Apple up $15 in premarket trading

Bungee jump? Dead cat bounce?

From “Rebound,” mailed to subscribers of The Bloomberg Open:

U.S. stock futures and oil clawed back some of yesterday’s declines. Bonds and haven currencies trimmed their exceptional gains from a day earlier and the dollar strengthened. Italy’s bonds gained after its nationwide lockdown. Gold and the yen slipped. The twin worries of a price war in the oil market and worsening coronavirus outbreak remain front and center for investors.

My take: If I were a betting man, I’d put my money on the dead cat.

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  1. Robert Harris said:
    Panic subsided. Yesterday was a great day to by though. I love apples on sale

    March 10, 2020
  2. David Baraff said:
    For. now. I think there will be more days like yesterday as the virus spreads in US.

    Heard from my China factory though, and they are finally reopened and producing materials again.

    March 10, 2020
  3. Jerry Doyle said:
    “…. The twin worries of a price war in the oil market and worsening coronavirus outbreak remain front and center for investors.”

    “…. My take: If I were a betting man, I’d put my money on the dead cat.”

    I suspect your take is correct, although I am hopeful we will not test new market lows.

    The US finally is taking seriously Covid-19. Countries that have responded responsibly have shown the ability to contain the threat of Covid-19, such as Germany and especially Singapore. Singapore is amazing! As a southeast Asian country within the region of China Singapore moved with alacrity in response to Covid-19 and their response has mitigated the potential effects from the novel coronavirus. Conversely, Italy was lackadaisical in its response and understanding of the ramifications involved with the virus and is suffering immensely as a result of their benign neglect to react appropriately.

    PED, it pleases me that you included the “twin worries” of the Covid-19 with the price war in the oil markets initiated by Vladimir Putin, ostensibly to bankrupt the US Shale Oil companies.

    Much of the turmoil in the markets yesterday were as related to the humongous drop in oil prices per barrel as related to worries over the spread of Covid-19.

    The oil and gas industry is vital to this country and supports millions of families along with millions of mom and pop businesses whose livelihood depends on employed oil field workers. Entire towns in my state can become ghost towns quickly if the Shale industry went under. The Shale industry needs oil price per barrel to be around $45. So, anything under that amount strains these companies. These are highly leverage companies, always needing liquidity to run their businesses. Many are deeply in debt and their bankruptcy would have a humongous impact on local economies and geographic regions. True, some of them may need to go under due to poor business practices, but those well-run companies should receive some form of government bailout, as appropriate, to avoid Vladimir Putin’s goal of preventing the US from continuing as the world number one oil and gas producer. This is important as a national security issue because the US always was dependent on other nations for oil and gas to our detriment.

    The Trump administration can initiate the industry bailout because Russia and all of OPEC are losing monies themselves with oil prices at these suppressed levels. This price war can’t continue long or Russia will implode its own economy.

    In summary, if this administration moves to bail out the Shale Oil Industry, continue appropriate measures to contain Covid-19 and pour liquidity into the US economy (as appropriate), then all will be fine. In six months all these issues will be Texas in our rear view mirror.

    March 10, 2020
    • Aaron Belich said:
      Or let them fail. Before the last shale bust, barrels had to stay above a considerably higher dollar amount. With every bust comes consolidation and efficiency improvements in the shale / fracking industry. In fact, in most down markets, technical or systemic efficiencies are found, invested in and expanded upon, lifting everything associated with them. History is littered with such cycles.

      I’m curious when the sub-prime auto loan bubble will burst (I keep hearing rumblings), and whether this sequence of events will hit that industry next, or if there’s another line of dominos that’s about to be struck down.

      March 10, 2020
      • David Emery said:
        If a bunch of shale oil companies go bankrupt, won’t they just get bought out (at fire sale prices) by the stronger companies? Seems to me the financial hit would be separate from the commodity risk. Eventually oil prices will go back up to a level where fracking returns to financial viability.

        “This price war can’t continue long or Russia will implode its own economy.” Thus one could argue Russia is dammed if they do (continue the price war) and damned if they don’t. Unlike most oil states, the US economy is NOT dependent on the price of oil, a drop to $10/barrel would cause substantial havoc on a very small part of the US economy.

        March 10, 2020
        • Brian Loftus said:
          No need to bail them out. Some will go under. Some will have longer term hedges and be able to wait it out. Drilling will be curtailed and production will drop. The difference now is how quickly production can pick back up compared to deep drilling when production is ready to come back online. Production increased by 4.5 million barrels per day in the last 3.5 years.

          March 10, 2020
  4. Fred Stein said:
    We have “bobbling”, neither dead cat nor bungee.

    Let’s resurrect the term, antifragile, that Philip introduced to us a while back.

    First fragility at the macro level: Markets have not yet adjusted to the impact of Covid-19 at the macro level. Besides the direct impact to the travel, live event, and hospitality industries, we’ll see ripple to the local economies. The oil industry as Jerry points out adds another macro impact. Global debt just crossed $250T last year. Debt is fine, when rates are low (which will continue) and income is strong. We won’t see a 2008 meltdown, but we will see pockets of over-leverage and asset impairment. Then all of the above, will impact expectations and P/E multiples across the board. The market will adjust to a new comfort zone. The market peaked less than a month ago. Most peaks include a premium caused by momentum investors.

    And antifragile: Digital transformation companies benefit because they deliver goods and services without biological viruses, and because they generally carry less debt. AAPL has the added advantages of being bargain, even back when traded at $325, and of having the cash and cash flow to scoop up shares virtually forever.

    $500/share in five years.

    March 10, 2020
  5. Jerry Doyle said:
    @Fred Stein & Joseph Bland: It is challenging for me to question two of the more sage Apple 3.0 commentators, but Jerry D will throw in his two cents on when I see Apple hitting $500 a share price.

    I have written off much of 2020 as the beginning of the influential year for Apple’s potent march toward $400 as I previously believed before Covid-19. Based on random conversations that I have had with many Apple aficionados and Apple iPhone users in the past two weeks I now am beginning to believe there will be a Covid-19 adverse sales effect on Apple’s forthcoming new iPhone 12 phones. These individuals’ responses also are consistent with what some major retailers of durable cost items are reporting. Manufacturers not only are cutting production in response to Covid-19, but also in response to lack of consumer demand for their products. The commonality that I am hearing and reading is that the spread of the new coronavirus has eroded consumer appetites, fueling deep-seated concerns that demand will take a period to recover.

    In summary, I fear that the volume of sales we anticipated for the forthcoming iPhone 12 during this year is diminished as a result of my findings. I see demand picking up in 2021 and reaching its fever pitch in late 2021 carrying over into 2022. If this new found information is accurate then Jerry D’s prognostication is Apple is a $500 share price 3 to 3 ½ years from now.

    March 10, 2020
    • Jacob Feenstra said:
      @Jerry That sums up much of my thinking as well. It will be a while before people are relaxing in the normal again. It took the market quite a while to recover from the dot com bursted bubble and from the housing market crash. True, AAPL is not ‘the market’ and will recover quicker would be my guess. But yeah, 3 years to 500 at best. (But I do not so sneakingly hope Joe is right 😉

      March 10, 2020

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