Market Loses Gains As 10 Yr Approaches 3%
"A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty." Winston S. Churchill
"In a world that changing really quickly, the only strategy that is guaranteed to fail is not taking risks." Mark Zuckerberg
One of the reasons why history is so important in the field of investing is you can learn a massive amount from people who have been in a similar position as you. With investing, as in nearly every subject, it is easy to discover people who have accomplished a great deal although they did not necessarily start with an abundance of resources. The common characteristics among the giants of finance is their ability to hone in on an opportunity that others may not see. For example, Sam Walton of Wal Mart realized if he was the only store in a town of fifty or a hundred thousand people, his business was essentially a monopoly. By using this strategy to grow, Wal Mart became the largest retailer in the world. There was probably not one investment strategist in the United States who thought about Amazon starting a service called Prime thirteen years ago. Now, with more than 100 million people paying a 100 bucks a year, the ten billion in cash up front solves a lot of problems for Mr. Bezos. When Steve Jobs first whipped out the I-phone, again, the investment community scoffed as there was little belief it would make an impact on the company or industry. So, it is not how you begin something, but ultimately, how successful the endeavor is that matters. In this regard, it is why keeping your eye on all kinds of business situations is an important part of an investors job, and especially so if you are in the asset management industry.
Earnings season ramped up to full speed this week with plenty of market heavyweights reporting their results. IBM continues to struggle with its transformation and investors got a little fed up with their lack of revenue growth. Tobacco giant Phillip Morris also took it on the chin as their smokeless strategy failed to impress in Asia. JNJ reported good results but investors were not impressed with their pharmaceutical numbers. Morgan Stanley put up a nice number, as did State Street, but financials remain in the doghouse, which has been the case for many years. With the ten year treasury approaching 3%, and more rate hikes scheduled for the balance of the year, the money center banks seem pretty well positioned. GE beat its number on Friday and the stock moved a little bit. GE remains one of the more fascinating situations because of the fine aerospace and health care divisions, but the power and financial services areas remain the issue. Also, with future liabilities from insurance contracts extending as far as the eye can see, as well as large debt obligations, GE is not for the faint of heart. GE’s energy division (merged with Baker Hughes) could also help it dramatically, but time will tell on that one.
Speaking of energy, the complex jumped a bit this week when global inventories drew down and are now just a tad above their historical averages. Schlumberger reported on Friday and mentioned potential supply challenges in the future. Naturally, our quiet and reserved leader, President Trump, commented on how OPEC and Russia were manipulating the price of oil. In the past, he noted the same holds true with currencies, particularly mentioning China. On the oil issue, Mr. Kudlow and Navarro might bring up those difficult economic terms called supply and demand. With respect to the manipulation of the largest global currencies, trading has to be callibrated relative to a paired asset. For example, the pound versus the dollar, the dollar versus the peso, etc. A currency can depreciate versus one country and appreciate at the same time against another. It’s not cut and dried, its complex, so using baskets of currencies, and bringing up specific time frames is always useful for analysis. I am sure Mr. Navarro will get Donald straight on that one. Looking ahead, next week is a big one as the biggest companies in the world, like McDonald's, Microsoft, Amazon, Intel, Starbucks, and plenty of others, will give us their numbers. Sentiment remains poor as the ten year at 3% has investors in the dumps. Whether it is at 2.97% or 3.03% has very little to do with whether a company doubles in size and profitability over the next three to five years, but mood swings are just part of the joy of markets.
On the political front, it is out and out open warfare in Washington. Democrats believe they have a good chance to take the House in the midterms, and are itching to find a way to get rid of the Donald. Republicans have little faith in the President, and even less party unity on issues like spending, budgeting, and immigration. Democrats offer very little policy substance on the jobs or economic growth areas, which is what many families are interested in. All in all, I wouldn’t count on much getting done politically over the next few years, but that has been true for the last few decades as well. Our time is probably better spent listening to the quotes of Mr. Churchill and Zuckerberg and applying them however one can.
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 guarantee performance better than market indexes.