Powell, Strong Jobs Report Offset Apple Warning, Slowing China as Stocks Rise!"
Don't judge each day by the harvest you reap but by the seeds that you plant." -Robert Louis Stevenson
As I have gotten older, the term ‘work-life’ balance has gained more credibility. Many people in the world have to work long hours to provide for their families. Lots of individuals have multiple jobs as a way to help make ends meet, or potentially save money. You often read about highly successful individuals bragging about how they only sleep three or four hours per night. In nearly any profession, usually the people who rise to the top are hard workers, and they also think strategically and tactically, although they might never say so. There is a point for those people where putting in so much time career time begins to take away from their family lives. Personally, as I get older, the importance of having more balance between work and family creates a question of where to allocate time and how to do so effectively. Evaluating alternatives is part of the dilemma and is an ongoing battle, which I would imagine is the case for a lot of people. In the same way you try to create a good balance of allocating your time, considering where you want to place capital and how much of it you want to put there requires analysis and decisions about which areas you don’t want to be in and where you do. In a well balanced portfolio, there are going to be holdings where there are gains, some which create income, and some where you are looking further out for capital appreciation. Usually the capital appreciation entities have something going on which will take some time to play out. Often, the investments you make today don’t reap rewards for six months to a year, or maybe more. I used to tell people, and still believe this to be the case, that once you buy a stock you shouldn’t expect much from it for six months. The longer I have been exposed to the investment world, the more I believe that to be true, especially so with equities. You don’t quite know how effective your analysis was, and only time reveals the truth. So, keep Mr. Stevenson’s wise words in your head when you are evaluating how your holdings are treating you.
With regards to the capital markets, it was certainly an interesting week. We had back to back days of despair and euphoria on Thursday and Friday. On the former, Apple warned the previous day of a ‘shortfall’ where they would only post revenue of $84 billion versus $93-96 billion they guided for previously. Just for some context, the largest bank in the country, JP Morgan Chase, did $100 billion in revenue for the entire year last year. Apple nearly did that in only three months, and the stock was slaughtered on Thursday. It is a testament to how high of a standard they are held to, and, one could reasonably argue, how Wall Street has their own unique way of looking at things. Apple blamed the shortfall on weakness in consumer demand in China, as well as foreign currency issues. I suspect Mr. Cook and company will take a good hard look at pricing as the 1,000 buck price point for the higher end phones is a little strong. It seems many prior buyers weren’t trading up as they are happy with what they already own, so the upgrade cycle, or lack thereof, needs to be evaluated as well. Our friend Mr. Buffet took it on the chin with the warning, with an estimated loss of over 2 billion big ones (on paper). It shows you that the greatest investor who ever lived has to handle the same kinds of market reactions as any investor. I suspect he will handle it just fine and it is not hard to imagine him in there adding to his position. Hmm, something to consider, come to think of it, right? Another issue which may have helped the market sell off was the overnight trading of the Aussie Dollar versus the Yen and US dollar. It crashed violently on Wednesday and recovered quickly, but with the high leverage in currency markets, it can cause problems elsewhere in the globe.
On Friday, the December jobs report came in at a strong 312 thousand, well above the 182k figure analysts forecaster. In a speech with ex-fellow Fed Reserve Chairmen Yellen and Bernanke, Jay Powell thrilled the street by noting the strong jobs report, and most importantly, that he had not predetermined any path of interest rate increases in 2019. The market rejoiced by recovering the 660 points it had lost on Thursday and even posting a nice gain for the week. Next week, the fun starts all over again with the major events a JP Morgan Chase Health Care Conference, the Consumer Electronics Show (here in Vegas), and the largest bank earnings at the end of the week. It will be interesting to watch, at the very least. Politically, Nancy Pelosi took the gavel as Speaker of the House to usher in the new congress. One new member, Ms. Alexandria Castro-Cortez, has a policy platform of investing in renewable energy forms to get the country off of fossil fuels. As such, she calls for up to 70% tax rates on high income individuals to help make the change a reality. I bring this up because it highlights the dilemma for Democrats, especially those who are running for President. In the midterms, Democratic success came from individuals who tacked towards the middle, emphasizing military service and generally moderate policy ideas. Meanwhile, the enthusiasm in the Democratic party is at the far left end, so most Senators and individuals thinking of running for President are leaning, some might call it pandering, in that direction. Of course, Republicans have their own issues with the Freedom Caucus, so it seems extremism is an issue for both of our fine parties. Meanwhile, the government shutdown continues as the Donald wants money for the wall, and Mr. Schumer and Mrs. Pelosi won’t consider it. Lovely. I think I’ll concentrate on planting some seeds.
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.