The market is high, given the huge problems we face. Bill Gross’s December letter is well worth the read. The dollar will continue to sink – especially against the eventually-to-be-revalued Chinese Yuan. The price of imported goods will rise. And sooner or later inflation and interest rates will rise here, too.

Of course, one of the (few?) justifications for the Dow over 10,000 here is that, relative to the Euro, say, it’s actually fallen to bargain levels, and will get cheaper still. When the Euro was at 90 American cents, buying $10,000 worth of the Dow at 10,000 (say) cost 11,111 Euros. With the Euro at $1.32, the same Dow at 10,000 now costs a mere 7,575 Euros. So it seems to us unchanged, but to the Europeans, it’s 32% cheaper.

And if the Chinese can buy IBM’s PC business, who’s to say, as they revalue their currency upward, they may not buy other U.S. assets and shares, driving up their prices and pumping funds into the bank accounts of the sellers, to be reinvested in other shares?

Moreover, while it is easy to envision all kinds of terrible scenarios – and there is a real chance one or more may materialize – we should never rule out brighter possibilities. With Arafat gone, the world really might be able to make peace in the Middle East, beginning a virtuous cycle as the seeds of bitterness and terror gave way to the power of hope and dreams. The election in Iraq could take place as scheduled and things could actually begin to get better (even though the CIA seems to think they will get worse). As King Abdullah II of Jordan told Chris Matthews yesterday, no one knows if this will happen. But if Iraq could join the modern world, it would be the beginning of a much brighter future.

So there is much to hope for – who among us did not hope we’d be greeted with flowers when we invaded Iraq? – and, I think, even more to be worried about.


Suggested here last November 25 at around $4 when the stock was just above 20, Apple’s long-term calls (known as LEAPS) are now around $43, with the stock at 63. Stupidly, foolishly, and reprehensibly, I suggested selling half at the end of March, for little more than a double (what was I thinking?). And later, when the LEAPS had tripled, I suggested perhaps selling a like number of out-of-the-money calls to make for what would have been a likely quadruple while you waited for the LEAPS to go long-term. So if you followed these suggestions, you would have long since doubled half your money and quadrupled the other half, but be sitting here like me, rocking back and forth wringing your hands, imagining how sweet life would be if you had just held on.

But while I can make an (uninformed, seat-of-the-pants) case for AAPL at 200 a few years from now, I have to think that if you had the good fortune not to see or act on my earlier profit-taking suggestions, now you surely should. Sell.

Yes, the company has no debt and close to $6 billion in cash and marketable securities (so you’re in effect paying ‘only’ $19 billion for the company, not its full $25 billion market cap). And yes it has a great young CEO and a phenomenal brand with fanatically loyal customers. But it earned only $276 million in fiscal 2004, which isn’t such a hot return even on $6 billion in cash and securities, let alone a $25 billion market cap. And if you had adjusted those earnings to account for stock option grants, as corporate America is likely to have to start doing this coming year, the $276 million, I’m told, would have been just $168 million. (And 2003 and 2002 would both have shown losses.)

Indeed, you might want to take a small bit of your realized profit from the LEAPS and buy (say) a July, 2005, 75 put, which last traded at $14.80 ($1,480), so that if the stock were $55 next July, you’d have turned your $1,480 into $2,000 . . . and if it were $45, you’d have turned it into $3,000, doubling your money, before taxes, in little more than 6 months.

But I’m not doing this (and at least for now missed my chance to do something like it when the stock hit $69), because Apple might just stay where it is or go up. One of my friends, who shorted Apple at a painfully lower price, scoffs at its 2% share of the computer market. But what if those millions of iPod owners not only continued to buy iPod add-ons and next-generation iPods, and all that . . . but began buying Macintoshes and, over the next few years, Apple’s market share rose from 2% (or whatever sliver it actually is) to 10%? Or even 5%?

Profits could well rise out of proportion to sales (tripling sales might only double costs), and maybe Apple’s profits jump 10-fold. You could have a $200 stock.

I am absolutely, positively, definitely not predicting this. But to me, Apple’s price here, while unattractive, is not necessarily bubblesville.

See how hard this is? I own an iPod, I’ve been to business school, I’ve spent at least half an hour thinking about all this, and still I don’t know what to do. I’m very happy having taken my lovely profit and now being off on the sidelines, neither long nor short, watching.

(My friend who is short thought Apple, instead of Lenovo, the Chinese firm, should buy the IBM PC business. What a nice little irony that would have been.)


The work proceeds apace. Like a soufflé (which you’ll find nowhere in my book), it cannot be rushed. Principal photography has begun. (I am having creative differences with the photographer. I need scruffy. I need ketchup stains.)

In any event, I present you:

Recipe 19 – Sinless Strawberry Sin
Step #1: Buy fresh strawberries and a can of fat-free Reddi-Wip.
Step #2: Having uncapped and shaken the Reddi-Wip – and marveled that the entire can, at 5 calories a serving, has just 200 calories – grab a strawberry by its green-leafy handle and swivel your wrist so that the berry itself faces mouthward.
Step #3: Shuzzle a snowdrift of Reddi-Wip on top . . . eat . . . repeat.
Step #4: Once all the strawberries are gone (this being America and you being a guy), invert the Reddi-Wip and place its nozzle in your mouth like a straw. Shuzzle one final crescendo. If there is a heaven, it must be very much like this.


And it will take you only 5 minutes: Bill Gross’s aforelinked December letter.

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