T Gets Time Warner, The Fed Raises, Disney vs Comcast, and OPEC’s Meeting-
“When everyone zigs, zag”
As we begin the start of summer, travel season is in full swing. Many take airplanes, but if you don’t have to go through the full cavity body search at a heavily congested airport, another form of travel is the good ol’ gas guzzling automobile (for you greenies, excuse me, environmentally concerned folks, a hybrid or electric vehicle is the preferred mode). If you live anywhere on the west coast, like I have my whole life, you may have experienced the joy of a nice traffic jam, especially in Southern California. As a quick aside, I can recall sitting on the 710 freeway in Los Angeles one Sunday afternoon for over two hours and not moving three feet. Lovely. Anyway, in making the journey from Southern California to Las Vegas by car, you know the travel time should come in around four or five hours, depending on pit stops. Of course, we are assuming no traffic issues. Now, if you are talking about a three day weekend and leaving Southern California at say, 5 pm, add two or three hours minimum to the time. Spending seven or eight hours in a car can be quite uncomfortable, especially if you have long legs, and not so great even if you don’t. So, thinking about traffic patterns, especially with services like Google maps and Waze available, is a high priority for travelers. You don’t leave on Friday afternoon from Socal to go to Vegas, maybe you leave Thursday. Let’s not leave Vegas Sunday night to come back, maybe we try Sunday real early in the morning. Basically, you are trying to zig when everyone else is zagging, or conversely, zag when everyone is zigging. Zig when they zag, zag when they zig. When it comes to investing, the same strategy is appropriate. When the rest of the world hates something, it affects the price. When everyone loves it, usually after results improve, you can be darn sure it will impact value. Buy hated stuff, sell loved stuff. Real simple to say, not easy to do.
There were a few major events in the markets this week with the Fed raising interest rates by a quarter point and indicating probably two more are on the way for the rest of the year. The ECB will stop buying bonds back by December, while the Japanese Central Bank will continue on its spending ways. The biggest news came with the approval and major court win by AT&T being allowed to buy Time Warner with no conditions. The deal closed yesterday. The implications of the case are quite large as the media area will probably undergo an orgy of dealmaking, benefiting the largest investment banks every step of the way. The first battle started the second the ink settled on the AT&T case when Comcast raised it’s all cash bid to buy the crown jewels of the Rupert Murdoch empire. Handicapping that one is interesting as the higher cash deal by Comcast probably will not outdo the Disney bid. Disney will certaintly have to raise the all stock price, most likely by adding some cash. Mr. Murdoch’s near 20% holding and 37% voting stake probably dictates taking the Disney offer because of tax and dynasty benefits. Other shareholders might prefer the cash today because of the time value of the cash and not wanting exposure to any stock, but you never know. I think the best that Comcast can do is raising the price for Disney. Other content players should also benefit as Google, Amazon, Facebook, and other tech giants start looking to snap up available sources of differentiation. Speaking of Facebook, I suspect Apple’s new operating system and controls are going to make life a lot more difficult for Zuck and company, as will a heightened look at data privacy in Europe and here in the good ol US of A. On the earnings front, it was a light week as Adobe met their number and raised but the stock still sold off.
Next week, OPEC will meet to decide on whether to relax production cuts or not. Russia is pushing for it big time, while the Saudi’s are probably luke warm. The trio of Iran, Iraq, and Venezuela, and what a threesome that is, desperately want higher oil prices to help with their, shall we say, domestic issues. It appears the middle ground is a cut of 500K to 1 million barrels, but one never knows with this group. Politically, Mr. Trump continues to antagonize the rest of the world with tariffs, Democrats with his natural charm and understated opinions, and fellow Republicans with his own view of where the party should go, meaning doing whatever he says. Still, compared to the prior White House occupant, a doormat deluxe, it is not even close. If ever there was a zigger when others were zagging, Mr. Trump would be the prime example. Enjoy your zig, or zag, whatever the case may be.
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.
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