Retail Rolls Over, Price Is Truth (Huh?), and the End of Summer-

 

It happens every single summer, almost like an annual July 4th holiday, only for investors who participate in the stock market.   Last week, Wal Mart, Cisco, and Macy's reported earnings and the investment community was certainly not impressed.  Wal Mart's whopping miss of one cent per share, along with Cisco's tepid forecast for the rest of 2013, and Macy's future guidance caused the downturn last week as the Dow Jones Industrial Average sold off over 200 points.  All over Wall Street, analysts and strategists are questioning the strength of the domestic consumer for the rest of the year.  It seems we get this same kind of issue every summer, as if this period is not a time where activity naturally slows down.  On an anecdotal level, almost every family we know has been on vacation the past few weeks.  Yes, back to school shopping is in high swing, and the summer driving season is hitting its peak as well.  Still, anyone who participates in the business cycle on a consistent basis knows the summer months just are not a rip roaring time.  Unless of course, you reside on Wall Street.

 


The 10 year Treasury bond yield keeps advancing higher and is now approaching 3%.  You would think borrowing costs are incredibly high the way some people are reacting to the dreaded three number.  Anyone who has some knowledge of financial markets knows current borrowing costs are historically low.  Until the 10 year bond hits 5%, any other conclusion about borrowing costs is just silly.  However, for bond investors, the dramatic and quick rise of the 10 year yield brings serious pain as every tick higher in that rate brings additional capital loss.  The simple lesson is no matter what financial asset an adviser recommends, there is always some kind of risk in owning it. 

 

If ever there was a questionable comparison of companies whose market worth is diverging, the current valuations of Tesla against the large integrated oil companies is, shall we say, interesting.  The Elan Musk creation is now priced at a little below $18 billion dollars and will sell below 25 thousand cars this year.  The largest oil companies in the world are priced between five and ten times earnings (trailing or forward, you choose), and all come with nice dividend yields which could very well increase, even dramatically, over the next 20 or 30 years.  Still, if you follow these stocks every day, TSLA goes up and the oil companies go down.  Until it changes, I continue to hear traders say, "Price is Truth."  Tell that to Buffett, or in this case, the oil companies, who have been buying back their own stock.  One final note, I have been very wrong on both Tesla and the oil companies for quite some time, so please take my thoughts with a grain of salt. 




The fall swiftly approaches and the joys of football, the leaves turning, and a little cooler air will be upon us.  The toxic and noxious fumes coming from Washington regarding the debt limit negotiations also approach as well, so if you are concerned about your health, or sanity, try not to pay too much attention to the windbags.  At the very least it will be a welcome relief to have the kids in school, at least until the first moment they make you help them with their homework.



The shale oil and gas revolution in the United States will have consequences for quite some time-http://www.bloomberg.com/news/2013-08-18/shale-grab-in-u-s-stalls-as-falling-values-repel-buyers.html









Another area where the U.S continues to lead is in cloud computing, which also brings a dramatic shift to both small and large enterprise technology use-http://www3.cfo.com/article/2013/8/the-cloud_gopro-camera-cloud-netsuite-nick-woodman?currpage=1&pid=00000000-0000-0000-0000-000000000000



A nice story on how one CFO is managing growth- http://www3.cfo.com/article/2013/8/growth-strategies_wayfair-nick-malone-technology-international-growth-infrastructure-?pid=00000000-0000-0000-0000-000000000000&currpage=2



Thanks for reading the blog, and I hope everyone has a great final few weeks of summer.  If you have any thoughts or comments on the blog, please 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.