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Economic and and financial news and analysis

Why is Apple Inc. (Nasdaq: AAPL) Stock Falling?- Money Morning

Apple Inc. (Nasdaq: AAPL) investors have cringed as the stock slipped about 16% from its peak over the last two months.

But given the absence of any catastrophic bad news, why is AAPL stock tumbling? And where will it stop?

It’s important to note off the bat that Apple’s fundamentals are just as strong as they were last fall when the stock began its huge run-up from just under $400 to $636.23 on April 9 (it hit an intraday high of $644 on April 10).

In short: Apple still expects to make a mountain of profit this year. Apple still has over $100 billion in cash with no debt. The company’s price/earnings ratio is about 13.50 for the trailing 12 months and its forward P/E just 10.

So something else must be driving down Apple stock. Some of it is logical, some of it emotional – but none of it permanent.

Let’s take a closer look:

  • A Parabolic Rise: First and foremost, AAPL simply rose too far too quickly. Rapid gains beg profit-taking.

“It was clear to me that this kind of reversal was coming – and sooner rather than later,” said Money Morning Chief Investment Strategist Keith Fitz-Gerald when the selloff started in April. “The shares had soared 75% in just five months – one analyst actually described the performance as “euphoric.'”

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Election 2012: Forget Bailouts, We Need a Shakeout

The markets rallied Monday on news that global leaders favor additional stimulus. The hope is that additional spending will induce growth and put the world back on track.

Don’t hold your breath.

Big government robs the economy of wealth, strips it of initiative and further undermines our recovery.

So why, then, do our leaders continue to throw good money after bad?

Try this on for size.

In 1958, a man named Cyril Northcote Parkinson published a series of essays in book form called Parkinson’s Law: The Pursuit of Progress. In it, he postulated a mathematical equation that describes how bureaucracies expand over time and why.

I don’t know if he had a wicked sense of humor or a dramatic flair for irony but the equation at the core of his argument relied on something he termed the “coefficient of inefficiency.”

The coefficient of inefficiency says the size of a committee or government decision-making body is determined by the point at which it becomes completely inefficient or irrelevant. Or both – hence the name.

Parkinson determined that the minimal effective size for a decision-making body is about five people, and the optimal size is somewhere between three and 20.

Last time I checked, we had 548 people inside the beltway – 535 voting members of Congress, nine Supreme Court justices, one president, one vice president, one treasurer and one Fed chairman – who are responsible for making decisions on behalf of 330 million citizens.

Combine that with nearly 2.8 million total Federal employees (excluding our military) and we’re waaaaay beyond anything even remotely resembling workable decision making.

Now here’s the thing. Parkinson also observed that bureaucracies grew by about 5%-7% a year, “irrespective of any variation in the amount of work (if any) to be done.”

In other words, the larger bureaucracies become, the more ineffective they get even if additional people are hired to do work that doesn’t exist.

And to think, all this time I thought our government ran on the Peter Principle!

Parkinson attributed this to two things:

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Egad, The Fed Pisses Me Off

From the excellent Binyamin Applebaum at the NY Times: One part of the economy that’s growing rapidly is the Federal Reserve. These are boom times for the central bank, which persuaded Congress to expand its responsibilities significantly in the wake of the financial crisis. And with greater responsibility comes a larger budget. If not in…

Mining Stocks: Will the Downturn Last?

Over the last twelve months mining stocks have substantially underperformed the market.

In fact, the Standard and Poor’s Metals and Mining select industry index (INDEXSP: SPSIMM) is off 35% in the past year, while the overall market is up 2.5%.

Admittedly commodities prices are down, but only by 14% in the last year. Meanwhile, the cost of some commodities — notably gold prices — are much higher than they were.

Given the buoyancy of global monetary policy, this is surprising. For investors, the big question is: will the downturn in mining stocks last?

It truth, though, when you look more closely at operating numbers, the weakness in commodity shares is easier to explain.

Mining Stocks: Breaking Down Barrick Gold

For example, Barrick Gold (NYSE:ABX), a gold and copper miner that is generally well regarded, posted first quarter earnings which were up just 3% from the previous year. That was a surprisingly weak performance given that its gold sales price was up 22% — even though its copper price realized was down 11%.

However, gold cash mining costs were up 25% and copper cash mining costs were up a startling 66%. So even though copper production and sales were also up sharply, margins on those sales were down 43%.

In other words, even though Barrick enjoyed a favorable operating quarter with good prices, mining costs for both gold and copper were up so sharply that Barrick enjoyed little benefit from this success.

The same picture is clearly seen around the mining sector, and indeed in the related energy sector.

Strong sales prices over the last few years have had two effects.

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JPMorgan’s Senior Officers’ Addiction to Gambling on Derivatives – William Black

JPMorgan’s flacks and apologists have, unintentionally, exposed the fact that their cover story – hedging gone bad – is false.  JPMorgan runs the world’s largest gambling operation in financial derivatives.  The New York Times reported the … Continue reading

JPMorgan’s Senior Officers’ Addiction to Gambling on Derivatives

Warren Buffett Stocks: Where the Oracle of Omaha Puts his Money

Berkshire Hathaway (NYSE: BRK.A, BRK.B) has been on a buying spree, adding a plethora of positions to its storied portfolio of “Warren Buffett stocks.”

Last Wednesday the conglomerate released its stock holdings. Mutual funds and retail investors closely watch the picks to dissect the selections for hints about the company’s tactics. Other simply want to mimic Buffett’s moves.

This quarter Berkshire disclosed new stakes in General Motors (NYSE: GM) and Viacom (Nasdaq: VIAB), larger positions in Wells Fargo (NYSE: WFC) and Wal-Mart Stores (NYSE: WMT), and a small increased position in International Business Machines (NYSE: IBM).

Declining stakes were noted in Kraft Foods (NYSE: KFT) and Procter & Gamble (NYSE: PG).

The Berkshire portfolio ballooned to $89.1 billion on March 31 from $77 billion at the end of 2011. The firm is the largest shareholder in Coca-Cola (NYSE: KO), Wells Fargo and American Express (NYSE: AXP).

The additions come as Buffett and Berkshire Vice Chairman Charlie Munger have tasked former hedge fund managers Todd Combs and Ted Weschler with more investing duties. The two were brought into Berkshire to help oversee investments, as Buffett, Berkshire’s CEO and chairman, transitions the company for his ultimate departure.

The 81-year-old sage acknowledged that he makes Berkshire’s larger bets, while his team of stock pickers is responsible for smaller wagers.

In his widely read shareholder letter in February, Buffett penned, “When our quarterly filings report relatively small holdings, these are not likely to be buys I made but rather holdings denoting purchases by Todd or Ted. They have the brains, judgments and character” to do the job.

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