"Steady goes the ship," is the motto we might hear from the almost confirmed Federal Reserve head Janet Yellen with regards to the ongoing domestic economic recovery. You see, Mrs. Yellen has passed the Senate banking hearings with flying colors, and her final approval awaits a full vote later this year. Yes, it was a veritable love fest this week, although I suspect Mrs. Yellen should get her rest and enjoyment now, because when the new year approaches, market participants are probably going to "greet" her with plenty of skepticism. I was at a seminar yesterday (the topic was convertible bonds) where the presenters believed the biggest bubble in capital markets is U.S. Treasuries, especially at the long end of the yield curve (years 10 and greater). I have thought the same for well over a year, and as bond yields tick up, bond market participants have to start wondering about the supposed "safety" of those holdings.
Another interesting piece of information is other Federal Reserve board members are starting to publicly state their disagreement with continuing quantitative easing for too long. Many believe "tapering" will come sooner rather than later because of data which is showing a little more economic strength. A more robust economy is a good thing for investors, so we should want tapering as soon as possible. Self sufficiency is typically a good thing, in this case, our country's economic and employment growth.
Ambercrombie & Fitch, Sears, and Intel, among others, reported their financial results this week. The first two are good examples of retail businesses which have great histories, but are experiencing operational, merchandising, execution, or marketing issues. Intel has long been dominant in the semiconductor industry, but the emergence of the mobile smart phone and tablet trends has rendered them to be too reliant on a declining personal computer market. The new CEO has made mobile a priority and many feel Intel is making a strong move to gain market share in the mobile space, especially away from Apple based products.
Elsewhere in the equity markets, newly minted IPO's are seeing a resurgence, which certainly will help Silicon Valley and it's abundance of venture capital firms on Sand Hill Road. Equity markets have seen a big reduction in the free float of stock available to be bought by the public over the last five years. Much of this is tied to the massive amounts of stock which have been bought back by companies in all industries. When a management believes a stock is cheap, buying it back reduces the number of outstanding shares freely available, which can help improve per share profitability ratios in the future. When you have lemons (a cheap stock), making lemonade is a good strategic option.
Consistent with making the most of a cheap stock price, Warren Buffett disclosed he bought $3.8 billion of Exxon-Mobile stock over the last few months. Other large international oil companies having been buying back their stock as well. Buffett does not miss much, and I suspect Charlie Munger had a large influence on this purchase. Munger believes oil will only become much more valuable in the future, and I absolutely agree. Many investors do not realize how much of the world is dependent on oil related products, which is especially the case in nearly every transportation related industry.
As Thanksgiving approaches, let's talk about another turkey, yup, Obamacare. In about ten days, the web site should be fixed to allow people to purchase health insurance from Federal exchanges. At least, this is the current plan. I do not see how the brilliant politicians will be able to avoid delaying or even eliminating the law. Sometimes, the best way to clean up a mess is to just start over.
Finally, it has been a few weeks since I last wrote a blog post. I have been busy trying to get our revamped site up and running, along with a few other operational concerns. I would very much appreciate you visiting the site at www.y-hc.com, and if you have any feedback about it please email me at information@y-hc.com I hope everyone has a great Thanksgiving as well and thank you for reading the blog!
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.
No comments:
Post a Comment