I always tried to turn every disaster into an opportunity. Rockefeller
One of the noticeable characteristics of exceptionally successful people is their ability to stay positive in the middle of trying circumstances. ‘---t, Happens,” according to one John Malone, who temporarily lost a ton in the aftermath of his sale of TCI to ATT, which subsequently went on a debt rampage while Malone was frozen from selling his stock. With the markets setting records almost daily, the recent Harvey and Irma hurricanes are situations where a thinking person might consider what kinds of events could be disastrous to their portfolio? Before beginning the doom and gloom, let me also state I think it is normally not a healthy habit to focus on what might go wrong. When you go down that rabbit hole, you might never stop, and almost all the time, none of the bad events happen so it is a complete waste of productivity energy. With that caveat, dear reader, what could upend our red hot market?
The most obvious answer is a war, with our friend in North Korea or the always agreeable Mullahs in Iran. Along those lines, some financial commentators have opined maybe the strife between Sunni and Shiite Arab countries leads to a bigger Middle East conflict, driving up the price of oil. More on that in just a moment. Domestically, the biggest unknown is how does the Fed go about shrinking the bloated U.S. balance sheet in a gradual way without unnerving compliant markets? If interest rates were to shoot up quickly, it changes the valuation metrics for both stocks and bonds and markets would have to calibrate the price of assets. Of course, one could argue that happens daily anyway, so you will cross that bridge if and when necessary. This week, the August CPI report came in at a hot .4%, well in excess of the .2% expected. The number gave a jolt to the energy sector with the idea inflation is picking up and global energy demand is better than what most investors thought. On the positive side, the banking sector has plenty of capital (just ask Chase’s Jamie Dimon) so a crisis in that area is probably not in the cards. With corporate earnings consistently strong, valuations are high (18X) but not exorbitant like the internet bubble era, especially with interest rates at rock bottom levels. All in all, if you have a well constructed portfolio with companies that have stood the test of time, there is a good chance you ultimately would benefit from a disaster. By the way, Rockefeller seemed to practice what he preached, in case you weren’t aware.
In the markets this week, earnings season was light with the only major companies reporting Cracker Barrel and Oracle. Cracker Barrel continues to prove well placed locations during road trips have a tendency to attract customers, which is a recipe for long term success. Oracle, led by the always humble Larry Ellison, is wildly profitable and remains as combative as ever, especially with respect to rivals Salesforce and Workday. Politically, it seems the Prez has a little wind in his sails with a good response to the hurricanes, new found friends in Chuck and Nancy, and a nice public relations effort helping a little boy mow the White House lawn. If Lindsey Graham can get to the magic 50 number in the next few weeks and help find a way to repeal Obama care, I would imagine Republicans would feel a little better about the new found bipartisan spirit, which might not prove sustainable. No matter, fall has arrived and I hope you enjoy the crisp weather and start of the football season. Thanks for reading the blog this week and if you have any questions or comments, please email me at
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