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  1. Phil

    Good morning!

    I wish the market were open today – so many fun things going on…

    AAPL/Dawn – When something is drastically undervalued, it's pretty much a little jack in the box and the little crank just keeps turning and turning until some special note pops it.  I don't mean like Friday, that's just a wriggle in the low range – I mean a $50-$100 run over a couple of days kind of thing – some event when people say "hey, those guys make a LOT of money!"  As I noted to someone the other day, with AAPL, it could be one of about 10 things – that's what makes it such a good long.  

    They've already had the kitchen sink thrown at them as far as negatives go.  And, don't forget, those negatives are being thrown at AAPL by a media that's controlled by 6 companies – all of whom hate AAPL because they have taken control of the music business and are taking control of the publishing business and trying to take control of the TV business.  There are, annually, tens of Billions on the line here and these 6 companies will do whatever it takes to keep AAPL from succeeding:

    Keep in mind that Newsweek stopped publishing it's paper edition this year – these guys are terrified about losing control of the future – especially to someone who's not even in the club.  Jobs tried to build bridges with Disney, who are the least evil of the 6, but they just wanted to get Pixar and had no real interest in giving AAPL content, which went to Hulu and NFLX as soon as Jobs died.  

    AAPL is a disruptive force and there will be all-out content wars in the future.  So the studios and the TV stations and the news media look for any way they can to keep AAPL down – the same way they work very hard to keep Americans from seeing Al Jazeera as a viable entity – even though they are Walter Kronkite compared to Fox.  Overall, it's a long game that's being played and I wouldn't want to guess WHEN something will happen and, frankly, I don't care – because I'm much more patient than that.  

    If you buy a company for a long-term hold, you should buy it BECAUSE you want to hold it long-term, like a house.  And that means you buy it once and then, 10-20 years later, maybe you have occasion to sell it.  In between, you don't obsess over the PRICE because it doesn't matter.   People know and accept this about homes but can't accept it about stocks – even though most of us in the top 1% have a lot more money in stocks than we do in homes.  

    I put up notes last week about how just keeping money in the SPX beats almost every other ETF or hedge fund over the long-haul.  Buffett is notable for beating the S&P over 50 years but what does Buffett do – buys and holds.  This is the hardest thing I try to teach because there's no substitute for experience over time here.  Only by going through the cycles – USING a buy and hold strategy (modified with our scaling and selling premium strategies, of course) does it become clear to you what nonsense all these other "systems" are.  

    Sure it's fun to make short-term trades and I love them as you need something to do while you wait for your trees to grow large and bear fruit but it's also important to keep in mind that short-term trading is just gambling – and should never be taken too seriously.  

    A guy with an apple orchid can afford to give some away but the guy who's juggling 10 apples to survive can't afford to drop even one or two but the guy with the orchard started with 10 apples worth of seeds – and a different philosophy. 

    AAPL should buy a studio:  VIA is $32Bn, NWS is $72Bn, TWX is $53Bn, DIS is $104Bn, Vivendi $22Bn (Bertelsmann is private but around Fox's size).  They haven't because, if they bought one, the others would go insane.  Jobs took Disney stock for Pixar ($7.4Bn) and I think he intended to push for a greater alliance but Disney knew all they had to do was wait and the stock would end up getting redistributed among Steve's heirs, so there was no danger giving him 10% of the company (largest shareholder at the time).  

    The problem at the moment is Steve Jobs had a Tim Cook to run the company for him so he could run around making deals and, of course, his fanatical personality allowed him to ram deals down the throats of record companies at a time when their sales were weak and they were looking for an answer anyway.  Books are more or less a done deal as well but not magazines and newspapers nor TV or Film and that's where the real money is.  

    Tim Cook doesn't need a Tim Cook to run AAPL, Tim Cook needs a Steve Jobs to get out there and make those deals but that's very hard to replicate as part of what made Steve Jobs Steve Jobs was the fact that he came into a room with his reputation glowing around his head like a halo and every word he said carried the full weight of the AAPL Corporation – because the board learned (since they fired him and wrecked the company) never to say no to Steve.  

    You can't replicate that by hiring some guy, no matter how good he is.  

    Of course, Steve Jobs has only been dead for a year and 4 months – so maybe we should give Tim a chance! 

    By the way, Cook donated $100M of his own money last year (mostly to Stanford Hospital and Project Red to fight AIDS and such) and AAPL matched employee charity donations up to $10,000 a year.  AAPL is also spending $100M to move some of it's Mac production back to the US – starting this year.  

    This is not a company (or a CEO) playing a short game and, as we are well-aware, not many investors play the long game.  That makes companies like AAPL fantastic buy opportunities for me, Buffet and the 4 other guys left who actually like to own great companies for the long-term.  



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Phil's Favorites

Pettis on Strains in China's Banking System; Avoiding the Fall

Courtesy of Mish.

In his last email of the Year Michael Pettis takes stock of the current state of China's rebalancing. It's an 18 page PDF, with no online link.

Taking Stock of China’s Transition by Michael Pettis
Special points to highlight in this issue:

  • While policymakers almost certainly understand that the interest rate cuts announced by the PBoC two weeks ago will slow the pace of rebalancing, the asymmetry of the change in rates was designed to minimize the adverse impact on rebalancing, and indicate just how complex China’s adjustment is likely to be.
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Click here for the full report.




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U.S. stocks found support once again last week and rallied on strong volume. Of course, the main catalyst was the FOMC policy statement on Wednesday that maintained its dovish language with a pledge of considerable time before raising the fed funds rate and adding that it would be patient as it begins the process of normalizing monetary policy. The result was yet another classic V-bottom. Ho, ho, ho. Say hello to Santa Claus.

In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then offer up some actionable trading ideas, including a sector rotation strategy using ETFs and an enhanced version using top-ranked stocks from the top-rank...



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This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

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Have a Great Christmas and New Year! Small Caps - It's Over To You....

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I will be keeping posts to a minimum until the New Year. Friday finished with a bit of a high volume flourish, which added a nice gloss to Thursday's big gains.

The Russell 2000 managed to go one step further with a breakout. Watch this index over the coming days; if it can hold the move it will bring other indices with it. The Russell 2000 has under-performed (relatively) all year, and if bulls are to maintain a broader market rally into a sixth year then the Russell 2000 will have to do most of the leg work. As an important side note, the Russell 2000 turned net bullish technically. The flip-side is to watch for a 'bull trap', but even here, this might instead widen the recent trading range handle as major resistance lives at 1,210/15 not at 1,190.

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PSW Members - well, what a year for biotechs!   The Biotech Index (IBB) is up a whopping 40%, beating the S&P hands down!  The healthcare sector has had a number of high flying IPOs, and beat the Tech Sector in total nubmer of IPOs in the past 12 months.  What could go wrong?

Phil has given his Secret Santa Inflation Hedges for 2015, and since I have been trying to keep my head above water between work, PSW, and baseball with my boys...it is time that something is put together for PSW on biotechs in 2015.

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Help One Of Our Own PSW Members

"Hello PSW Members –

This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible.  Feel free to contact me directly at jennifersurovy@yahoo.com with any questions.

Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts.  After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.)  Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.

http://www.youcaring.com/medical-fundraiser/help-get-shadowfax-out-from-the-darkness-of-medical-bills-/126743

Thank you for you time!




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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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