What lies behind us and what lies before us are tiny matters compared to what lies within us. ~Henry Stanley Haskins, Meditations in Wall Street, 1940, originally published anonymously; commonly misattributed to Ralph Waldo Emerson (Thanks, Garson O'Toole and walden.org!)
When first quarter GDP growth came in at an annualized rate of .5% on Thursday (missing the .7% estimate), the number only confirmed what many investors gleamed from other data issued over the last few weeks. The affect of the GDP number on equity markets was dramatic as it sold off hard that day, and tried to sell off again on Friday. Clearly, if judging from the sentiment over the last two days, many participants think the rest of the year will not be particularly satisfying in terms of investment results if the economy continues to soften the way it did in the first three months. The question to ponder is whether projecting the next eight months should be dependent on what transpired in the first four months? If yes, why? If no, why not? If neither, why does it not matter?
The questions to consider are all difficult, which is why macroeconomic forecasting is a time consuming and in many ways, a time waster, unless of course, one might be able to profit from the endeavor. How might one do this? Speculation on futures in specific markets, or prior to specific days maybe? Plenty of investors are attracted to the action of futures market, and it can be relatively cheap to be involved, or done with enormous amounts of capital. Many institutions hedge existing positions by incorporating futures into the investment plan as a way to protect their downside. Fair enough. Not for me, I say. For those of us who want no part of these instruments, what other course should we pursue?
As always, my preferred course is the equity market. With bond yields at 1.82% on the 10 year Treasury, the real return on these pieces of paper are effectivey zero, or less than zero if current inflation figures are believed. Zero does not work for me, no, no, no, no. Less than zero is even worse. The reason why I believe in the stock market is you can find situations which over a long period time, should have substantially higher results than bonds, or for that matter, historically, any other asset class. Clearly, though, what you select will determine your returns. So, in this light, let us turn to the last few weeks to see what we can make of what has transpired in the most recent earnings news.
When one looks broadly at various different companies and industry groups, you can differentiate between those which are having success and those which are struggling. Looking at technology, Facebook had exceptional results based in part, on the adoption of mobile and video based advertising. Twitter, which has the same end markets, disappointed investors and projected future softness. In the cloud area, Amazon is widely lauded for the growth of it’s web services division, which is really carrying the profitability of the whole enterprise. Competitors like Microsoft and Intel, also have very profitable cloud businesses, and both are trying to transition their entire business towards the cloud, but because this part is a smaller percentage of their company, investors still have questions. Stay tuned on that one. Now let’s turn to housing a little bit, shall we?
In the homebuilding area, Toll Brothers posted nice results versus what is transpiring at Pulte. If you have not been paying attention, Pulte Homes is undergoing a ‘disagreement’ between the founder of the company, whose name is coincidentally, Pulte, and the existing CEO. The founder does not like the returns of Pulte as compared to other homebuilders and wants the CEO out now, as opposed to next year, when the CEO wants to scram. Food always interests me, and there were dramatic differences in the outcomes of different quick service restaurant chains. Apparently, pizza and chicken wings are now not in vogue as Domino’s and Buffalo Wild Wings took it on the chin last week as investors were disappointed in the results. Conversely, the ongoing transition at Panera Bread to it’s technology platform has yielded impressive gains. In case you have not been into a Panera recently, they do a great job of merchandising their products. You might try any of the muffins, incidentally.
Internationally, I don’t know if you have been paying attention to what has been transpiring in South America, but in Brazil, it appears there will be a change in the leadership of the government. The same thing could very well happen in Venezuela, where the brilliance of socialism is rearing its ugly head. The current leader, who inherited the mantle from Hugo Chavez, has declared a four day work week, turned off electricity a few days out of the seven, and the country has low levels of food, and tampons, interestingly enough. Apparently, when you rely on oil, and the price of oil goes way down, socialism stinks. It ain’t so great even when oil prices are high. Somebody please pass along the news to the supporters of Mr. Sanders, or gosh forbid, Mr. Sanders himself. Finally, here in Las Vegas, it appears the Oakland Raiders are considering moving to my fair city to find itself a home. If ever there would be a smashing success, the Raiders in Vegas would be it. Call them the Las Vegas Raiders and you are good to go, at least for the first year. Given the fact the Raiders have had losing seasons over the last fifteen years, well, there is plenty of upside.
Thanks for reading the blog this week, and if you have any comments or questions regarding it, please email me at
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.