Apple (AAPL) – The chart is certainly looking like the Apple of old. After several years of negotiations Apple finally cut a deal with China Mobile. This has been rumored for some time and part of the reason Steve Mulonovich from UBS upgraded the stock recently. Apple is in the Alpha Select portfolio. Despite having what I think are the best devices, Apple has been losing market share. As of this writing the stock is trading up in the pre-market.
China Update – I’ve been writing about this daily because I think the situation is more serious than many perceive. VP Joe Biden has been bouncing back and forth between Japan and China. He let President Xi Jinping know that we think their ADIZ (Air Defense Identification Zone) Escalation is always an issue when you place a lot of military assets in a confined space all jockeying for position. According to this morning’s WSJ, airlines are becoming increasingly concerned about flying through the zone. It is also being reported that China is considering extending the zone to an area over the South China Seas. THIS ISN’T OVER and the potential for a policy mistake is high. The market reaction will be violent.
Minimum Wage – The battle over a $15 minimum wage seems to be just beginning with one day strikes in an additional one hundred cities. Regardless of where you come out on this politically two things will happen with a $15 minimum wage. Prices and unemployment will both go up. The New York Times article gets it right when it says fast food will increase automation, pointing out that many have already gone to self-serve drinks. Fast food restaurants are already under pressure as there is a secular shift under way toward healthier food. (You are what you eat) I believe a $15 minimum wage will at the very least, put a ceiling on the shares of fast food stocks.
UNH – Management has laid out an over $1.6 Billion earnings hit from the impact of health reform along with some other issues. Goldman came to the defense yesterday saying they still reiterate their Conviction List Buy and $84 price target. This is increasingly looking like a binary outcome. Either the industry will do very well or get hit hard. The odds seem to be moving in the wrong direction. Aetna (AET) has been a good name in the Alpha Select portfolios but with all the uncertainty surrounding the Affordable Care Act it may be time to exit. (I’ll let you know)
DP Numbers – The knee jerk reaction yesterday on the heels of a very strong ADP report was to sell the news. Markets recovered by day’s end but for most of the day traders and investors decided they like QE more than they want jobs. It’s probably better to focus on a trailing 6 month average than any one number. The concern of course is that the Fed will take the stronger than expected number and start tapering as soon as this month.
I think there is little chance of that, especially as we head into the budget negotiations. My best guesstimate is the end of the 1st quarter.
Volker Rule – Banks lost a round and it looks like the most recent draft of the Volker Rule eliminates “Portfolio Hedging” All banks are going to pay for JP Morgan’s (JPM) London Whale incident.
Disclosure – Funds managed by David Nelson own shares in JPM, AAPL AET
