Facebook Scandal, Tariffs, and A Fed Hike Create Market Sell Off!
When most people are in grade school, they usually have a teacher who gives them a project involving planting seeds. You learn how water and sunlight can help, in time, turn the little object into something much more grand. It may be a fruit, flower, vegetable, or tree, but the end result is going to be much different than what you started with. My mom enjoys gardening and yearly produces quite magnificent flowers. As for my efforts, I was good in school with these projects but, like most old teachers, would rather read about it than do it. My wife does a good job with our property, which is now a nice flush garden, but when we started, it was literally a bunch of yellow, dead grass and dirt. Speaking of dirt, as the practice of gardening and agriculture development evolved, the importance of the environment and the different soil types gained importance. As we all know, a Mediterranean climate, think California and Florida, is where success is easier to come by. Still, the study of what products grow best and under what soil conditions is important for all societies, especially emerging market countries. OK, you say, thanks for the information, but how is this applicable now?
Well, in many ways, investing is very much like gardening in that instead of planting seeds you are spending capital. Instead of yielding flowers or crops, your end product is more money than what you started with, hopefully a great deal more. They are also similar because there are many different factors to consider which can affect the end result. Both also require the ability to wait and have the patience to do so. Plants and crops might take six months or a year to harvest, while investing in capital assets, like grapes turning into a fine wine, can take years to reach the desired outcome. Unfortunately, with investing, especially if the analysis is faulty, the end result can turn to, ahem, uh, fertilizer.
Speaking of a four letter word that begins with s and ends with t, the equity market had a rough go of it this week, with the major indexes losing about 6% (or more) for the week. The problems at Facebook regarding the lapse of data security with a client called Cambridge Analytic knocked nearly $50 billion of value off Zuck's firm. For the equity markets, the concentration of tech related firms in the S&P 500 now reaches nearly 30% or so, an all time high. The leaders in technology like Facebook, Amazon, Apple, Google, and Microsoft all have massive scale and tremendous earnings power. In the case of Facebook and Google, those two firms control nearly 60% of the on line advertising market. The data breach has lit a fire under regulators all over the globe, including our lovely group, calling for the big Z to testify in front of them as to what happened (and perhaps fork over a small contribution, maybe, just pleasy weasy). The dominance of Facebook and Google also has caused investors to question whether increasing regulation is required by the government. Maybe, let’s see what a nice name would be, shall we call it, the Department of Data Security? Others believe splitting Facebook up into Instagram, WhatsApp, and Facebook is a better answer. Interestingly, others believe now is the time to load up on the stock as where else are advertisers going to go? At nearly half a trillion in value, it still ain’t dirt cheap. Elsewhere, on the earnings front, FedEx, General Mills, Carnival, and Daren all produced pretty good results but between Facebook, a 25 basis point increase in interest rates by the Fed, and the Administration’s fresh new tariffs on $60 billion of products from China, gains in equities were nowhere to be found.
In the political realm, our hard working congressional representatives produced a 1.3 Trillion dollar budget that was passed under the familiar omnibus terms. You know, the one where they mush everything into it and require just 24 hours to read ten thousand pages. You can bet they all burned the midnight oil too, right? The term crap sandwich was used to describe it, and President Trump signed the bill, but said he would never do so again. I am certain he read it, too. In the revolving door that is his cabinet, General H.R McMaster was replaced by John Bolton as National Security Adviser. In combination with Mr. Pompey's appointment as Secretary of State, it is reported that the Iran agreement will be toast by May, meaning sanctions on oil production there will be reinstated. You would think that would mean oil heads higher, although with the current market state, you are probably better off not assuming anything. Regardless, I am just planting a seed for you to consider as you know that is what investing is all about.
Yale Bock, Y H & C Investments, its clients, and the family of Yale Bock have positions in the securities mentioned in the blog, Investing in securities involves risk and the potential loss of ones principal. Past performance is no guarantee of future results. All investment decisions should be considered with respect to ones risk tolerance, return objectives, liquidity needs, tax considerations, and one's overall financial situation. The fact that Yale Bock has earned the right to use the Chartered Financial Analyst in no way means or guarantees performance which will be superior to a market index.