Sep 26, 2011

Trouble at Apple?

September 26, 2011

Equity futures were up today after a weekend in which no announcements came out of Europe, however, equity markets have rolled over since the open, led by tech stocks. European leaders are reportedly working on a larger bailout package than they wanted after receiving pressure from both China and the US over the weekend. The IMF has been conducting their annual meeting with a lot of talk about a European style TARP and the probability of rate cuts, but nothing concrete has been recommended yet. It almost seems like a forgone conclusion that the ECB will ease in the coming weeks. The question that everyone seems to be waiting for is not if Greece will default, but when. A key will be ensuring the banks are financially sound enough to withstand the losses.

Deutsche Bank has raised their price target on Apple (AAPL) to $530, but JP Morgan (JPM) has issued a warning after noting that Apple has cut orders to iPad2 suppliers by 25%. Eastman Kodak (EK) is down hard again (see chart below) on concerns about their viability after the company tapped into their credit line.

A guest on CNBC this morning was asked to cite regulation that is hurting small business today. The first one he came up with, courtesy of the Healthcare Reform Act, requires all retailers to provide Lactation Chambers in each of their stores. The second, courtesy of Dodd Frank, requires every publicly traded company to provide a study showing how the CEO’s pay compares to that of the average global worker. I can’t even comment.

Berkshire Hathaway (BRK/A, BRK/B) has announced plans to buy back shares with a portion of their $40 billion in cash. Although they didn’t say how large the buyback would be, they did set minimum cash levels (including that spent on acquisitions) at $20 billion.

Fed Chairman Bernanke has begun buying longer dated treasuries, just as Treasury Secretary Geithner has begun issuing the same. Louis Crandell, chief economist at Wrightson, said “the Fed is worried about the US becoming Japan, while the Treasury is worried about the US becoming Greece.” The Treasury’s plans makes sense-lock in ultra-low long-term rates and minimize the monthly rollover required to keep the government funded. This strategy will minimize how often the politicians have to renew government funding requirements.

Speaking of government funding, the Senate is expected to vote on their own bill to extend the government’s spending mandate and approve disaster relief funds. The Senate rejected the House bill passed last week. The Senate’s version excludes any off-setting spending cuts. My question is that if they can’t even agree on $3 billion in cuts, how are they going to agree on $1.5 trillion in cuts?

A Barron’s study over the weekend estimated that by cutting rates, the Fed has cost savers and investors somewhere north of $800 billion in forgone interest payments. The study suggests that unemployment would be 6.8% instead of 9.2% without the rate cuts, as those same savers and investors would have had more discretionary income to spend.

Was that really the Raiders?

Have a great day


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