What A Week On Wall Street- Yellen, Debt Limit, and Malone!!!

Oh boy, what an interesting week it has been on Wall Street and in the world at large.  The most obvious event is the ongoing drama in Washington D.C. regarding the debt ceiling negotiations, government shutdown and budget issues, as well as Obamacare.  I would just call attention to the fact that the Japanese and Chinese started to voice concerns about a potential default, and low and behold, both Democrats and Republicans decide well, maybe, yeah, let's negotiate with the other guys.  When you don't have your own financial house in order, you have to listen to your biggest creditors, in this case, the largest owners of U.S. debt, to the tune of multiple trillions of dollars.  If the U.S. were to default on it's debt, the value of those trillions of dollars gets obliterated, so, you can see why the Chinese and Japanese are more than a little "concerned" about our political dysfunction.  You follow the incentive, you get answers about why people do things, according to Charlie Munger.  In this case, as in many before this one, Munger is right on 'the money.'

 

Today, JP Morgan and Wells Fargo reported their financial results for the previous three quarters.  Wells posted strong results, while Chase had their first quarterly loss under Jaime Dimon.  Elswhere on Wall Street, Jos E Banks made a hostile bid for Men's Wherehouse, which was promptly rejected.  The reason I bring this small transaction up is it speaks to the merger and acquisition environment.  Money is still very cheap, and as such, companies are going to look to take advantage of it and do deals, or by borrowing to finance corporate transactions of some sort.

 

President Obama named Janet Yellen to be the next Federal Reserve Chairman, which is what Wall Street pretty much expected.  Yellen has an impressive academic background, with a doctorate from Yale, and she taught 5 years at Harvard, as well as the London School of Economics and UC- Berkley.  She also has been part of the Federal Reserve Board of Governors for quite a few years. However, one thing she should be prepared for, and you can count on this in a big way- Wall Street and the investment world is going to test her from the first second she takes the job.  The boys on Wall Street give nobody a free pass so she will have to prove herself very quickly.

 

With respect to the government shutdown, I found it very interesting the attitude which certain parts of the federal government has adopted during the midst of the crisis.  At the Grand Canyon and Yellowstone National Park, rangers have apparently been told to make life miserable for the general public.  At a Veterans Memorial in Washington D.C, the government tried to erect 2 foot barriers to prevent World War Two veterans from visiting their family members or friends.  Family members of soldiers killed in Afghanistan have been denied immediate death benefits to greet the bodies and luckily, a private organization is paying the tab until the government opens again.  Even more delicious is Congress has decided that it's members get benefits which are not under the jurisdiction of the Affordable Care Act.  The public has given Congress a 5% approval rating, which might be a bit overstated.

 

On the opposite side of the spectrum, the genius of John Malone shown through at Liberty Day yesterday.  One of the great things about being a shareholder of the Liberty family is you know he is trying to help shareholders and he does not sit still, unless of course, he probably should.  Over the last few weeks, the various companies have engaged in a number of very interesting transactions by issuing convertible bonds, engaging in swaps or tax free exchanges for their own stock, borrowing money at 1 and 3/4% for 10 years, and announcing new tracking stocks.  He also invested in a solar energy product with a very high return which is tax efficient due to the tax advantages (tax credits, government guarantees) of alternative energy investments.  From a finance perspective, the guy is great and you only get a few chances a year to listen to him a year so it is always worthwhile to take the time and do so. 

 

They say that the wheels of justice grind every slowly, but eventually justice is served.  In the case of Malone and the Sirius Satellite board versus suing shareholders, the judge ruled completely in favor of Malone.  British Petroleum was awarded a victory when the court of appeals ruled that the fund administrators for the 2010 oil spill has partially erred in the way they are awarding those with claims.  There will be more on the matter in the future, as well as the determination of how oil was spilled and whether BP was grossly negligent or negligent in the way it handled the explosion.  Obviously, a very sensitive subject for many people and it will probably be a long time before a final conclusion to the matter is rendered. 

Here in Vegas, the weather is great and the casinos are open.  As an interesting side note, Y H & C Investments will have a new web site in a few weeks. 

 

Last, I was selected to present at a webinar for the Opal Financial Group on November 14, 2013-
http://www.opalgroup.net/conferencehtml/current/webinar_building_flexible_portfolio/webinar_building_flexible_portfolio.php.


I hope everyone had a great week and will have a super weekend.

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.