Tim Cook is a smart CEO, so why would he do something this stupid?
Cook has emerged as a respected CEO, who keeps the company innovating and growing, who speaks out persuasively on social issues, and who made investors giddy by pushing Apple's stock up 154 percent between May 2013 and May 2015.
Apple may always be, somehow, the house that Jobs built. But it's also become the house that Cook maintains, if not quite renovates. And then China's market began to collapse. And as of last Friday, Apple's stock was down exactly 20.46 percent – just this much on the wrong side of the encyclopedic definition of a bear market. Never mind that the phrase bear market refers to entire markets and not individual stocks. Lots of financial journalists declared Apple to be in one.
One journalist cum trader, Jim Cramer, emailed Cook on Sunday evening and noted that he was “just trying to do my best to cover Apple” before asking for any clarity on the “China fears” and “China worries” before he had to appear on CNBC and say something intelligent.
As disclosure, I've worked in the past for Cramer's theStreet.com. I don't think he did anything wrong in this. He asked the right questions to a CEO who was careless enough to answer. (I do cringe at a term like “China fears” because a phrase like “China's market collapse” wouldn't have invoked the ugly history of Sinophobia in this country.)
Cramer (sort of) made it clear he was asking as a journalist, not a trader. And still, I couldn't help note that the words “cover Apple” could also be read as, “covering my Apple short positions.” This is the Cramer I remember from theStreet.com. A shrewd trader and a clever journalist – an intellect with the rare ability to dance at once, quantum-like, on both sides of theStreet's Chinese wall without ever stumbling.
I am digging into this granularity for a reason. Cook, according to the Times, responded at 5 a.m. Cupertino™ time, 90 minutes before US exchanges officially open and 60 comfortable minutes before Cramer – wearing a tear-streaked, incongruously fluorescent-mauve necktie - was scheduled to opine on CNBC.
What other emails were in Cook's inbox? Let's say, to anyone who searched online, his email is - as was Steve Jobs - the classic, simplistic email@example.com. How many employees – who are, crucially, paid to become Apple shareholders – asked him about China's markets? How many fund managers at firms like Vanguard, State Street, FMR and Blackrock – which, collectively, own 15 percent of Apple's outstanding shares, asked him the same?
And really, which if any of those emails did Cook respond to? Or are we left to believe that of all the adjurers in Cook's inbox, Jim Cramer deserved the sole response? Cook's reply had the feel of a cut-and-paste job crafted to assuage many worriers in the hopes of shoring up Apple's stock – and therefore its employees' compensation. Cramer, because of his TV-enforced deadline, spilled the beans.
According to the time stamp on the tweet from Cramer's colleague Carl Quintanilla, the Cook email was shared to the world at 6:03 a.m, Twitter time. Here is the tweet that has been since retweeted at least 700 times,
Let's say Cook didn't reply to Cramer at 5 a.m. exactly. Let's say he replied at 5:59 a.m., Cupertino™ time. The interim four minutes between the email and the tweet isn't just a lifetime for quantum traders, it's more like the span of generations celebrated by the Daughters of the American Revolution.
If Tim Cook were smart, he would have released one of those journalist-unfriendly pdf files on Apple's investor relations site saying much of what he said in the email. He would have filed an 8-K with the SEC, which is what stodgy companies do when they want to comply with Regulation FD.
If Cook wanted to tweak the SEC, he could have put the letter on his own Twitter account – which, let's face it, Apple investors follow more obsessively than they do the 8-K filings at the SEC. That's what the chairman of Icahn Enterprises does when he has news, and no regulator has bitten his ankles over it.
Instead, Cook emailed Apple's material information about its business in China to a commentator that was only available to cable subscribers in the US. Cord cutters are cut off. As are overseas investors in Apple. Or at least you would need to be following the right journalists on Twitter. Any way you cut it, it's not what the SEC imagined when it wrote Regulation FD.
What is Regulation FD? It's a quaint law aimed at preventing “selective disclosure” to market professionals before the general public can see it. The SEC too rarely enforces Regulation FD – and even when it does, in its toothless way, it's meaningless to a cash-rich giant like Apple – but you can decide for yourself whether Cook violated the spirit of the law.
In July, after the first, painful downswing of the Shanghai and Shenzhen markets, Cook formally swore he was “extremely bullish” on China and that “Nothing that's happened has changed our fundamental view that China will be Apple's largest market at some point in the future.”This is true enough in the long term, but what about the speed bumps Apple needs to traverse to get there? This is where things get interesting.
In his email to Cramer, Cook reminded the general reader that he didn't give mid-quarter updates exactly one paragraph before he did just that: “I get updates on our performance in China every day, including this morning, and I can tell you that we have continued to experience strong growth for our business in China through July and August.”
Now that – given investor concerns - is pretty much the definition of material information, and yet that wasn't all. The updates also included the juicy investor tidbit that iPhone activations are accelerating in China. Great news for Apple, terrible news for its IR attorneys. Apple rarely if ever gives this kind of update. It excretes performance metrics only when it has to. And Cook has decided that, right now, it has to.
“Obviously I can't predict the future, but our performance so far this quarter is reassuring,” Cook wrote to Cramer. And here again, given the constipated constraints the SEC places on disclosure, this is a new excretion. The “future” - as far as Apple's formal, closely held disclosures to the SEC are concerned - began back at June 27, 2015. And since then it has been stuck in a moment it can't get out of. Legally, anyway. Anything Apple discloses beyond that date qualifies as the “future,” not as the past or present. And here Cook is reassuring Cramer about this same future.
I'm not saying Cook shouldn't have said what he did. I'm saying the way he said it left many Apple investors at a disadvantage. Apple may still be “growing,” as Cook vowed, in an economy where the floor may have fallen out. But if you are a concerned Apple investor, at what point did you learn that? On CNBC? If so, on cable TV or the web? On Twitter? If so, after which retweeter retweeted it?
Regulation FD may be old-school, but it honors a timeless idea: that all investors have access to salient information about the world's most widely held company in the exact moment that information becomes salient. After Cook's email, Apple went from an 11-percent loss Monday to a 3-percent rise. It closed at a 3-percent loss to last Friday. Where, in that jungle of volatility, should the average Apple investor sell or buy?
That is one of the questions I'm asking Tim Cook in an email. I'm no Jim Cramer, which is to say I don't buy or sell shares in companies I write about. So in that sense, emailing me back is safer than responding to Cramer. It's just information relevant to any Apple investor. But then again, maybe anyone who balks at asking questions about “China fears” is also going to ask questions that a careless CEO won't answer.
So here goes.
Dear Mr. Cook,
Thank you for the iPhone, and the iPad, and the Macbook I use everyday. They are awesome! I don't own Apple stock, and never have, but as a journalist whose deadline is 9 a.m. Cupertino™ time, I'd like to ask you the following:
-Why did you email to Jim Cramer your impressions of Apple's performance in China based on your “updates on our performance in China every day, including this morning,” to use your words?
-Did you also email the same information, before US exchanges formally began trading Monday, to any other investors – institutional, individual or employed by Apple? If so, who did you email and when? If not, why not?
-Why didn't you make a formal filing to the SEC? Or include the updates in an official press release? Or, if you feel those are outdated, just tweet the updates from your Twitter account?
-Didn't you think these updates are violations of Regulation FD? What do you have to say to Apple investors who don't subscribe to CNBC or, on Twitter, its correspondents?
-Since you are in a garrulous mood with journalists this week, when can we expect an AppleTV more useful than Chromecast? What's going to make the Watch feel as essential as the iPhone? Is the last Macbook Pro going to be the best ever Macbook Pro? And why do you keep pushing iCloud on us when nobody wants it, and it never works the way we want?
Thanks for answering all these questions! I promise to share your answers as quickly as i can and not trade on them (as I said, I don't trade Apple shares, unlike some journalists). Because I know you aren't the kind of person who selectively answers only some emails that ask things investors want to know. And because, now that you've established this precedent with Jim Cramer, any future silence might be a violation of securities laws. Or because, by not answering more journalist questions by email, you are admitting you were careless to answer Cramer's question.
I'm willing to bet you weren't careless, which would be pretty embarrassing to the CEO of the most widely held stock in the world. So I'm looking forward to your answers.
I'll update with anything I hear back.