Joe Terranova: Two Numbers to Watch In Apple Earnings and the Dangers of Easing

Virtus Investment Partners Chief Market Strategist and author of the new book, Buy High, Sell Higher Joe Terranova joined Benzinga Radio Friday afternoon to discuss Apple earnings and Fed policy outlook. Below is an excerpt from our conversation. What are you looking out for in the second big week of earnings?

Joe Terranova: Well, the big daddy is Tuesday - Apple. Those that watch Fast Money, they know that I've been a long-time Apple bull - as many of the members of the show have been as well. Karen Finerman, Jon Najarian - Pete Najarian as well - we've all loved Apple. But I have owned Apple. I have owned it rather aggressively throughout the last couple of years. And [then] back in December, we had a risk management price stop in place [and] got stopped out of Apple. I said to myself, I'm not going to get back into Apple until we hear the earnings story. We're going to hear that on Tuesday afternoon. A couple of things are going to be important. Number one: forget about all the comments you hear about the market cap size [of] $400 billion. That's not what matters. What matters is Apple's ability to reverse some of the negativity surrounding iPad sales that they had last quarter. So you want to see an iPad sales print on Tuesday [of] somewhere around 13.5 million. You want to know that Apple's on track in calendar year 2012 to potentially sell 50 million iPads. iPhone I expect to be incredibly strong when earnings are released on Tuesday. I think you're going to see a number [of] 31 million, [or] maybe even north of 32 million. That's going to be interesting for investors. Ultimately, what do they do with this tremendous amount of cash they're going to have sitting on their balance sheet? The number is going to be above $100 billion easily. So, we'll hear what happens with the earnings. I view Apple as the ultimate consumer discretionary play. How much strength was there in Siri and iCloud - these new initiatives? Second: [the] derivative types of names that are doing well recently on the understanding things are a lot stronger for Apple than maybe we thought back in October. Cirrus Logic is rallying [and] Broadcom is rallying. Those are plays off of Apple. And Nuance Communications - where you get that Siri voice recognition technology - is rallying as well. I'll take a second look at Apple once I hear the earnings story [and] decide whether to get back in. But let me just tell you this: I have no problem if I need to pay about $450 for Apple to do it. Because I believe ultimately Apple's stock [will go] north of $500.

Alan Blinder, the former Federal Reserve Vice Chairman, was on Bloomberg Radio yesterday saying he saw some sort of QE3 likely ahead in 2012. What are your thoughts on this conversation?

Joe Terranova: I think one of the most important things in the marketplace towards the end of this trading week is that the 10-year Treasury has gone from 1.8% to above 2% - somewhere around 2.03%. The need for QE3 I don't believe is there. I think the implementation of QE3 would selectively target the commercial mortgage-backed security market [to create] some form of improvement in the mortgage market here in the US. I don't think we need that right now. And I think the message of QE3 to the marketplace would be concern for risk assets in the current pricing. I also think that if the Fed was to enact QE3 - think back to the impact of QE 2 on the emerging markets last year and what that did [in terms of] losing the China growth story, when they had to go into a tightening policy. So, we're almost better off to kind of sit back and know that the Chinese have the ability to ease, and to let them ease if necessary to kind of stimulate or to create a resurgence in global demand and global growth. That I think [is] the preferred monetary policy right now. If we go out and we do another round of quantitative easing, my fear is based by what you're doing - and a lot of the commodities [are already] too high - you're going to create significant inflation once again in the emerging economies. And that's going to have a negative impact on global risk assets.

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