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Apple falls far from the tree

December 6, 2012 in Uncategorized

“I am not too sure what to make of it all. There is definitely been a shift in quicker roll outs, shorter times between products and rising costs associated with development. But Apple still sits on the most impressive cash pile. Which is now at 538 Dollars around 127 Dollars worth of their current price, in cash alone that you get when you buy Apple. So, if historical earnings are 44.16 Dollars a share, on an ex cash basis Apple are trading at 9.3 times earnings. And a two percent dividend yield. Phew, I am not too sure about you but that looks crazy cheap. I suspect that because the stock has rallied so hard this year, and folks are anticipating higher dividend and capital gain taxation as a very widely held stock there might be folks cashing in.”


To market, to market to buy a fat pig. The focus of our TV’s yesterday was mostly about the midterm budget in the UK, something that the Brits call the Autumn statement. I did see my mates in the UK on Facebook suggest that it was snowing, perhaps Autumn was skipped in the same way that we skipped Spring here in Jozi. That famous little satchel, I want to know how old it is, the one that The Chancellor of the Exchequer carries. The title, as far as the record books show, stretches back to 1221 (more or less) when a fellow by the name of Eustace of Fauconberg took charge of British finances. So the office is nearly 900 years old. That is simply astonishing. There is actually an incomplete list at Wiki: List of Chancellors of the Exchequer. Wiki also reveals the not so secret of the red briefcase, the Budget box. What made me chuckle was that the key to the original one was lost. Perhaps it was a bad budget and the key was swallowed by the Exchequer at the time.

What I did find quite interesting was the fact that the poms decided to drop the corporate tax rate by a percentage point. They now have one of the lowest corporate tax rates anywhere in the world. I was showing Byron one of my favourite Milton Friedman clips on YouTube, titled The Free Lunch Myth. I love the opening quote from French economist Frederic Bastiat, from around 150 years ago or so: “Government is that fiction whereby everybody believes that they can live at the expense of everybody else”. But in this piece, Milton Freidman suggests that corporate tax be done away with, in its entirety. You would probably find that currently it is much easier to collect directly from the company.

Freidman is not all folks cup of tea, but I must admit that I really, really like his stuff. He is an economic Nobel prize winner. He is a free market type, which is probably why I like his stuff. His biggest successes you could say is that he influenced Augusto Pinochet, the military dictator of Chile. His Grandson is a Chairman in a foundation pursuing the idea of Seasteading. New republics and all that! Pursuing the idea of Liberalism. I can see why the idea is so appealing for free market lovers. Off topic, we started on the poms and got led here.

In Jozi, Jozi 26o 12′ 16″ S, 28o 2′ 44″ E resources led the charge again, powering up one and a half percent as the Chinese government committed to their infrastructure plan. You will recall yesterday in our message that we did a simple analysis of what the great Chinese miracle had done for ordinary citizens. In other words, the economic reforms away from an agricultural driven economy towards manufacturing has been a great success. But, it is not without its problems, Chinese people have been unable to shift into a consumer mode, and if anything have been saving more and not less. A cultural understanding is needed for all folks living outside of the country. Remember that the social security system internally in China is virtually nonexistent. One more important thing, currently in the urban areas a set of grandparents will have only one grandchild each. 4 Grandparents, 2 parents, one child. Let us just say that the six of the older folks know that they have to save for themselves, the reliance on the younger generation is a bad idea.

But whether we like it or not, the Chinese have done great things indirectly for our economy. The people at Kumba/Sishen/Anglo and BHP Billiton did nothing to change the price of iron ore, it was all driven by the Chinese urbanisation rate. That is why when I read headlines like this one from yesterday: South Africa’s ANC May Ignore Moody’s by Increasing Mining Taxes with the economic policy head Enoch Godongwana quoted as saying: “It may well be that we will not increase tax on gold because most of the gold mines are marginal” I have a sad laugh. I differ with even my own father on the matter of mineral wealth. If you cannot exploit mineral wealth, what is the point of having it? I said to my father the other day that the Great Dyke of Zimbabwe is supposedly 2.575 billion years old. Marine species of animals (which we are) have been dated to around 550 million years ago. How so does a natural deposit have ownership by the people that dwell there? That is a separate philosophical argument with many heated viewpoints.

The whole idea of taxing more profitable mining businesses because they are more profitable is just plain dumb. The commodity that they mine, that is decided as a function of supply and demand by a market made up of many, many different participants with many, many different views. What will happen if the gold price and platinum prices double in the next five years as a result of higher inflation rates, will those then become taxable targets then too? We might posses a vast wealth of minerals and resources, but in my view (and you know I advocate free markets) the quickest and easiest way to get them out of the ground and sell them is to allow business to mine more freely. Government can never be more efficient. Never. It is impossible, there is little or no incentive for employees to take risks.

On the other hand there is greed and exploitation, which needs to be balanced against profit motives, that is a place where governments can draw the lines within business must participate. My point is simple, government should decide whether or not they need to collect more taxes just as a result of a company doing better, or put a yoke around the proverbial golden egg laying goose. To the point where the goose starts only laying eggs every two to three days, rather than every single day. Again, the whole idea that governments think resource companies are “doing well” because of them is completely misplaced. It is as a result of improving commodity prices and that is directly linked to global growth, industrialisation and urbanisation. End of rant.

I couldn’t help but notice that Telkom, sorry, I mean Telkom SOC with the S owning less than 40 percent, had their credit rating downgraded to BBB- by Standard & Poors. With a stable outlook. This was two days ago, by Duncan McLeod: Telkom suffers fresh ratings downgrade. Not new news, Moody’s have done this already, back in October. Telkom are sailing around without a rudder on the high seas, and the boat is not in seaworthy state. State. Too much state interference.

Tech stocks in New York, New York. 40o 43′ 0″ N, 74o 0′ 0″ W were dragged lower as a result of Apple inc. getting completely flushed. The stock was down nearly six and a half percent. Why? Well, the two reasons that people could come up with was a rise in the dividend taxes coming (another dumb idea in my opinion, the company is taxed, why should the investor be taxed too?) and perhaps Apple is losing traction in their dominance of the tablet market. Those were the two reasons that I could see directly. TechCrunch had this piece: Apple Drops 6.4% Due To Volatility And Uncertainty: The iPad Mini Is Out, Now What? And then there was another one, which quotes well known Apple analyst from Piper Jaffray, a fellow by the name of Gene Munster. Did You See Gene Munster’s Opinion of the Massive Apple Inc. (AAPL) Selloff?

I shall copy and paste that Gene Munster piece: “A DigiTimes article from today suggests that iPhone 5 is selling well based on comments from wireless chipset providers and seems to suggest upside to the Street’s 43-45 million estimate for December [...] In the same article, DigiTimes is suggesting a 20% q/q decline in Apple’s demand for parts and components in March. We believe this 20% decline is to be expected coming off of a launch quarter and do not believe it is an indication of how units might trend in March.”

I am not too sure what to make of it all. There is definitely been a shift in quicker roll outs, shorter times between products and rising costs associated with development. But Apple still sits on the most impressive cash pile. Which is now at 538 Dollars around 127 Dollars worth of their current price, in cash alone that you get when you buy Apple. So, if historical earnings are 44.16 Dollars a share, on an ex cash basis Apple are trading at 9.3 times earnings. And a two percent dividend yield. Phew, I am not too sure about you but that looks crazy cheap. I suspect that because the stock has rallied so hard this year, and folks are anticipating higher dividend and capital gain taxation (dumb idea in my opinion, oh I said that already!) as a very widely held stock there might be folks cashing in. Particularly if the future, as ever, is a little cloudier. I smell a buying opportunity. It just depends on the feeling out there of what level is cheap.

Beijing central. 39o 54′ 50″ N, 116o 23′ 30″ E I had to have a laugh at the new and very simple list that Xi Jinping outlined for communist party and government officials in China. Check it out: Xi Jinping regime frames dos and don’ts of behaviour for Chinese bureaucrats That one made me laugh: “Travelling in oversize motorcades”. It is spelt wrong in the text there, which is a little disappointing. Spell checker. Quite, back to the who paid for the road in the first part place. People paid for the roads, but yet the folks that collected the taxes get first dibs, somehow does not make sense.


Crow’s nest. It is mixed out there, US futures are lower. We managed to get to new highs again yesterday. Even if we can hang onto these gains all through the months I will be most pleased. The fiscal cliff thing I guess is a major irritation. Real juicy economic data in the form of non-farm payrolls will be released Friday. That is always the one thing that gets the hyperactivity counter clicking higher. Poor Byron is out with a stomach bug, at least he gets to lose weight the terrible way! Poor chap, get better.


Sasha Naryshkine and Byron Lotter

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