Janet Yellen is now the head of the Federal Reserve, and on Tuesday she gave an update to House Financial Services Committee on the state of the U.S economy. The Fed "Head" indicated the current policy of slowing down the purchase of fixed income securities remains in place ("Tapering" for those who don't pay attention to Fed speak). According to her testimony, it is apparent the priority is reducing unemployment closer to "full" employment, which simply means they want far more people out looking for, and actually obtaining, jobs. As part of the Fed's dual mandate, the other main objective is to control inflation. With the big "I" submerged at an annual rate below 2%, the Fed clearly believes they have inflationary forces under control. Many skeptics believe deflation is the major problem the country faces, with still stubborn low labor force participation and factory capacity utilization rates. The most recent jobs report indicated progress on both fronts, as the two categories were at their highest levels in quite some time. Obviously, the equity markets liked what Mrs. Yellen had to say, as low interest rates for as far as the eye can see remain a soothing balm for long skittish investors.
President Obama's recent quotes about having "a pen and a phone" are certainly suggestive of the realization by our nation's "leader" he is legislatively frozen, and probably acknowledgement of the potential loss of the Senate during the November elections. As such, the comment speaks to what he can accomplish on his own through Presidential directives. Looking at it differently, an objective observer might ponder the serious question of unilateral decision making in a country which was founded on the idea of a government based on a series of checks and balances. Consequently, when you see how the Affordable Care Act has now been modified in quite a few ways since it has been implemented, one gets back to the principle of checks and balances and whether of not our "leader", along with his partisan pal Senate Majority Leader Harry Reid, have any recognition their policies might not be working. Opponents of Mr. Obama might say that instead of having a pen and a phone, a brain would be more useful.
The Olympics started last week in Russia, and Mr. Putin's face was never more evident as he proudly unveiled the Winter Games in the new facilities that many companies in Russia ponied up hundreds of millions of dollars for in the hope of being reimbursed. Nyet, and in reality, the country will probably face a situation where many of these monuments won't get near the kind of usage they thought when originally conceived. Enjoy the games, Vlad, you will be paying for them for quite some time.
Over the last few months, the market has corrected some and the sector which has seen the largest beating would be in the social networking space, where Twitter and LinkedIn had some of the froth taken out of their stock prices. Certainly, there are other companies which still enjoy stratospheric valuations, like Tesla and Amazon. Another interesting tidbit is Google overtook Exxon in market capitalization last week. I took a look at both companies and on nearly every financial metric, Exxon has larger numbers, but in the crucial statistic of free cash flow, Google is relatively close. What this speaks to is the difference in the kinds of business each company has in terms of capital efficiency. If you add in the fact Google is growing much quicker, it is not out of the realm to see why Google overtook Exxon. It does not mean I agree with it, or it is a permanent situation either.
The television show Shark Tank is now prominently featured on Tuesday night on CNBC. If you have not seen it, four prominent investors, including Dallas Mavericks owner Mark Cuban, listen and evaluate pitches by entrepreneurs in search of funding to potentially grow their start up companies. One striking thing about the show, or at least my impression of it, was many of the presentations were from business owners who really do not show up fully prepared. The other aspect which really bothered me was how disrespectful, mean, and arrogant the venture capitalists are towards their potential partners. Yes, they are asking for an investment, which requires serious analysis. However, nobody deserves to be made fun of and it seems the venture capitalists find it their job to be as insulting as they can. The show can be viewed to see what other interesting ideas people have and how they might be applied to your business, but the negativity of the "Sharks" makes it very painful to watch.
In traveling around the world on vacation, it was nice to see the various attitudes which come across when in different locations. For example, in London, the airport was bustling and manners were prim and proper. The Brits do everything they can to be pleasant, or at least those who I encountered did, and it was much appreciated. In Africa, the laid back attitude of the locales was very prominent, and you certainly could make the case a more professional approach might be considered. Interestingly enough, the first Burger King in the country opened while we were there, and the lines were two hours long. If you ponder the idea people actually lined up for the Whopper, well, not much more needs to be said.
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.
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