US Economic & Financial Markets Outlook: The Private Sector vs. the Public Sector, and the Digital Decade Changes Operations and Growth Rates for All

February 2011 was an interesting month in U.S. financial markets as continuing optimism about an improving U.S. economy led to 3 weeks of gains on the three major indexes of U.S. stock markets. Concerns about a supply shock in oil because of unrest in the Middle East led to a 2-3% correction during the last week of February.

The most publicized event currently gripping the U.S. economy is the dispute taking place in Wisconsin which revolves around the government’s desire to cancel collective bargaining rights with public unions. The fight is center stage for the same principle in 17 other states across the country. I think the central issue facing the country, which these arguments are a byproduct of, are the massive deficits local, state, and federal governments have burdened the public with, and more importantly, how to rectify them. For more information on the deficits, look at this article in the Wall St Journal-

http://online.wsj.com/article/SB10001424052748703408604576164441153633876.html?mod=WSJ_Election_LEFTSecondStories#project%3Dstates_110224%26articleTabs%3Dinteractive

Many states have budget deficits of 20% or more of their total revenues. If one compares private enterprise in the U.S. to public entities, it is an exercise any junior high student can understand. Private businesses (small non public companies, public companies, and large private companies) currently have balance sheets full of cash, are generating more operating and net income than ever before, and are run with greater efficiently than maybe any other time in our country’s history.

Conversely, the public sector is loaded with debt, unfunded pension liabilities, and enormous health care costs at every level-local, state, and federally. What is disconcerting for many private workers is public sector employees make more money than comparable jobs in the private sector, and in many cases for doing less productive work. This is why the battle in Wisconsin and other states across the country regarding the collective bargaining status of public unions is critical. It represents an opportunity for government to reduce costs to a more manageable level in order to balance budgets. The bottom line is governments at all levels need to look at the private sector, and work with all businesses, to help get the public sector’s fiscal house in order.

In looking at private enterprise, I see the ‘Digital Decade’ as massively changing how businesses can operate more efficiently and grow at much quicker rates than ever before. With the rise of social networking, smart phones, tablet computing and connected sites like Facebook, Twitter, LinkedIn, and many others, connected tools help businesses improve all areas of their enterprises. Companies make their supply chains more efficient, customer acquisition costs are far lower, sales productivity through customer relationship management is much more productive, and customers and businesses maintain much closer contact. As a result, investors see much higher growth rates for both old and new businesses.

Moreover, many pre public companies grow at enormous rates, making investment in these situations potentially very profitable, but also with large risks. An investor must consider the new digital reality when thinking about placing capital. One only has to look at a company like Groupon, which started in 2008 and has achieved nearly 1 billion in sales, or Zynga, a software game developer based on Facebook, generating 800 million in sales and 400 million in profit, to understand how quickly it is possible for a business to reach scale using the current digital tools.

As always, on any company mentioned here, past performance is not a guarantee of future returns. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charterholder.

Yale Bock, CFA
President, Y H & C Investments

Stock Exchanges Withering, Group Dating in India, and Value Investing by Tillman Fertitta-

Hi All,

Hope everyone is having a good long President’s day weekend. With the events in Wisconsin and the Middle east, I thought I would mention a few interesting videos and articles. First, here is video discussing the lack of relevance of stock exchanges because of the rise of private party exchanges and black box trading-

http://video.nytimes.com/video/2011/02/17/business/100000000648543/viewpoints-wall-street-s-dead-end.html

Next, a very nice article in the New York Times about the rise of a group dating site which has had success in India but originated in the U.S, where it has struggled.

http://www.nytimes.com/2011/02/20/business/20ignite.html?_r=1&ref=business

Finally, Golden Nugget and Landry’s owner Tillman Fertitta practices value investing by buying into Atlantic City, which may put pressure on the MGM’s sale price of the Borgata-http://www.lvrj.com/business/recent-deals-may-mar-mgm-s-borgata-sale-116557203.html

As always, on any company mentioned here, past performance is not a guarantee of future returns. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charterholder.

Yale Bock, CFA
President, Y H & C Investments

The Cell Phone Market in India, and Mr. Buffett gets an award and gives an Investment Lesson:

So, I was reading a really good McKinsey report on the Cell Phone Market in India (possible investment thesis). The gist of the matter is India is underpenetrated in cell phone usage relative to other BRIC countries, especially China. Wonder why Google, Facebook, and others are so intetested in cell phones- read the article: https://www.mckinseyquarterly.com/Marketing/Digital_Marketing/Can_India_lead_the_mobile-Internet_revolution_2746

In another interesting development, Warren Buffett gets the Presidential Medal of Freedom from the White House. The article has a few interesting investment stories:

http://www.cnbc.com/id/41604412

I hope everyone is having a good week and I would love to hear any thoughts about these articles.

As always, on any company mentioned here, past performance is not a guarantee of future returns. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charterholder.

Yale Bock, CFA
President, Y H & C Investments

Lady Gaga Cracks Up (Literally), Busting Up Big Pharma, and Las Vegas Housing

So, I have a little variety going tonight- saw the headline and cannot believe it, Lady Gaga, after her appearance on 60 minutes, literally makes an appearance in an egg- gotta give it to her, she knows hot to market herself (bigtime):

http://awards.music.yahoo.com/blog/95-shoulder-horns-add-shock-to-lady-gagas-otherwise-bland-grammy-performance

Next, a really good article in this week Barron’s on busting up Big Pharma in order to increase shareholder value- I definately agree with that approach:

http://online.barrons.com/article/SB50001424052970204098404576130374232056878.html?mod=BOL_hps_mag#articleTabs_panel_article%3D1

Finally, if you are interested in the eye of the inferno in the housing market, today’s Review Journal has a nice article on the current state of housing in Vegas:

http://www.lvrj.com/business/parts-of-valley-see-improvements-in-home-prices-in-2010-116105684.html

Please give us your opinion about any of these articles-

As always, on any company mentioned here, past performance is not a guarantee of future returns. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charterholder.

Yale Bock, CFA
President, Y H & C Investments

Wonder What Mr. Buffett Would Think of This?

I wonder what Mr. Buffett would think of this:

http://bucks.blogs.nytimes.com/2011/02/07/the-odds-of-picking-the-next-apple/#more-39191

So don't even try for the next Apple- Garbage- What do others think of this- Please Share your thoughts.

As always, on any company mentioned here, past performance is not a guarantee of future returns. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charterholder.

Yale Bock, CFA
President, Y H & C Investments

Jobs Report Tomorrow

Interesting jobs report coming tomorrow-146K new jobs expected- seems like forever since the economy had a large beat- any predictions?


As always, on any company mentioned here, past performance is not a guarantee of future returns. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charterholder.

Yale Bock, CFA
President, Y H & C Investments