My life in the bush of ghosts

Discordant, unpredictable, arrhythmic. The market is all of these and more. Fits of lunacy, groupthink, input from reality-divorced quantitative analyses, the whims of the rich and powerful, the competing interests of hundreds of banks and institutions, thousands of brokers, and thousands upon thousands of retail bankers, stock analysts, and automatic trading, all add up to the morass known as the public stock market.

A banker friend of mine explained that stock markets occupy perhaps 1% of global capital, and the rest is bonds and other market vehicles. The Dow average, not alone among popular indicies but easy to cite here, is the product of thirty companies, each buffeted by millions of forces every day. Some events are cut and dried. Say a meteor hits Wal-Mart headquarters and eliminates the entire executive suite, among hundreds of others of managers. The reaction is simple: sell. This hypothetical is pure bad news for the top-down retailer, given that it just lost the entire top of the company. Wal-Mart plunges accordingly, say, and its market cap dives proportionally.

Rarely, of course, is bad news so obvious or so one-sided. Perhaps Wal-Mart loses a dispute with Colgate, and is forced to split its shelves between Crest and the upstart, instead of retaining monopsonic control over the toothpaste market. Such a development is not so obviously deleterious, and some could argue that abandoning the monopsony-as-price-cudgel strategy might even lead to greater sales. More toothpaste choice, albeit at worse margins, could go against forecasts and lead to a spike in high-end paste choices among otherwise low-margin, once Crest-loyal customers who now enjoy a greater selection at reasonably similar prices. Wal-Mart shares might go down a bit as some sell, seeing the slipping control of sales layout as a profit-destroying anti-Wal-Mart nightmare. When profit numbers come in and toothpaste is a bright spot, the stock might adjust accordingly. Indeed, shares may go up seemingly against type, ahead of earnings, as savvier investors see the silver lining of variety where the pro-Crest faction saw only less control over Crest prices.

But what to think of the current public stock market. That 1% of capital sloshing around seemingly without reason.

Apple computer is massively undervalued by any measure besides the "stockpile your food and guns, the US is going primitive" extreme. Apple trades at a forward P/E closer to commodity producers, and is growing faster than any startup by revenue or year-over-year (besides Google), including a laundry list of tiny companies dwarfed by Apple. Apple is "growing like a startup" with revenue like a major industrial player. While luxury goods are going to drop in sales in a recession, small business, education, and a number of other Apple markets are primed to grow. Add in a mature, 20m+ iPod/quarter sellthrough to guarantee low prices on bulk memory deals, and the iPhone 3G, and the stock seems positively staid. Never mind the rumors of $99 iPhones and an iPod-alike iPhone line that hits every reasonable price point.

I may look stupid in three months, or even one month, but I am iterating/reiterating a strong buy on Apple. 100 is not high from 80, it's low from $225, my price target.