe Kernan pointed out the Federal Reserve must agree with Lakshman and ECRI because they continue to print money and keep rates low.
  • Lakshman said World's central banks are printing money like crazy which is why we feel better.  If you look at how often money is exchanged in the economy, then it is at a record low in the US and Europe and near record lows in China.
  • Jobs have improved but that is a bit of a lagging indicator.  ECRI still feels jobs will get worse and follow consumer spending growth which is going down.  Personal disposable income has been negative for FIVE MONTHS!
Lakshman says recession should begin by mid year 2012.  He says revisions in the data might say a recession has already started just like the last recession.  If the recession is starting now, then the consensus should figure it out in about six months (August.)
Can anything change his mind?  The stock market seems to be predicting a recovery.
  • Leading indicators do not negate the recession forecast.  WLI is up but with the tons of money printed, they are surprised these are not up more.
  • The stock market rallied after their recession call in 2008 before it rolled over.  
Remember it was not until much later that revisions said the last recession started in late 2007.  Q1 2008 was the first quarter of negative GDP at -0.7%.  The data during that time was positive and the stock market thought we would have a recovery.
Revised GDP Q4-2007 to current Q4-2010

 For more information, read:
Click to order their book
Book: Beating The Business Cycle
In 2004, Lakshman Achuthan co-authored "Beating the Business Cycle: How to Predict and Profit from Turning Points in the Economy"

Sunday, February 12, 2012

ECRI's WLI and WLI Growth Continue Higher

The Economic Cycle Research Institute, ECRI -- a New York-based independent forecasting group, released its latest readings for its proprietary Weekly Leading Index (WLI) Friday.
For the week ending February 3, 2012:
  • WLI is 123.3 up from the prior week's reading of 123.0.
Chart of WLI and WLI growth vs GDP Growth
(click charts to expand)
Since ECRI releases WLI numbers for the prior week and the stock market is known in real time, you can sometimes get a clue for next week's WLI from the weekly change in the S&P500 or its exchange traded fund, SPY. Notably, in the lead-up to the last two recessions, the WLI turned down months before the stock market did.
Chart of S&P500 vs ECRI's WLI
ECRI has not publicly backed off their most recent call for a recession. They were correct with their recession call in early 2008, while the S&P500 rallied to the dashed blue resistance (now support) line on the chart above.
Could they be wrong this time?
By climbing to new highs with dividends reinvested, the stock market sure seems to act like it thinks we will avoid a recession.

See my full article:

Keep An Eye on SPY: ECRI's Weekly Leading Index Rises
Long Term Results that Speak for Themselves
Since 9/30/98 inception, "Kirk's Newsletter Explore Portfolio" is UP 390%
vs. the S&P500 UP only 51% vs. NASDAQ UP only 57% (All through 12/31/11
(More Info, Testimonials & Portfolio Returns)
Latest 2012 Update:  Up 10% YTD  as of 2/12/12

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