2019 – The Year of The Glitch and Apple is a Luxury

The year 2019 is starting the way 2018 ended…bone spurs in the oval office and glitches in the stock market.

We got a new twist quickly tonight thanks to Apple and Tim Cook (Tim Cook will never want to check Twitter again) blaming Apple revenue problems on the trade war.

Before Tim Cook stole the microphone tonight, Fat Nixon called the December stock market meltdown a ‘glitch’.

Eddy begs to differ. He says December was the worst month for the S&P 500 in ten years. October wasn’t a barrel of laughs either. . Have a look:

In Fat Nixon’s honor I hope Stocktwits creates an orange #STFG hoodie (Sell The F*@king Glitch).

Tonight, my prized Apple is being slaughtered. I have no place to hide on this.

Apple itself is obviously too big to hide from ‘Tariff man’. They will miss 4th quarter revenue (citing Chinese demand) by $7 billion or about ONE Border Wall.

Apple is a luxury brand and in this new correction/glitch/recession people will stay with Apple just not upgrade with more Apple. I wonder what it would take for Apple to flinch (and come down market) if this continues.

Kudos to Ben Thompson who called the Apple ‘China Problem’ back in May 2017. Tomorrow the stock will open below May 2017 prices. Here are the money quotes from Ben’s research at the time:

There is nothing in any other country that is comparable, particularly the Facebook properties (Facebook, Messenger, and WhatsApp) to which WeChat is commonly compared. All of those are about communication or wasting time: WeChat is that, but it is also for reading news, for hailing taxis, for paying for lunch (try and pay with cash for lunch, and you’ll look like a luddite), for accessing government resources, for business. For all intents and purposes WeChat is your phone, and to a far greater extent in China than anywhere else, your phone is everything.

Naturally, WeChat works the same on iOS as it does on Android. That, by extension, means that for the day-to-day lives of Chinese there is no penalty to switching away from an iPhone. Unsurprisingly, in stark contrast to the rest of the world, according to a report earlier this year only 50% of iPhone users who bought another phone in 2016 stayed with Apple.

and

That, though, is a long-term problem for Apple: what makes the iPhone franchise so valuable — and, I’d add, the fundamental factor that was missed by so many for so long — is that monopoly on iOS. For most of the world it is unimaginable for an iPhone user to upgrade to anything but another iPhone: there is too much of the user experience, too many of the apps, and, in some countries like the U.S., too many contacts on iMessage to even countenance another phone.

None of that lock-in exists in China: Apple may be a de facto monopolist for most of the world, but in China the company is simply another smartphone vendor, and being simply another smartphone vendor is a hazardous place to be. To be clear, it’s not all bad: in China Apple still trades on status and luxury; unlike the rest of the world, though, the company has to earn it with every release, and that’s a bar both difficult to clear in the abstract and, given the last two iPhones, difficult to clear in reality.

Hedging Apple by owning Tencent (WeChat) is not a good strategy either! Tencent has dropped almost 50 percent from it’s highs over the last year.

Turns out that it is not just Tencent killing Apple’s growth in China, but Huawei too.

While everyone argues about trend lines and what defines a bear market, I think Apple pre-announcing is just further confirmation that the S&P will have a very tough 2019.

I was reading today that 40 percent of the S&P’s 2019 profits are/were expected to come from overseas.

My friend JC who switched from being bullish very quickly to bearish a few months ago keeps harping on the following:

I’m watching US Treasury Bonds, precious metals and Japanese Yen ripping every day while stocks lollygag near 52-week lows. Volume in stocks has been non-existent the past week or so as the big boys are on vacation and these sorry excuses for trading sessions are just here just to keep journalists busy.

It does not feel like people are appreciating the risk in the markets right now.

Cash is your friend.


Also published on Medium.