Friday, May 25, 2012

Apple Bubbles?

Once again, I'm using the following definitions of bubbles.

Potential Bubble = Exponentially Increasing Sales Volume x Exponentially Increasing Prices

Confirmed Bubble = Extreme Exponential Trend Failure of a Potential Bubble

Click to enlarge.

I would argue that the blue trend line shows a confirmed bubble in Apple. The data failed to follow the blue trend line in a most spectacular way. Further, Apple stock traded at $199.83 on December 28, 2007. On January 20, 2009, it hit $78.20. That's a 61% loss from peak to trough.

The story doesn't end there though. As seen in the red trend line, the trading trend has since recovered and has gone on to even greater heights. The stock now trades at $562.29. Kudos to the true believers who rode that pain out.

So what's the risk here? Let's extrapolate forward.

Click to enlarge.

Yikes! Who thinks that monthly Apple stock trading will hit $10 trillion less than 10 years from now? Anyone? It is possible I suppose (thanks to high frequency trading algorithms and/or hyperinflation), but I'm certainly very skeptical.

Apple is currently well above its recent exponential trend as seen in the first chart. Using my definitions of bubbles, I therefore cannot claim that this is a confirmed bubble. All I can say is that it is a potential bubble.

This is not investment advice. There are a few ways this could play out.

1. The growth rate could slow to something more reasonable long-term.
2. The growth rate could fail spectacularly at some point.

Who can say? As a bear, I tend to lean towards the latter. It has already happened twice since 2000 (the crash of 2000 is not shown in the charts), third time might be the charm. In any event, I have no desire to own Apple stock. Too rich for my blood. In my opinion, the lowest lying fruit has already been picked twice (blue and red trend lines). Literally.

And lastly, Happy Memorial Day Weekend! :)

See Also:
Housing Bubble vs. Silver Bubble

Source Data:
Yahoo: AAPL Historical Prices


Fritz_O said...

"It is possible I suppose (thanks to high frequency trading algorithms and/or hyperinflation), but I'm certainly very skeptical."

Tax HFT!

Stagflationary Mark said...


I would not be opposed to taxing all high frequency activities, especially ones that involve the phone (high frequency telemarketing).

Fritz_O said...

Agreed, and a progressive tax would be very effective.

Each time the same "prospect" answers the phone and does not buy the product the tax rate increases.

Stagflationary Mark said...


Yes! I like it.

Clarification needed though. Would this apply to political calls? I can't afford to buy every politician who calls me, and yet I so much want them to keep calling! *sarcasm*