For much of the last 20 years, the prize for the biggest business on the globe has alternated between Microsoft, Exxon Mobil and General Electric. But now one company towers over everyone else: Apple.
Last week it was announced that the value of Apple is now roughly the same as the whole US retail sector. Think about that for a second: there are some big businesses in the US retail sector and Apple is worth the same as all of them put together!
Then we read that Apple is going to release some of its amazing $100bn cash pile back to investors. The first dividend in 17 years. What should we read into that? (I'll tell you in a second).
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After a remarkably eventful week, Apple then suffered its very own flash-crash' as shares dropped nearly 10% within minutes and forced a halt in trading.
To me, the most important of the three stories is the one that was given least coverage. And that is the mini-crash. Today I want to tell you why I think this is so important and what it could mean for the market at large.
An ordinary valuation for an extraordinary business
There's no doubt about it, Apple has become a money printing machine. The figures are just mind-boggling. According to The Economist, sales in the last quarter were almost double those the previous year. And forecasts suggest that sales for 2013 will be nearly triple 2010's figures.
No wonder the stock has been flying!
There's so much money coming in the door that management literally doesn't know what to do with it all. And that's why, last week it announced not only a dividend, but also a $10bn share buyback (where the firm buys back its own stock in the market).
Some investors are saying that this shows Apple has reached the end of the road... that's why it's handing back money to investors it's got nowhere to invest it! The cynics also point out that management has a nasty habit of initiating share buybacks right at the top of the market. Surely, they say, the only way now for Apple is down.
But I'm not so sure. In reality, the dividend is small, it's giving shareholders back around $30bn over the next three years. At today's share price, it'll give investors a yield just below 2%. And the $10bn buyback is smaller still. Cash is rolling in quicker than these giveaways are paying out.
With Apple's shares trading on a relatively sober forecastp/e of less than 14 times for 2012, the market clearly isn't expecting loads of growth. That could leave some upside for investors.
So how then did it happen that the biggest company on the globe could crash by nearly 10% within a matter of minutes?
What does this tell us about the markets today?
Volatility is the order of the day
Apple's mini-crash was first blamed on a fat finger' trade. Basically, someone somewhere placed an order to sell stock at way below the market price. But how can one person with one fat finger bring a company like this down so hard and so fast?
It's almost as if the market doesn't really know what Apple is worth. In fact, it's as if we don't know what the whole stock market is worth for that matter. I mean, it was the same story back in 2010, when some system error' caused the Dow to tank 700 points within minutes now dubbed the flash-crash'.
But maybe we shouldn't be so surprised that it seems so difficult for us to put a value on things these days. I mean, money is created by the flick of a switch at the world's central banks. And then we use that money to put a value on all our precious things. From commodities, to houses, stocks and even your own wages; the yardstick we use to measure the value is changing. And I suspect it's one reason why the markets suffer flash crashes and volatility these days.
In fact it's why last week I said that I can agree with CitiGroup's prediction that the FTSE will double over the next ten years. And my reasoning is clear. I suspect the value of money to halve over the next ten years as central bankers print more of it. All other things being equal, that could mean the FTSE doubles. In fact, depending on how far the central banks go with money printing, cash could do an awful lot worse than halve over the next decade.
Where you can find value
As long as the central banks continue to create and feed money into the financial system, we're setting the stage for more flash crashes' and volatility.
We'll need to get used to prices fluctuating much more than we ever have in the past.
Last week I showed you one way to take advantage using a spread bet to get exposure to the volatility gauge, the VIX.
I did warn investors that we'd probably have to suffer losses before (and if) profits show up. And sure enough, that's been the case.
But if you're willing to stick with the trade, then I expect there's a good chance we'll turn a profit. The case of Apple's mini-crash shows how volatility is never far away. I'll provide an update on this trade and what we can expect soon.
This article is taken from the free investment email The Right side. Sign up to The Right Side here.
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