Wall Street Cheers Gridlock, Oil Tanks, and Powell Stays the Course!
“The same old thing – even if it's champagne … Is still the same old thing.
On the earth, cycles are prevalent in many different areas. In astrology and astronomy, the movement of earth, the moon, the stars, and the planet follows a pattern. A calendar year and the changing of dates during it take a similar kind of course. For a specific sex, there is a monthly event which takes place which follows a typical routine, along with the wonderful nine month time frame of giving birth. The idea also is applicable to economics, finance, and politics as the business cycle, quarterly earnings reports from corporations, and elections have a periodic nature to them. The repetition of anything can lead a human to get used to what takes place and become familiar with how things work. The old quote about familiarity bringing contempt rings true as one experiences the same old thing taking place over and over again. It brings us to the current situation in the investment universe, one where the midterm elections are over and the end of the year approaches, so people are thinking about how things look for 2019? I am sure you are waiting with sweaty palms in anticipation, so here goes.
Last week, Jay Powell and the Federal Reserve Board decided to do nothing about interest rates and, more importantly, said nothing about changing their present plan to raise it in December. In combination with concerns about tariffs with China, a slowing housing and auto market, and questions about the sustainability of consumer spending, all weigh on investor psyche as the end of the year approaches. With the next two years in Washington tied up with split control over Congress and the acrimony at record levels, it is hard to see how any kind of legislation gets passed. Maybe pricing on drug controls, maybe something regarding infrastructure, but it seems more probable that absolutely nothing gets accomplished as the investigations from the House start imminently and the hatred only intensifies with each passing day. As a result, gridlock, which investors traditionally love, remains the only obvious bet, which is not such a bad thing if you think the current economic environment is pretty good. It has been for a while, but the important question is how does it evolve now? My take is each sector has its own dynamics and consumers are in pretty good shape, as are the banks, so it pays to stay optimistic.
In the energy area, the volatility of oil remains an opportunity for any trader that loves big price swings and dramatic moves in sentiment. Over the last ten days, there has only been one way to go for oil, that being down, and that is after quite a nice move up and the thought that the sanctions on Iran would kick in to take prices even higher. So much for that thought. It has been a tough decade for energy investors and the drubbing over the last two weeks is longer than any such selloff in over twenty years. Many companies in the industry are operating quite efficiently and technology will continue to have a major impact on the ability to produce from the shale complexes and large fields off shore. From a long term perspective, the next twenty or thirty years will be dependent on oil for most forms of transportation, so it pays to stay patient and look for chances to own those companies that are best positioned to handle the constant volatility in the sector.
In looking at the financials, the eight hundred pound gorilla in the sector is JP Morgan, but interestingly, its investment bank has always played second fiddle to the leaders in IPO underwriting, that being Goldman Sachs and Morgan Stanley. Not one to be satisfied with their standing, Jamie Dimon has been investing time, energy, and most importantly, money, to build their standing in Silicon Valley as 2019 is shaping up to be a big year for freshly minted IPO’s. You see, with the biggest balance sheet on Wall Street, the follow on business from being the lead underwriter in a popular IPO can lead to multiple ways of benefiting from financing alternatives in plenty of areas. In conjunction with his technology investments to create easier ways of investing for the millions of users of a Chase checking account, it is always wise to pay attention to what Mr. Dimon is doing. Besides, you have to admire Mr. Dimon’s refreshingly candid comments about anything he is asked, at least I do anyway.
As many long time readers are familiar with, I have made my feelings well known about the appropriately named company, Welp, oops, dare I say, excuse me, Yelp. Of course, it certainly did not pain me at all to watch Yelp’s stock get crushed by nearly 30% after it missed estimates on Thursday. What a shame, really felt bad about that one. Regarding the midterm results, both parties can take the election and either learn from what went wrong, or not. Republicans clearly have work to do with educated women in suburbs while Democrats continue to struggle in rural areas. Mr. Trump has a long history of coming back from difficult situations, although how much he learns from the midterm remains to be seen. The 2020 Presidential campaign has already started with, reportedly, 13 Democratic senators eyeing runs. Clearly, the election cycle has begun.
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.