Apple Presents Challenges for Thursday Markets

There are few corporations that can rile the markets like Apple, but extremely weak pre-release financials were released by Apple for fiscal 1st quarter which just ended December 29th.  The problem is a relatively mammoth revenue shortfall almost entirely due to weak sales in China and a few other emerging markets.   The revenue shortfall is in the area of $10 billion (around $84 billion versus estimates of $94 billion).

The letter from Apple CEO Tim Cook can be read here.

This strong reinforcement of what was already believed to be a weak Chinese economy could well set off a bit of a panic tomorrow morning as investors overreact (or is it an overreaction?).

Of course there is nothing we can do to react to this type of news–nor would we ever react quickly to this type of news–bad decisions are made in situations like this one.

Tonight the future markets are off over 300 points (at 10 pm central) and we would be very surprised if markets fall by only this amount.

Hold on for a ride Thursday!!

42 thoughts on “Apple Presents Challenges for Thursday Markets”

  1. Maybe you are fishing along side Warren Buffett. My equity picks always forecast the next Dogs of the Dow so I don’t buy them anymore.

  2. I’ve had deep hooks set for some of these so-called FAANG stocks for a couple of months, and just missed triggering a limit buy on AAPL at $141 this morning. Not sure it’s good or bad…but have a feeling I’m gonna get another bite on the line pretty soon.

  3. Thank you, Tim! I see my preferreds going up today (Met-a, Met-E, Bac-B, PFF etc but wondering why RZA and UNMA are down?

    1. Hi Debbie–with the low liquidity of these preferreds and baby bonds it seems one can’t ever get everything going in one direction–I look at the ‘bottom line’ and am most happy if generally everything is flat (or up a little is good too).

  4. Roger we were never so happy as when we left the PC world for everything Apple about 15 years ago. The cross functionality of the products is terrific and the premium service via AppleCare is A+. We use 2 iPhones, 2 MacBook pros, 2 Apple TVs an Airport Time Capsule and an AirPort Extreme. BUT, at $1,000 a pop we have begun to balk at the latest phone offerings which on a relative basis offer little incremental improvement/$. In fact I’m now 3 phone generations back and am completely unmotivated by the new offerings. Not considering a switch from Apple. Though also hoping the inspiring advances return to the brand.

    1. I have had my IPhone6 about 4 years. No reason to change until 5G is available. I buy apple products more for the reliability.

      1. I’ve got an iPhone 6+ but I discontinued my Verizon cell service on it two months ago. It’s now a glorified music player. Went with a Moto 5 and service from Republic Wireless for $15/mo for unlimited text and talk. There is nothing about the new Apple iPhone that’s worth paying $1000 for. If I wanted to waste $1000 I’d invest in one of those fake utility preferreds 🙂

      2. Lilbero, I made two trips to my local mall over the holidays and both times there was a line out the door at the Apple store. I was impressed, they seem to make a real effort at customer service.

  5. I’m not long or short Apple, so I don’t have a dog in the fight. But I just wonder whether the greater problem is that advances in iPhones just haven’t been that impressive lately. Apple once had a strong advantage over competitors, and new versions offered enticing features. Now, phones from competitors offer very similar features, and new versions offer marginal features (better camera, face ID) at much higher prices. And when you don’t have a strong competitive advantage, a tariff of any kind makes your product much less competitive. I’m not saying that the slowing growth in China isn’t important, and the trade war is having no effect. It does. Sales in China were worse than other places. I’m just saying that if I were Apple CEO, I would be tempted to place greater blame for poor performance on something someone else did, rather than my unexciting new product offerings. I just wonder if other companies will experience revenue shortfalls of the same degree.

  6. I know most of you don’t trade the equity side, but i just bought AMLP, $8.95 that yields 9% – with oil/gas at bottoming patterns, this infrastructure index looked good to me. Has different tax treatment so best in tax-deferred account

    1. Hi Debbi–I have owned it in the past, but not right now. It looks attractive and a small position–even for a very conservative might be appropriate.

    2. MLP’s are petty beaten down; I bought MPLX today and EPD a couple of weeks ago when a GTC buy order was finally hit at $24. Use to own AMLP but sold on its last run-up.

  7. Interesting…Poked around some more on the Enbridge preferreds. Bought 500 shares of the Series B reset preferred OTC ticker EBRGF for $11.44 ($25 Canadian par). This issue is off the Canadian 5 yr Tbill not US plus a 2.4% kicker. Present yield of 5.56%. It was reset in summer of 2017 off a very low 5 yr treasury wont reset until 2022. This issue brings in currency conversion factors and Canadian currency issues also. But at $11.44. I went in…Adjusted for dollar conversion is presently pays 64 cents yearly, so a 5.59% yield. The previous trade was 1000 shares at $12.63 on Nov. 19…Obviously it trades daily on TSX though.

    1. Grid, It’s been over 20 minutes…do you still own this? lol. Seriously though, what a great move. The eventual gravitational pull of $1T $US deficit may provide for an fx bonus or at a minimum this buy acts as a hedge against your EBBNF. So here’s your challenge; flip both at gains.

      1. Alpha, I intend to hold for now. I have 500 of EBRGF and 1000 of EBBNF. Like you said I do like the separate currency factor but would have preferred to had it Swiss currency backed, lol…Admittedly I put the bid in at $11.50, but about 10 minutes later it kicked out the trade at $11.44, which was fine by me.

        1. Have to confess to a certain joy at your below bid execution. Heck I’m happy with a few cents much less your .06.

          1. Alpha, some brokerages just try to fleece you. I have figured out when an issue goes silent a bit and one has the lead bid and it smells fishy….Take the limit off and hit market and let it fly…Yesterday my DCP-B was getting no action just sitting…I changed it to market and let it fly. I bought instantly 5 cents below my sitting bid price that sat for 30 minutes…I have learned to use this trick when I smell the stinky fish in the air. It also works on sells. Many times I move it to market and get a better price than my sell ask was. But with illiquids it has to be done at the right time. Market makers will try to fleece you every chance they get. I have taught them a lesson a few times. Hitting illiquid market bids into my own ask price and forcing their hand and smoking the quail out of the brush pile.

            1. OK Grid you are fearless. On the other hand I’m recovering from self-loathing after a few too low bids during the December blue-light specials. Missed that AGO-B bottom by a dime.

        2. Good call Gridbird. I had Canadian bank preferred ADR RBKDF Royal Bank of Canada but they were called. I am forced to use the ADRs because my brokerage service doesn’t allow TSX transactions.

          1. Wedgehead, Are you poking around in any of them? I will just stick with these two that I bought, but I saw several more that are out there now.

  8. Tim
    So glad I found your site.
    just the information I have been looking for.
    Could you add a column for Moody/s&p ?
    I see that after opening up but like to filter my investigation.

    Thanks
    Walter

    1. Hi Walter–glad to have you here. Yes it is on my list to add this data to the various pages.

      1. Hey Tim,
        You mentioned the ability to ‘copy’ the spreadsheets for personal use. Can you give a quick blurb on how to accomplish this?

        Many thanks!

        1. Hi Affinity–yes that refers to the 2 ‘master lists’ which can be found on this page.

          https://innovativeincomeinvestor.com/preferred-stock/

          You need a google account for google docs/sheets. If you have your google account open and click on one of the ‘master list’ links it will open and automatically you will have the spreadsheet in your google docs list of spreadsheets–it will show as ‘view only’. If you leave it that way it will update when I update the list etc. i.e. it will remain updated.

          If you want a copy for you own use you can go to ‘file’ then ‘make a copy’ and then give it the name you want to give it. Then you will have a copy in your acct that you can work with anyway you want. It will not update any longer when I make changes etc as it will now be ‘your’ sheet.

          When you have your own copy you should be aware that there is javascripting and other formulas in the spreadsheet that I use – BUT I don’t really know all the technical aspects of these parts so you may want to be careful of making changes to these items.

  9. The Yield curve is starting to look a little ominous:
    Date 01/02/19
    1 mo 2 mo 3 mo 6 mo 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 20 yr 30 yr
    2.40 2.40 2.42 2.51 2.60 2.50 2.47 2.49 2.56 2.66 2.83 2.97

    1. The 10 yr right now is 2.585% back to mid January 2018. Ignoring every rate hike we had in 2018.

      Dropped from 3.25 in last 2 months. That’s a drop of more than 20%

      I never hear the term bear market applied to TBills but this is now a bear market

  10. I think we are in the end of a short-term and possible long-term debt cycle. I see that Dallas Fed Robert Kaplan, is coming out saying it would be best if the Fed did not raise rates at the next meeting. This would be helpful, but I think they have already pushed the economy over the edge and we all just need to tighten the seatbelts and hang on. Stress test your portfolio, could they (the company you invest in) handle a 10-20% decline in revenues, can they still pay dividends… can they survive.

  11. Tim first off I want to thank you for one of the best financial sites on the internet. To the point about Apple, I am unsure of what it will do on Thursday, like you I would surmise a very steep drop for both Apple and the market. I look at this from the point of view of why in two-three weeks was Apple so far off in sales? Missing by 10 billion with all the accounting analysts Apple must have indicates an amazing shortfall, quite out of the ordinary realm. The answer must be the markets are falling away very fast overseas in economic activity. This would be in keeping with the stock market fall in the fourth quarter and why the 10 year treasury is rallying so strongly. While this will hit the equity markets hardest, there could easily in the long run be impacts to less than the best income markets as well. When golden opportunities eventually come, usually once or so in a generation you need funds available to take advantage. Nothing indicates a need to have an instant reaction to this bad news, I would reccomend stepping back and watching how this plays out.

    1. Hi Running_Man–thanks for your kind words.

      Yes I am in agreement with you in general that the global economy seems to be falling away quickly–we will see if this is a real trend or if there are more micro forces at work which show a positive change in the months ahead. Normally I don’t think these things change on a dime and reverse, but with tariffs etc it leaves one a bit confused.

    2. Let us not forget the reality that China is a government controlled economy and they can take “pain” much longer than we can. I am skeptical of a deal if our current approach does not change. They risk no political impact if things worsen. Not true for us.

      1. Agreed, SteveA.

        Apple has ‘innovated’ this situation we find ourselves in this morning. Very little innovation in their products for years while the prices per unit increase. Duh! This will cause a panic, indeed.

        No worries for me as I ejected it from the portfolio a long time ago and won’t look back until they decide to start innovating past installing better cameras and more memory in their devices. That’s not innovation. That’s just technological advancement.

        I’m watching and waiting to pickup more dual IG rated goodies like ALL-E and JPM-B. No need to rush anything here…

        1. Never understood the premium to own Iphone over android but people have made tons of money off the stock with people paying that premium

          1. Hi SteveA–I had that opinion for a long time and then finally maybe 3-4 years ago went to an iphone and I love it–but not certain if it is worth the premium.

  12. Ok, Tim, going to put your brain to work…I was looking at CNIG financials, as I know you have CNIGO also, and noticed they have $500,000 of the ~$5 million value of CNIGO’s listed on their books in their investment portfolio.
    Im trying to figure out how a holding company could benefit in any way holding their own preferreds in their investment portfolio.
    I know holding companies sometimes own their subsidiary preferreds in their investment portfolios for specific reasons. But this one trumps me as this is a holding company issued preferred. Do you have any idea?

    1. Grid–I thought those types of things were your bailiwick and I kind of followed your lead on this one quite some time ago–a year maybe (not sure). When I get some time today I will pull up those financials and see what it looks like.

      1. There finances are fine, revenue is growing, earnings growing. Slowly hooking up new customers, and cap ex will be ramping down. So know problems there. I was just curious why a holding company would stuff 10% of an issued preferred into their own investing portfolio. It would just seem they would retire the preferreds than put them in their investing account. As they in effect would pay double taxes off their own money…The income was taxed before being distributed, then it will be taxed again from recieving a dividend from their own money.

    2. Grid–here is the scoop I think on the CNIGO. Even thought the issue is a preferred stock issue they are accounting for it as debt–and the dividend it pays is accounted for as interest and as such there is no affect on the p/l–they pay themselves interest (dividends), but since it is interest it is a deductible expense. My assumption is the company bought this open market when they could get it at a discount–although I think I can find out for sure with a bit more digging.

      The question for you is the dividend on the CNIGO issue QDI? It makes no difference to me since everything is in IRAs.

      1. Thanks…Yes, Tim, but its QDI…Accounting regulations require term preferreds to be put on the ledger sheet as a liability not capital whether its interest or after tax qualified dividend. LANDP, SPLP-A, and any term preferreds of that ilk are treated like CNIGO. Convertible term preferreds can be put in capital ledger. So this is not interest, as it pays QDI. That is why I do not understand any benefit to putting their own holding company preferred in their own investment portfolio. And based on the sells of CNIGO there doesnt appear to have ever been an opportunity for them to have acquired. They were also on the balance sheet a year ago. They very much appear to have been put there since the issue was privately offered to their own shareholders. Odd stuff.

  13. China analyst predicted a trade solution within 45 days as mainland government can’t keep the economy going with trade war in effect. Wait and see. If you can get Apple at close to a 2.5% yield, what’s to argue with?

    1. Marc–I think a trade solution should happen in that time frame, but I would have originally predicted it would have happened by now so what do I know.

  14. Better to be an income investor when companies like AAPL blow up. Maybe nothing is insulated but still…I’d rather be an income investor at this time. If Apple is having trouble in China so are all the members of Apple’s supply chain. China also recently reported a slow down…no a “contraction” in manufacturing. So we are probably going to have to suffer through shortfall pre-announcements from other US multi-nationals with large operations in China…like CAT and MMM and many others. That should do wonders for the market. Can’t wait to listen to the 1st quarter forward guidance some of these companies are going to put out.

    1. Retired–I don’t miss my days as a common stock investor-I was always too conservative and ‘goosey’ anyway.

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