Uncle Ben to the Rescue

1/25/12

I mentioned last night wanting to wait til 10:30, 11:30, 2:30 etc to see how the market would go. Apple had already announced an awesome quarter so that stock was up about 9% in the aftermarket. But things didn’t really get going til old friend Uncle Ben Bernanke gave asset prices the green light by pledging another 2-3 years of ZIRP – Zero Interest Rate Policy. Then the party started.

Gold stocks launched – and I mean launched – with many of the the mid cap companies rising 6-10% on the DAY. The large cap miners like Goldcorp, rose almost 7%. Gold itself rose just under 3% with silver up about 4%. Perhaps it’s finally time for the miners to outperform the metal. I think with the all clear from Helicopter Ben, investors will feel safe buying. It also gives a green light for foreign currencies, until central banks worldwide try to fight back (Currency Wars), and foreign stocks as emerging markets rose across the board. Copper took the cue also and rose.

I am curious to see if an Uncle Ben rally could last as long as the last one. Remember in August of 2010 when Bernanke announced “QE2” and stocks took off til February of 2011 – 6 months. Let’s see if this keeps going, how long it lasts. It does make me think of last night’s mention of gold needing some event to trigger the stampede and we may just have gotten it. It also makes me laugh as I posted an article on my corporate site a few days ago (Read HERE) suggesting that people consider adding precious metals to their portfolio. The impetus for that article was India agreeing with Iran to bypass the US dollar and buy oil with rupees.

Rest of the market

In general, the Dow and Nasdaq were up just under and a bit over 1% respectively. Apple derivative companies did well in the AM but some faded off like Nuance. As I mentioned last night, each company is going to have to prove themselves. A good quarter for Apple does not mean a good quarter for tech in general – it depends on the numbers. Nuance may do well but perhaps investors will wait for their February 9th earnings announcement. Skyworks popped  about 4% before settling back to a 1% gain. Nuance was up big in premarket but recorded a loss on the day.

Much of the Nasdaq increase was due to Apple (though I don’t know exact % of Apple as part of the Nasdaq index)  so underneath, this appears to have been a risk on trade – the famous risk-on/risk-off split from 2010/2011 where strength in the dollar meant everything else fell and weakness in the dollar, or expected weakness, caused all kinds of real assets and foreign stocks to rise.

Bond Replacements

The 30 year bond fund (TLT) dipped a bit and a few noted hedge fund managers mentioned entering short positions in the past week. Inflation bonds rose – if TheBernank keeps rates at zero, and we have inflation, inflation protected bonds could win as the risk of rising rates in the next 2 years will be perceived to be zero and inflation adjustments will earn TIPS holders some returns.

The large cap dividend payers had a mixed day though Altria rose over 1%. Philip Morris International, the split off international division of the old Philip Morris rose nicely. Steady foreign dividends must appeal to someone in this ZIRP world.  Walmart and JNJ were unexciting.

Large cap tech was mixed also with Cisco and Intel flat and Microsoft up 3/4%. IBM ticked down. The MLP’s drifted up as their 5-6% yield with potential growth looks a heck of a lot better to a pension manager than rates on the 10 year Treasury Note.

More About Apple

Interestingly, considering how investors value crappier more cyclical/cutthroat businesses like semiconductors, we can tell how much investors think the Apple story will end because we have a company which AFTER the 6%+ jump today (it never went past the excitement level of last night) is still valued at a bit over 10xs cash flow and if you subtract the cash on the balance sheet, it’s even cheaper.

Believe me, there are much more companies in every industry trading more expensively than that. I can understand investors though, how does a company with a value now larger than ExxonMobil (til the next oil spike I guess) grow 100%? At that growth rate, Apple will be worth almost the value of the entire US GDP in 5.5 years. Perhaps it could happen if every human on earth bought an iPhone and an iPad or some future product, and bought a good chunk of their entertainment and software through iTunes and the App Store. And then upgraded every 2-3 years to the latest device. Who knows but if you plot that out, it doesn’t seem possible and that’s probably why Apple trades so cheap (also they have to execute well over the next 5 years for this to come true – it’s not pre-ordained, though some acolytes of Steve would disagree).

Tomorrow could be interesting – as Asia responded well to Apple’s earnings but things will be messy. Currencies will be all over the place, interest rates will be zero in the US and Europe and higher in Asia likely going forward. The Fed did make comments about weakness in the economy so that could scare some people. I currently only have 1 buy and hold investment (not including metals) because with policymakers like Uncle Ben and DaddyO in place, I don’t trust anyone.

At the time of this writing, I or my clients own the following investments mentioned in this column: Gold, Silver, MO, PM, GDX, NUAN calls, IBM puts, AMLP, TIP, XOM

Note: this article is meant to be some helpful thoughts to share and not investment advice specific to you. Please consult your own advisor regarding investment and financial decisions. See our disclosures page