The US consumes 25% of the world’s oil — but as energy tycoon T. Boone Pickens points out onstage, the country has no energy policy to prepare for the inevitable. Is alternative energy our bridge to an oil-free future? After losing $150 million investing in wind energy, Pickens suggests it isn’t, not yet. What might get us there? Natural gas
Apple launched its first iPad in April 2010 and is now on its 3rd version, so the iPad has about a two-year shelf life for the company (it might milk a few more years out of each version, but the company’s business model is to continually launch new product iterations and slash prices on the older versions). Though it’s not disclosed in the financials, a guess would be that the new iPad will sell 26 million units its first year and 14 million in its second. If each version of the iPad earns $260 per unit, then Apple investors can expect somewhere in the range of $10 – $15 billion in total pre-tax profit for this newest version of the iPad. Unless investors thought Apple’s stock was way too cheap before the new iPad announcement, they seem to be expecting much more value to be delivered to shareholders from the iPad launch than can be reasonably be delivered by sales of the iPad device itself. The $172 billion increase in the company’s value far exceeds the approximately $15 billion that will come from the iPad, so it will have to come from something else. We don’t know yet what that “something else” is.
When we look at our cash flow models, assuming Apple can maintain its current operating margins (a heroic assumption in the face of increased competition in the tablet market), to justify the current stock price, it appears to us that Apple will have to sell about $2.6 trillion worth of total products and services over the next ten years. Last year’s revenues (for the fiscal year ending 9/24/11) totaled $108 billion. If Apple’s margins shrink, it will have to sell a lot more. This level of Apple product sales will make up almost 1.5% of U.S. GDP (of course it also sells products outside of the U.S.). That means that with the average GDP per capita in the United States being around $50,000, each person must spend $750 on Apple products and services annually (since 30% of sales are domestic, this means that about $225 per U.S. citizen would go to Apple every year). Since not all 310 million people in America use Apple, those who do need to spend a lot more and the vast majority of those sales will need to be on devices because iTunes sales do not bring much profitability.
Forget the collapse of the housing market, this is much bigger news. It’s the most dramatic change that is happening beneath the surface of the U.S. economy today. As the rest of the world struggles with oil prices that are very expensive both nominally and in real terms (see chart below), the U.S., thanks to new tracking technology, is enjoying the fact that natural gas prices are plunging. Even as crude oil prices have surged over the past 13 years from $12/bbl to over $100, the price of natural gas in the U.S. is roughly unchanged on net. That means (as the second chart above shows) that natural gas has dropped by an astounding 85% relative to crude oil. We’ve never seen anything like this. The U.S. now enjoys an incredible energy price advantage that not only is transforming industries (for example, it shouldn’t be too long before we start seeing cars that run on LNG), but that should be an important source of growth for the entire economy. This could be the best reason to be bullish.
Some time in the 1480s (experts tend to agree with 1483/84, at which point he was approximately 32-years-old) Leonardo da Vinci applied for a job at the court of Ludovico Sforza — then de facto ruler of Milan but not officially its Duke for another few years. Da Vinci did so by way of the following application letter; essentially a fascinating list of his abilities which, in an effort to appeal to Sforza’s needs at the time, is dominated by his undeniably impressive military engineering skills. His artistic genius isn’t really hinted at until the end.
Da Vinci’s efforts paid off, and he was eventually employed. A decade later, it was Sforza who commissioned him to paint The Last Supper.
READ THE FULL LETTER HERE:
The world is very fearful of hyperinflation. Pension schemes have a preponderance of real assets, from forestry to gold to TIPS [Treasury inflation-protected securities], because they are very fearful. The road to hyperinflation is via hyperdeflation. That is why it’s proving so difficult for hedge funds to make money. How does the rational mind that anticipates hyperinflation own 10-year government Treasuries yielding less than 2%? It can’t. That’s why people are struggling. To lay the seeds of hyperinflation, you need really, really bad things to happen. I thought the U.S. housing market having a massive crash would be hyperdeflationary. But then my Chinese friends pumped $1 trillion of credit into their $5 trillion economy, and created a global recovery, which has just come to an end. I’m speculating that hyperdeflation happens before hyperinflation. What’s the worst that could happen? But the sum of all my fears would be China having a real hard landing of minus 5% or minus 10% GDP growth. If we had that—and Europe—the Fed would be printing $20 trillion, and I would have gold at $5,000. You can have a modest amount of gold, but you can’t have all your assets in real assets, in case we get that hyperdeflation event.
A casual reminder courtesy of Edwards Jones (the arrow is ZH’s)
Note that petroleum usage is back to December 1995 thru February 1996 levels. Gasoline usage is back to December 2001 thru February 2002 levels.
Contrary to popular belief, the decline in gasoline usage has little or nothing to do with cash-for clunkers or improved gas mileage in cars unless one fantasizes that gas mileage improvements started precisely in 2007.
Wallace comments “If this trend lasts for the rest of the year, Obama’s stated goal of a 15% reduction in greenhouse gases based off 2005 numbers may be met this year instead of his 2015 goal.“
Mark Sellers’s speech to Harvard MBA students – “I’m not here to teach you how to be a great investor. On the contrary, I’m here to tell you why very few of you can ever hope to achieve this status.” He states that these 7 traits of great investors are impossible to teach:
Trait #1 – The ability to buy stocks while others are panicking and sell stocks while others are euphoric.
Trait #2 – A great investor is obsessive about playing the game and wanting to win.
Trait #3 – The willingness to learn from past mistakes.
Trait #4 – An inherent sense of risk based on common sense.
Trait #5 – confidence in their own convictions, even when facing criticism.
Trait #6 – It’s important to have both sides of your brain working, not just the left side (the side that’s good at math and organization.)
Trait #7 – The most important, and rarest, trait of all: The ability to live through volatility without changing your investment thought process.
Direct Link – “So you want to be the next Warren Buffett? How’s your writing?” (PDF, Speech Transcript) via SCRIB