“So what do you get when you finish? Is there a cash prize?” are the typical questions I received from folks upon sharing my plan to run the 2012 Paris Marathon. After learning there would be no remuneration for my efforts most strangers probably thought me a crazy person for taking on such an endeavor while those that know me agree that this removes all doubt about my mental state.

A marathon is a challenge of the body and the mind, the runner’s body must be well trained for the prolonged physical exercise of 26.2 miles of running while the mind must be disciplined for self-regulation and prepared for the agony of the final miles of the race. After years of training for speed and shorter distances I wanted to face this challenge and claim my marathon medal in triumph. To add another element to the challenge I decided my first marathon should be in a foreign city and what more beautiful and special place than Paris?

Corporate executives are not all that different from dictators according to game theorist Bruce Bueno de Mesquita. A successful CEO must assemble a winning coalition on his board of directors –the smaller it is, the better for the CEO—and he must adequately reward his coalition for their support. Corporate rewards can come in two broad varieties: public goods that all parties share (eg: increased earnings and dividends) and private goods that only select individuals receive (eg: increased remuneration for serving on the board of directors). Additionally a successful CEO will want to handpick his board of directors and make sure his picks understand they are replaceable with someone else should they deviate from the CEO’s best interests.

Carly Fiorina’s tenure at Hewlett-Packard offers a good example of a CEO operating in the dictator’s leadership model. When Fiorina arrived as CEO she had a board that consisted of 14 members: three were relatives of HP founders and three were current or retired HP employees. These board members were not of Fiorina’s choosing and had significant stakes in the long-term value of HP stock. These individuals could be troublemakers for her leadership as they would not hesitate to dispense with her should she fail to perform to their expectations. Consequently after just one year the board shrank by 20% and after the merger with Compaq Fiorina was able to eliminate more board members and replace them with individuals of her choosing.

Prior to Fiorina’s arrival at HP board members earned around $107,000 a year however after several years Fiorina created a board of loyalists that would need to be showered with private rewards to maintain their support. By 2004 board members were compensated $210,000 per year for their service an increase of nearly 100%! This generous compensation allowed Fiorina to maintain her leadership at HP through several years of abysmal results and precipitous drops in share prices. Unfortunately for Fiorina some members of the board could not be bought with private rewards –specifically those directors representing institutional holders of HP stock—and they demanded an increase in public goods, namely improved corporate performance. Eventually Fiorina’s winning coalition crumbled and the dictator/CEO was forced out.

Understanding the composition of corporate boards, their remuneration schemes and the value of compensation in relation to corporate performance can give you valuable insights into the future of the company. Bueno de Mesquita’s book highlights characteristics of Enron, Worldcom & Waste Management that made them predisposed to securities and corporate fraud. Additionally he proposes that while the dictator model is best for the CEO it is often terrible for the average shareholder. In his conclusions he suggests methods that shareholders could utilize to organize and create more democratic corporations that are responsive to a coalition of broader interests.

This item is also posted on my trading blog at http://pftrades.peterfeddo.com

Apple is a fine company that crafts highly valued products and sells them at a premium price to very loyal customers. The company’s gifted leadership spent more than a decade cultivating a culture and corporate vision that made this wonderful growth possible. That being said, AAPL is and has been in a bubble for a while now and the outrageous size of that bubble jeopardizes the performance of the entire market.

This past week AAPL added the value of the market cap of Hewlett-Packard –the number one producer of personal computers by revenue. Each day the firm added $5 to $6 billion to their total market value.  AAPL now has a greater market cap than the entire semi-conductor sector and the entire retail sector. Does that make sense? Does that seem sustainable?

The media and sell-side analysts are breathlessly hyping the stock $600, $700, $1,000 per share! $1,000 per share would make AAPL worth about $1 trillion dollars. Let’s put $1 trillion into perspective:

This is $100 million of $100 bills in a single pallet:

Here we have a $1 billion dollars of $100 bills –by the way AAPL is adding several billions on daily:

Now here’s what analysts think AAPL should be worth… $1 Trillion:

Presently the firm is valued at $549 billion, so the sum total of AAPL stock is more than half this giant double stacked square of $100 million cubes.

Much of the recent manic euphoria surrounding AAPL is the result of the firm crossing the $500 billion mark. Few companies have achieved that major milestone, but the ones that have didn’t retain the value for very long. Take a look at Cisco, Microsoft, General Electric and ExxonMobil, all crossed the $500 billion mark and subsequently plunged. In the year 2000 Cisco entered the $500 billion club and promptly lost 20% of its value in a month – by the end of 2000 it plunged to $221 billion. A better analog for AAPL is probably Microsoft – they peaked at $600 billion in January 2000 and fell back to $221 billion by the end of the year. Achieving the $500 billion mark is very costly for a firm and it usually occurs on the back of a parabolic increase in stock value, much like AAPL has experienced over the first quarter of 2012:

Nearly every day the financial media is peppered with the excited opinions of analysts and pundits proclaiming that Apple will be this $1 trillion goliath. With each interview these prognosticators are bidding a higher and higher price target without much critical thought into how a large firm even achieves such a goal. The excited parabolic frenzy of the past week reminds me of the gold/silver excitement of spring 2011. Every day analysts proclaimed the precious metals had nowhere to go but up and that fiat money is dead. Every day the excitement grew and grew and great numbers of fools piled on with real and margined money until one day they simply ran out of buyers. Silver subsequently plunged in a chaotic and disruptive manner that caused great disturbances throughout all asset markets.

So the big question is, can AAPL go higher? Yes sure it can. Will it be a trillion dollar firm in the next 12-24 months? That’s very doubtful. Every asset has a tendency to regress to the mean and AAPL too will return to its mean growth rate which should be closer to $428 a share (27% lower than today’s price.)

One day there will be a trillion dollar corporation –if only because inflation makes it so—and it’s possible that Apple will be the first. It’s also quite possible they won’t. Hop in the time machine to 2003 and you'll see a whole lot of hype about potential trillion dollar companies. Is this time different? The answer is no.

The Council on Foreign Relations has a great post about the culture of fear that we periodically find our nation in:

The chronic exaggeration of U.S. national security threats also extends to the security of individual Americans. Although you would never know from the evening news or tabloid newspapers, not only are Americans relatively safe in the world, but they are relatively safe at home as well—at least from foreign threats, or those outside their control.

As election season is upon us we find candidates & pundits playing the fear card and reminding Americans to fall in line behind whatever agenda they are advocating. It's cheap politics, but sadly it works -- just ask Dick Cheney.

To put the spectre of domestic terrorism into perspective:

Since 9/11, a total of 238 American citizens have died from terrorist attacks, or an average of 29 per year. To put that in some perspective, according to the Consumer Product Safety Commission, the average American is as likely to be crushed to death by televisions or furniture as they are to be killed by a terrorist.

Perhaps we'd all be safer if we eliminated the greater threat that exists in every American home: The television.