Peter Feddo's Trades

UBS’s Jonathan Golub crafted the chart on the right comparing the earnings per share of the technology sector with and without Apple. The market looks outstanding with Apple’s performance factored in but sans Apple and we see much flatter performance across the technology space.

In Golub's February calculation, the S&P 500's Q1 2012 earnings were on track to rise 6.8% with Apple (AAPL), but would shrivel to 2.8% without.

"By stripping away that one single company," Golub told the Wall Street Journal, "it is like seeing light through a prism — you see things more clearly."

No wonder bulls want to see Apple reach $1,000 a share! Once the music stops and Apple falls the entire market must acclimate to the reality that earnings are still weak and growth remains stagnant.

Corporate executives are not all that different from dictators according to game theorist Bruce Bueno de Mesquita. A successful CEO must assemble a winning coalition on his board of directors –the smaller it is, the better for the CEO—and he must adequately reward his coalition for their support. Corporate rewards can come in two broad varieties: public goods that all parties share (eg: increased earnings and dividends) and private goods that only select individuals receive (eg: increased remuneration for serving on the board of directors). Additionally a successful CEO will want to handpick his board of directors and make sure his picks understand they are replaceable with someone else should they deviate from the CEO’s best interests.

I'm a 28 year old man that lives in the city of Richmond, why does LivingSocial think I'm a good prospect for two nights at a local bed and breakfast plus cupcakes? LivingSocial surely has a lot of information about me: My demographics, my purchasing preferences and whether or not I am opening their emails and clicking anything. So with this vast array of useful information they are sending me emails --essentially spam-- that I am not going to read and may even contribute to a loss of permission to deliver emails to me. How does this business model continue? When will the venture capital money cease for this kind of foolish business?

Privatized profits and socialized risk! That’s the economic theme these days according to Nouriel Roubini’s outstanding book Crisis Economics. The subprime mortgage debacle, the credit bubble & crunch and the ensuing recession were predominantly resolved by bailing out powerful “too big to fail” financial institutions. When times are good these institutions take advantage of the power of leverage to enjoy immense profits and reward executives & shareholders handsomely. When times are bad leverage works just as powerfully in reverse and is incredibly destructive.

Roubini argues that the subprime mortgage debacle and resulting bailouts –while essential to preserve the financial system and avert a depression—were inherently unfair and shifted the burden of the losses from the balance sheets of banks and onto the balance sheets of governments. Consequently the bad debts of banks have not disappeared but rather have been appended to those of national governments. At the same time, extremely large financial institutions have learned a valuable lesson from their mistakes – stay too big to fail and the government will always come to the rescue to save the day. Roubini argues that this state of moral hazard will result in further excessive risk taking by banks and result in yet another cycle of debacles.