Spring approaches rather quickly and the great thing about financial markets is there is always something to pay attention to.   The focus has now been the situation in Cyprus, where the banking system will collapse without a European Union loan.  Cyprus is trying to find ways to meet the EU requirements, and has considered various measures to meet everything the EU wants.    The leaders of Cyprus are considering creating levy's on deposits of over 100,000 euros, and other similar kinds of measures.  As of this writing, there has been no resolution to the banking problem in Cyprus.  The reason why this is significant is because if there is a run on the banks in Cyprus because of whatever the politicians decide to do, it is very possible the same thing could happen in Italy and Spain.


Italy and Spain are critical to the stability of the European Union, so what happens in Cyprus has major consequences in Europe, and therefore, everywhere in the world. 


Last week, Starbucks held their annual shareholder's meeting and as always, it was a blend of entertainment, information, and learning for anyone who attended or watched it.  Howard Schultz always is prepared, and Starbucks is very well positioned for continued growth for as far as the eye can see.   One never knows what could happen in the global economy, but the strategies and operations at SBUX are very strong. 

An ex-SBUX executive is Lululemon CEO Christine Day, who had a major problem on her hands last week.  Lululemon had to recall yoga pants it sold because of holes in the back side when people bent over.  The company is offering refunds to buyers of these products, and the stock got beat up pretty good.  Lululemon has been a very good company to own as far as stock performance over the last five years is concerned, and it just goes to show you good businesses and management groups still have their issues.  There are two kinds of businesses, those that have problems, and those that are going to have problems.

I find it very interesting that Hewlett-Packard and Best Buy have started to see better performance from their shares.  Many have written these organizations as dead because of their operating problems over the last year or so.   I still think both will survive and very well could potentially thrive, though I think Best Buy has a much simpler task at hand than HP.  However, HP has a couple of strong businesses and is a huge enterprise with a whole lot of staying power.  I also think Meg Whitman knows what she is doing and has had a great deal of success, so she is not someone I would bet against.  In the same domain as HP is Dell, which is essentially going up for auction this week.  If Michael Dell loses his own company because he did not want to pay too much, it might serve him right.

 In the energy world, the most notable development was the agreement reached between Russia and China about future energy production from Russia being delivered to China, in exchange for some financing help.  Rosneft and Gazprom dominate the energy industry in Russia, and China desperately needs those sources for its emerging growth. 
www.bloomberg.com/news/2013-03-22/china-s-xi-strikes-breakthrough-oil-deals-w



If ever there was a company which I think is on the wrong path, it would be Microsoft.  Windows 8 has been a bust, but they are still trying to solve the problem-
http://www.businessinsider.com/windows-8-update-windows-blue-leak-2013-3

The cloud is for real and it will continue to change how business is done for quite some time-
http://techcrunch.com/2013/03/23/grow-to-dominate-in-2013-or-watch-someone-else-do-it/


Thank you for reading the blog this week, and I hope you are enjoying the spring weather, wherever you may be.

Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. 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 charter holder.

Closing the White House, Energy politics, Israel and Iran, and More-

It certainly has been an interesting few weeks, especially in the political arena. One situation I thought I would bring up is the White House has now been shut for visitors to tour. The decision was made in an effort to cut costs by the federal government. Our country is now going to deny little kids and tourists the right to tour the White House because its own spending discipline has been so lax. The trivial nature of this decision strikes at the heart of why people find our government so, shall we say, questionable. Our government does nothing about the serious problems of entitlement spending, waste in the military, and plenty of other spending travesties (GSA Scandal, Fast and Furious, etc), but closing the White House for tourists is going to help solve the problem of wasteful spending. If I remember correctly, Mitt Romney was demonized for bringing up Big Bird and PBS. Let's also point out the taxpayers pay for the White House, so the idea it should be closed for tourists is really a poor decision.

Next, lets certainly mention the speech Mr. Obama gave in Chicago outlining his plans to create a $2 billion dollar trust fund to research and develop alternatives to fossil fuels-http://www.technologyreview.com/view/512571/obama-stumps-for-energy-research-through-trust-fund/

If you are involved in business in any industry, you have to really give some hard thought to what Obama is proposing. What he wants to do is use the government licensing and permitting revenue sources on the energy industry to fund research to reduce the dependence on oil and gas in the United States. If I am an oil or gas industry executive, you would have to shake your head and think, "I'm not going for that." Any industry could be vulnerable to a government which would tax the businesses in an industry in order to create a situation where those businesses lose customers. Why would any company want that? Alternative energy is trying to become more cost competitive to fossil fuels, and private businesses are going to make a huge effort to do so because there is potentially a great deal of profit available. However, the idea of taking off shore permits and licenses as a way to fund government research to do so strikes me as vindictive at worst, petty at best. In addition, realistically, it wouldn't happen for another 50 years, even in the most optimistic of scenarios. Good luck with that one Obama, your going to need it.

Another situation our president is involved in is the Keystone pipeline decision, which should take place by the end of the year. I would wager he will decide against approving the pipeline. The group who will lose the most from the decision will be the citizens in North America, mainly U.S. and Canadians. The bottlenecks which are taking place in the energy industry can only be relieved by transportation methods to move feedstock of oil to refineries, many which are located in logistically ideal areas near transportation hubs. Typically, they are in coastal areas, the west coast, gulf coast, and east coast. Canada badly needs transportation to move fuel, and one way or another, they are going to build these methods at some point. Ultimately, it may be that Asian countries will benefit from these efforts, as opposed to the U.S.

Finally, on the political front, the Iran situation with nuclear weapons and Israel is continuing to move to the front stage. Iran has been dramatically weakened by financial sanctions, a devaluation of their own currency, and the loss of strength in Syria. Still, when you consider the statements made by their leaders about wiping Israel off the map, the seriousness of Iran is not at all a small issue. Israel is not going to stand by and be at the mercy of radical leaders. If Obama will not stand by a military strike by Israel, and he has no history of showing the will do do so, Israel will go it alone. As they should. http://worldnews.nbcnews.com/_news/2013/03/17/17306968-on-the-brink-israel-to-grill-obama-over-possible-military-strike-on-iran?lite&ocid=msnhp&pos=

The stock market went up 10 days in a row as investors certainly are more inclined to give equities the benefit of the doubt. However, what took place in Cyprus over the weekend is probably going to have some implications about how people continue to view the banking system, especially in Europe. The world is incredibly interconnected, and with information available so quickly, events move markets in a very rapid manner. The volatile nature of markets only becomes more pronounced when anyone can find out everything they want to know about almost any subject. It does not mean you cannot find situations which offer great value. In fact, in most markets volatility becomes an investors best friend as it can help create great prices for very valuable assets. The important questions are can you find these situations, what price are you willing to pay for them, do you have the nerve and judgement to buy them, and do you have the patience and stomach to hold them if the market continues to price them in a way you don't necessarily agree with? These are the key issues which make investing interesting, and potentially difficult, or rewarding.

I find it very interesting that the guys who are essentially the creators of the efficient market hypothesis seek to profit from market inefficiencieshttp://www.nytimes.com/2013/03/17/your-money/david-booth-of-dfa-using-the-chicago-schools-theory.html?ref=business&_r=0

If you are involved in business, reinvesting in the business in a productive way is a key to creating growth-http://www3.cfo.com/article/2013/3/cash-flow_growth-investments-performance-scorecards-reinvestment-rate

Are venture capitalists going to be threatened by crowd funding? Definitely an intriguing possibility-http://techcrunch.com/2013/03/17/is-software-eating-the-venture-capitalists-too-part-i/

Thank you for reading the blog this week, and I hope you are enjoying the spring weather, wherever you may be.

Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital
As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. 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 charter holder.

Traveling, Turnarounds, Gross's 'New Normal', and March Madness

I can recall when I was a kid, I used to really enjoy traveling by plane. The excitement of a new destination and going on a plane was really a joy for me. My family and I decided to make a long trip to Johannesburg, South Africa to attend a family function. The length of the excursion, over 24 hours each way, made it challenging. The stopover was in London after about a 10 hour first segment. The same process took place on the way back, except the layover in London was nine hours.

My feelings about airline transit are now completely reversed as I think there is not a worse user experience. First, people's time is not really considered by government authorities as you have to spend hour upon hour waiting in lines to have a full body cavity search. Next, many airports are not equipped with wireless internet access, making every landing spot a treasure hunt to find places with wireless capability. If you are a tall person and you are not traveling business class, you are in a flying sardine can where your knees are in your chest for 98% of your trip. The planes are also typically full of coughing and sneezing passengers, making sickness prevention a priority. Many of the airlines customer service representatives do a superb job of trying to help customers and their hard work goes overlooked far too often. Notice I never mentioned the new pricing methodologies the airlines have implemented for baggage and other items. I understand airlines need new methods to raise revenue in order to become more profitable. Indeed, if ever an industry had to think out of the box on finding additional revenue sources, it was the airlines. However, I think for myself, and for most people, traveling has become something I will try to avoid at all costs. If the destination is not far, it may be different, but I still think the user experience leaves plenty to be desired.

J.C. Penny's is right in the middle of a legal fight with Macy's over the exclusivity of the Martha Stewart brand. (http://www.nytimes.com/2013/03/09/business/the-headache-in-housewares-for-j-c-penney.html?ref=business&_r=0) In addition to this legal drama, Penny's performance in 2012 was terrible, and the CEO is now being questioned all about the viability of the turnaround strategy. If ever there was an example of why turnaround's are very difficult investment propositions, this would be it. It also explains why Warren Buffett makes sure to avoid turnaround's at all costs.

Pimco's Bill Gross came out with the term the 'New Normal' as a way to describe the revision downward of economic growth in mature countries like the United States. Gross and Pimco's Mohamed El- Erian have repeatedly pounded the drum of slowing economies over the last few years. On Friday, the United States came out with a job report which showed the number of jobs being created far exceeding analyst estimates. In fact, most of the job gains came from the private sector, with government actually losing positions. Guess what? Mr. Gross now raised his estimate for U.S. economic growth to 3% for the year. (http://www.bloomberg.com/news/2013-03-08/gross-raises-u-s-economic-growth-forecast-to-3-in-2013.html) Like a rainbow follows after a downpour, the 10 year bond yield jumped dramatically over 2% as the market suspects growth will start to accelerate. It may yet be premature, but the consistent speculation about a secular move from bonds to stocks is very much front and center in the financial markets and money management profession.

March madness is upon us as the annual rite of passage known as the NCAA basketball Tournament will start in a few weeks. I was recently reading a little bit of Bobby Knight's recent book, titled Negative Motivation or something close to it. One of the premises of the book is victory usually goes to teams which make the fewest mistakes. Investing is very similar in many respects as there are many mistakes which can impede a an investor's financial progress. Firms use the term 'risk management' to have policies in place to mitigate the potential problems of investing or operations in a business. However, many mistakes in investing come from errors of omission as Charlie Munger calls it, 'The Sucking One's Thumb' syndrome. If an investor does not allocate capital to a great opportunity when they are present, and admittedly, there are very few great investment possibilities, the inability to capitalize can be tremendously costly. Evaluating risk management without considering the opportunity cost of doing nothing is not accurate either.

James Altucher is always an entertaining read (know there is a bit of profanity in the blog)-http://techcrunch.com/2013/03/09/how-to-make-a-million-dollars-with-a-hot-dog-cart/

CFO magazine is typically informative, in this case about cash usage and the lingering issues in Europe with respect to financing for businesses:

http://www3.cfo.com/article/2013/3/cash-flow_toll-brothers-revenue-cash-economic-recession?mid=152102&rid=152102.68300.17080

http://www3.cfo.com/article/2013/3/credit_ecb-southern-europe-credit-crunch-lending-commercial-loan-italy-portugal-spain-

Spring is right around the corner, and I am sure many people are looking forward to the nice weather. I hope all readers have a great weekend and week. Thank you as always for reading the blog and if you have any comments, please feel free to post them!

Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital
As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. 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 charter holder.