It Is Getting Tougher-

Five Down Days In A Row as China and the Ukraine Trouble the Market

For the week of March 15, 2014, the Dow Jones Industrial Average fell 2.4%, the S&P 500 dropped 2%, and the Nasdaq retreated 2.1%.  As is usually the case, when the mood of Mr. Market changes, it happens rapidly. After several weeks of positive results, it was time to hit the sell button, especially on Thursday the 13th, when the Dow dropped over 200 points.  Many attribute the weakness to a realization that China is not going to be a source of strength for those looking for growth, but could indeed be a major problem.  The same issues of too much building, commodity weakness, and inefficient use of capital by the large government controlled companies all are seen as root causes of the slowdown in GDP growth.  Many believe the canary in the coal mine for continued market weakness is the sudden drop of the price of Dr. Copper, which could be saying the real concern should be deflation, and not inflation. When combined with the situation in the Ukraine and the eventuality of the Crimean peninsula electing to join an increasingly aggressive Russia, the urge to sell was overwhelmingly elected by market participants.


I noticed the Herbalife situation has, shall we say, taken a sudden change as well.  After nearly a year of seemingly beating his head against a wall, and in the process losing investors hundreds of millions of dollars by shorting Herbalife, Bill Ackman's Pershing Square fund saw a little sunshine as the Federal Trade Commission opened up an investigation into claims Herbalife is really a pyramid scheme.   I would only note Mr. Ackman is an exceptional investor and his track record is such that on something where he has this much conviction, even though it has not gone his way yet, I would not be betting against him.  You know what they say, though, conviction is for convicts.




I would note one of the real interesting situations in the markets these days is how traditionally large, incredibly well known brands across quite a few industries are not very highly regarding by investors these days.  If you look at companies like McDonald's, Coca-Cola, Pepsi, AT&T, Weight Watchers, and others, they are seen as being no or low growth companies.  If you look at the intangible assets on the balance sheet of these entities, you can make a reasonable argument that brand recognition is worth in the billions of dollars, especially of those I just mentioned. Yes, these individual enterprises face challenges, but what business doesn't?  I don't know about you, but you cannot tell me that 10 years from now, people are not going to recognize McDonald's and Coke just as much as they do today.

The U.S. government decided to release 5 million barrels of oil from the strategic patroleum reserve as a way to test market readiness.  The current U.S. government position regarding energy continues to be completely unrealistic as it places far too much importance on alternative energy. A practical approach would be to work with the oil, gas, and coal industries in a more inclusive way to help the country use it's growing energy strength as an effective economic tool against those in the world who might be concerned with U.S. interests.  Is it possible things might change regarding energy policy?  Yes, and if you believe that, I have a bridge to sell you , too.


Finally, it looks as if the long awaited Alibaba IPO will take place fairly soon, to the tune of over 150 billion dollars. Yahoo will get a big cash infusion, and the pressure on Marissa Meyer probably will grow, as investors are going to want to see progress of an operational turn around. I suspect Google, Facebook, and Twitter are going to paying very close attention to the lovely lady running Yahoo nation.

Thank you for reading the blog this week.

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.