The Big Apple

That’s the title of my latest piece in Inside Story, expanding my earlier discussion of intangibles and monopoly to take account of Apple’s startling market valuation of $2 trillion. As I observe, this can’t be accounted for in terms of big profit gains

Admittedly, Apple’s business hasn’t been harmed by the Covid-19 pandemic, but neither has it greatly benefited — earnings in the June quarter were only about 10 per cent higher than in 2019, yet the stock price has doubled in less than six months.

It’s mostly about the combination of secure monopoly power and long term interest rates near zero, which increase the value of any stable source of income, like monopoly rents

10 thoughts on “The Big Apple

  1. Are Apple’s monopoly profits “secure”? In South Africa, you can buy a smartphone equivalent to the original iPhone for $33. As a rich guy, you have instead just bought the latest iPhone for $1,000. It’s better in a lot of ways, but not 30 times better. iPhones are Veblen goods to exhibit “cool” status. This does not look to me to a secure position. Desktop Mac Pros *are* significantly better than X86 rivals in he expense-no-object market for professional graphics and video, but that’s a small niche. Even a cheap smartphone is a Swiss Army knife; it already does everything. It’s very hard to think of anything else that would add significant value, so the strategic advantage is with the cheaper rivals.
    https://www.samefacts.com/rbc-smartphone-review/

  2. Yes, Apple mainly produces status symbols with no apperent use, in the sense of any practical edge over an Android. Data privacy is a bit better, but that is not a serious issue on an individual level if we are realistic for most, thats more a collective long term creaping problem. The phones really do have better specifications in some ways than the best Androids, there is just nothing usefull one could do with those.And it´s still a safe monopoly, because there is no real luxury alternative. In a way it would also be justified to call Porsche a (quasi) monopoly based on their market share in a particular sub niche of the automobile market.

    This is probably as good a place as the monday message board to make a public call on a stock (to avoid getting overconfident in ones ability to outsmart the market by missremembering): Tesla looks mighty overvalued. My operational more practial prognosis is this one: Over a 4 year timeframe, Tesla will underperform the S&P500 as well as the global automobile sector, all 3 with dividend reinvestment by at least 25%. Note how security lending fees for Tesla would in all likelyhood eat all gains from such a prognosis being correct.

  3. Does “good old-fashioned predatory behaviour” mean just predatory pricing or does it mean more than that?

    “Intangibles” is a code-word for stuff that capitalist economics does not want to acknowledge openly. That’s what Prof. J.Q. is saying, quite correctly. “Intangibles” is a mystification concept as the Marxists would say.

    “Mystification is the application of vague abstractions to build sophisticated metaphysical schemes, which sidetrack people from tangible material reality. According to Karl Marx, the term “material reality” means not only biological or physical existence but social and economic relationship.” – acasestudy dot com.

    Using the term “intangibles” is a very audacious move. It hides the mystifying metaphysical term in plain sight and legitimatizes it. “Money” is the “philosopher’s stone” of the system. It is the object with the transformative power. Anything placed in the presence of money becomes, at least potentially, money itself. The objective can be turned into money, Money is the “transforming legitimizer”. Anything placed near money partakes of its aura and legitimizing power. Any “alchemical” expansion of money is attributed to “invisible hands” and “intangibles”

    Apologias for a given political economy system are performance art. Many operations of the system itself are performance art.

    It’s interesting to look at the concept of “Dramaturgy”. Dramaturgy in sociology (and presumably taken from dramatic arts theory) “is a sociological perspective commonly used in micro-sociological accounts of social interaction in everyday life.” – Wikipedia. I do not see why such Dramaturgy theory could not also be used as a macro-sociological account. Capitalism is, among other things, a performance. It’s a performance where some things are put on stage and/or permitted on stage and other things are kept off-stage. Capitalism builds up an image of itself by these manipulations. Shiny, bright new things are on stage. Bleak, dark negative externalities (environmental damage, exploited workers in foreign countries) are kept off-stage as much as possible.

    Consider the following and mentally apply it as a macro-theory to the performance of “Capitalism – The Play” . It applies to both the individual political and personal performances in Capitalism and to Capitalism itself as a “macro-actor” in its self-authored play.

    https://en.wikipedia.org/wiki/Dramaturgy_(sociology)#Performance

    “Capitalism” (as the particular really existing political economy system I am highlighting here) will likely be found on analysis to have ideational, justifying belief structures which accord to two very central parts of human social thinking. I refer to our predilections for magical thinking and narrative thinking. Belief in intangibles and invisible hands for example are a part of magical thinking. Belief in endless growth, an endless cornucopia, is magical and indeed mythic thinking. Belief in specific prohibitions is often part both of magical thinking and narrative thinking. Don’t be naughty or the bogeyman will get you. That’s both an injunction or prohibiiton and a potential narrative. Don’t break copyrights (and monopolies) or the bogeyman of socialism will get you and destroy all prosperity. Real dangers to prosperity (climate change, zoonotic disease outbreaks) are downplayed, even termed “fake”, while the tenets of capitalism (copyright for example) are unbreakable rules: transgressions will lead to mass poverty. Empirical evidence is ignored and downplayed. The idealized narrative of capitalism, and the power of its talismans, are emphasized. The talismans give magical protection.

    Money of course is the magical item par excellence: both talismanic and alchemic, it protects and transforms. The operations of money must be prioritized over the operations of real systems. Money and the operations of money judge value better than any other thing, instrument, process or human faculty. Real facts must bow before money facts. It is “not economic” means money calculations say it should not be done. It is “not economic” to prevent climate change. It is “not economic” to save human lives. Capitalism as folk tale.

    Take Vladimir Propp’s “Anatomy of the Folk Tale” (a few edited items thereof).

    I – ONE OF THE MEMBERS OF A FAMILY ABSENTS HIMSELF FROM HOME. (Definition: absentation.)

    1. The person absenting himself can be a member of the older generation.
    (The “Fathers” of Capitalism like Adam Smith or the “Fathers” of the Constitution.)

    II – AN INTERDICTION IS ADDRESSED TO THE HERO. (Definition: interdiction)
    1. “You dare not look into this closet.”

    (Do not look into the closet of Dr. Socialism!)

    III. THE INTERDICTION IS VIOLATED (Definition: violation.)

    The forms of violation correspond to the forms of interdiction. Functions II and III form a paired element….

    At this point a new personage, who can be termed the villain, enters the tale. His role is to disturb the peace of a happy family, to cause some form of misfortune, damage, or harm.

    (The happy family of capitalism is disturbed by the actions of the Villain.)

    IV. THE VILLAIN MAKES AN ATTEMPT AT RECONNAISSANCE. (Definition: reconnaissance)

    1. The reconnaissance has the aim of finding out the location of children, or sometimes of precious objects.

    The villain, Dr. Socialism, will find your precious hoard of wealth and then plan to confiscate it, and wreak havoc over the entire land at the same time.

    And so it goes. The list of fairy-tale narrative elements is quite long. Rather than facts and arguments, one gets magical thinking and fairy-tale narratives.

  4. The value of Tesla stock to book value is now nearly 40 to 1. I don’t know what’s going on there. Their problem is they haven’t been able to get the huge lead on the competition that might justify a massive disparity. If they try to keep prices for their products high people can and will switch to the competition.

  5. My son the investor says:

    (A) He thought seriously about buying Tesla shares last year at $200 a share but did not. Tesla shares are now worth $2,000 a share. (Rounded numbers.) He’s not currently thinking of buying them. He thinks they probably are a bit over-valued now.

    (B) However, Tesla has some very significant “intangibles”. Nobody else has what Tesla has in terms of self-drive technology. They have a lot of data useful for self-drive R&D in their AI datasets. Nobody else has access to this data (propriety data). Tesla gather this data (almost) for free from drivers of their cars. Google (for example) has to pay for and build their own test cars: much more expensive for much less data.

    (C) Telsa has made their own specialist chips optimized for self-drive AI processing. They hired (head-hunted) the best brains in the processing chip business to do this. Nobody else has access to these chips so Tesla can in all likelihood build the fastest, safest, most powerful self-drive AI.

    (D) Same as point (C) above or the image-sensing development team. Tesla hired the best brains from Stanford (IIRC) for this.

    (E) In theory, zero percent real interest rates, for a large company with access to these zero percent interest rates, mathematically implies the assets (tangible and intangible) could be worth infinity. For example, zero percent borrowings and 0.01 percent returns implies the company would be worth 1,000 times its earnings. Of course, such a large or infinite realization of worth will not occur in practice. Interest rates can go up and companies can collapse for other reasons including being technologically gazumped.

    (F) Overall, the current economy is in a very strange situation with many unknown risks.

    [My son just laughs and shakes his head at all this… and continues to make about 40% year on year in the stock-market despite missing the Tesla bonanza. Personally, I pity all the non-workers, workers and naive investors in this climate: meaning I currently pity most people on planet earth. They know not what is being done to them but it is certainly a massive and unsustainable boondoggle. There will be a few huge winners and literally billions of losers… or if the collapse is bad enough there may be no winners at all.]

  6. i agree with Hix and Ronald on the overvaluation of Tesla. It makes good electric cars, and has built up a lead over all rivals outside China. But the rivals are at last getting serious. The VW ID3, the Renault Zoe, the Hyundai Kona, and Peugeot e-208, along wit the refreshed Nissan Leaf, are all solid products with decent range, which are doing well in European markets. Tesla does not seem to hold any killer IP in batteries, motors and controls, the heart of a car. We are not seeing vertical integration in batteries: the market is stably dominated by a handful of Asian specialists, striking long-term supply deals with carmakers. Tesla does have the best assisted driving tech; but though it designed its own SOC and board, it used standard CPU and NL processor cores from ARM, available to all its rivals. The database of usage can be and is being replicated.

    I remain particularly unconvinced about Tesla’s venture into heavy trucks with the Semi. Starting with the most difficult market – Class 8 cabotage trucks that criss-cross the vast US Interstate system – was a quixotic choice, and requires the buildout of a very expensive 1-MW ultracharger network before truckers will buy in volume. Its rivals, subsidiaries of big established truck companies like Daimler, Volvo and VW, plus Chinese EV specialist BYD, are all starting with the much easier regional distribution market. Here limited range is acceptable, and the buyers pay for their own slower chargers at their depots. SFIK the rivals are ahead in trial deployments with customers. Glamour and cool do not sell trucks.

  7. “The market can remain irrational longer than you can remain solvent.” So the saying goes. Implicit in this statement is the assumption that “you” are betting against the market. Also implicit in this statement is the assessment that the market can stay irrational a long time but not forever.

    The coming crash won’t be just about a few very overvalued stocks. It will be about the whole stock market. The coming crash won’t be just about the market, investments and economics. It will be about societies, nations, populations, biomes, climate and environment. This isn’t just a little “pick the stock” game. It’s way bigger than that. The whole system has to change or we are all dead.

  8. In addition, over the past couple of years the CEO of Tesla has done a good job of convincing people that, rather than being an eccentric genius, he’s merely a genius at being eccentric.

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