It's always about 'what have you done for me lately.' As players we see what is going on. Malik Jackson
The world is a cold, hard place. The investment and financial world, and especially Wall Street, is especially ruthless as numbers and performance rule the day. Young, idealistic, college graduates from the finest educational institutions across the land are indoctrinated to the infamous slave driving mentality of investment banks with their 70 hour work weeks for interns and young workers. Most individuals do not find it appealing, and it is one reason why many do not hold the financial service industry in high regard. Nonetheless, it is all about the here and now for publicly traded companies and those who invest in them. It is why only the largest and best positioned entities get astronomical valuations as Wall Street feels they are deserved for precious few companies.
Over the past week, I attended the annual Liberty Investor day. John Malone has recently commented about the nature of the ‘What have you done for me lately?’ attitude on Wall Street. He is well aware of this mentality after spending 40 years of his career dealing with it. Liberty, with Malone and Greg Maffei leading the way, has created an enterprise with great holdings, five controlled companies with billions in dollars of revenue (the largest at greater than 40 billion, 3 others over 5 billion), unique business models with fat margins, and highly cash generative (the least one has over 400 million of cash flow). Still, all face questions about the future in terms of how do you handle competitive threats, grow quicker, generate more cash, look at acquisitions, and think about financing. The CEO’s of each entity present their businesses and address what they are doing to answer their respective major challenges. I would note all do a fine job of extending debt maturities and refinancing at lower rates at every chance. These are all characteristics of Malone led companies, along with tax efficiency. I also should point out, Mr. Malone sits in the front row and watches every presentation, and answers every question, thoughtfully and often with humor. There is no Jimmy Cayne mentality here, who was out famously playing bridge while Bear Stearns went bankrupt. Still, from my perspective, the object of going to this annual event, is to take the five hours from Liberty and try to apply those lessons to investments across the business landscape. It is an exercise well worth the time and effort, which includes the pleasurable task of navigating the full cavity body searches at the different airports. I am sure you can relate.
Elsewhere in the investment world, the big news related to happenings in media and retail. The Murdoch family may have seen the writing on the wall and is rumored to have put the for sale sign on its production studio, some cable networks, and its international distribution assets. Disney, Verizon, and now Comcast are supposedly interested. Mashable was said to be sold to Och Ziff for just a little over $50 million, and the Daily Beast, owned by IAC Interactive (full disclosure, a long time holding) may be for sale as well. These properties don’t command the multiples they traded at a few years ago because of the dominance in digital advertising by Google and Facebook. Included at the end of the blog is a video interview with Mr. Malone where he talks about the media and content industry and covers quite a few topics. It might be worth your time to take a look.
In the retail area, Wal Mart reported a nice number because of strength in its on line properties. Wal Mart also has a unique strategy where they are selling items in store cheaper than what is on line. This strategy could be replicated at other retailers as a way to combat the on line threat from you know where. With on line sales only representing about 15% of total merchandise sold, if traditional retailers can begin clawing back customer traffic, which has yet to be proven, the perception about retail will change as well. In the oil world, Venezuela defaulted on their debt, as ruled by the IFRS. Still, Venezuela was thrown a lifeline by Russia and China in the form of extending payment terms, naturally for oil or other assets. However, Venezuela oil production has been declining for years, down from 2.6 million barrels per day to only 1.7 million this year, and potentially a loss of another quarter of a million in 2018. Lack of reinvestment in mature fields leads to these production losses, and in combination with declines in other areas like China and maybe Mexico, could offset supposed increases in production in Nigeria and Libya. Time will tell, but the situation in Venezuela will continue to affect global oil markets for the foreseeable future.
On the political front, the House and Senate versions of the tax plans are at various stages of passage in each body, but a reconciled bill has yet to be produced. Until you see what is in the final bill, speculating on the impact, and more important, passage of a final product, is just guessing. Wake me when something passes and Mr. Trump signs it as the devil is in the details. Important items like tax deductibility, various tax credit assignments or deletions, and repatriation are all significant, which is why these are important topics. Just consider why corporations have so many trillions outside the country in subsdiaries? If our tax laws were effective, would this situation exist? Also, I thought I would mention the way Mr. Trump dealt with the three UCLA players issue with the law in China (apparently they found some Louis Vuitton handbags to attractive to not take) versus the way Mr. Obama handled Otto Von Werbler in North Korea. Trump made the call, Obama wouldn’t lift a finger. The three UCLA kids are back in the US, Otto is gone after being tortured mercilessly. Don’t even get me started about Al Franken and that whole joy. Anyway, politics remains a circus that is more sad than humorous. It is why going to the annual Liberty is a much needed respite from the what have you done for me lately world.
Anyway, thanks for reading the blog, and if you have any comments, thoughts, or questions about the it or investing, please email me at information-hc.com.
Almost forgot, Monday I will post our second podcast of Chasing the Elephant- A Discussion of Potential Investments. The guest, Russell Katz, will talk about an interesting special situation in the water industry. It was postponed a week as the logistics are a bit tricky.
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Yale Bock, Y H & C Investments, its clients, and the family of Yale Bock have positions in the securities mentioned in the blog, Investing in securities involves risk and the potential loss of ones principal. Past performance is no guarantee of future results. All investment decisions should be considered with respect to ones risk tolerance, return objectives, liquidity needs, tax considerations, and one's overall financial situation. The fact that Yale Bock has earned the right to use the Chartered Financial Analyst in no way means or guarantees financial returns which exceed those of a market index.