“Quick, Look over there”

“Not my fault Guv’ its the fiscal cliff”

So previous readers may have heeded my warnings that soon you will be inundated with talk of the “fiscal cliff” and the papers are alight with talk over it. It has become a contentious issue surrounding the US election with Romney pointing the finger accusing Obama of racking up too large a deficit and preaching the virtues of his mysterious “5-point plan” to solve balance the budget. Obama recognises the problem and in a slightly cooler manner highlighting that Romney has not got one iota of how to fix it.

Now the corporate titans are weighing in on the subject in what looks to  me as the biggest act of attempted deflection and kitchen sinking I have seen. Corporate earnings have been less than impressive this quarter and not just from small firms but the big guys too. GE numbers not great and last night we had misses from our supposed fearless leader Apple and Amazon.

So its a lot easier to point the finger and jump on the bandwagon to highlight the problems in congress and use it as a reason why your earnings have not really shot the lights out. This is typical of the markets as they pick an in vogue topic and beat it to death.

The fiscal cliff is what it is. It is a monstrous problem yes, but one that will and have to be dealt with as soon as there is either a new or existing regime in place. Nothing is going to happen before an election and nothing is going to happen in the first couple of weeks after the election. There are 16 trillion reasons why this is not going to go away overnight, so CEO’s banding together to deflect their inadequacies over there earnings is not going to change anything.

While admittedly the fiscal cliff is somewhat larger than last quarter I don’t remember anyone using it as an excuse if they beat or missed earnings then so why in the last three months have we all had a sudden awakening.

On a side note we had Apple earning last night and they missed versus expectations which is certainly going to add to nervousness in the market today and a the time of writing I can testify that markets are a bit jumpy , bonds (or “safe havens”) have gapped up and equity indices showing signs of weakness as the S&P500 broke the physcological 1400 level last night.

Apple is an amazing company and in terms of cash generation I have never seen anything like it outside of the oil sector. They have approx $130bln in cash and actually are one of the largest asset managers in the world as I believe they have set up an asset management fund called Braeburn capital (Granny smith capital didnt have same ring to it) just to manage their pile of cash. certainly not a bad position to be in. The reason Apple came to be such a hugely successful company was that for the last ten years they have done nothing but release products that have been game changers and they have been incredibly efficient in generating even more revenue on the back of these products. However Apple has sold off just over 10% before this earnings miss last night. the latest release of products from this company have just been product extensions. They have either made a previous product smaller or bigger. In my mind that is not enough especially now, Apple had a golden era for a while where competitors could not touch them however with every day that’s passing competitors are starting to gain namely samsung, microsoft and google. I am not willing to write Apple off in the same way you dont slag off an old boxer who has retired with a perfect win record, you have to respect what they have done. But as an investor you have to worry that if they step back in the ring are they going to get knocked out and the chances of that happening in my mind have certainly increased especially since Steve Jobs has passed.

Amazon is a different kettle of fish, all  the potential in the world to make money and they aint. Think of your local market then apply that on the scale of that market having the potential to sell something to everybody in the world who has the internet. Problem is you cant pay the greengrocer with “potential.” The CEO has proclaimed almost with pride that he is willing to break even on the kindle fire just to get penetration and I agree that is nearly the correct strategy but if I was a shareholder I would be screaming ” for god’s sake put something on it.”

http://online.wsj.com/article/SB10001424052970203400604578074920349130776.html

Advertisements
This entry was posted in Uncategorized. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s