As a parent of a young child in her formative years, one often gets the opportunity to hear about who is popular at school, and naturally, who is not. When you are growing up, feeling wanted and accepted is a natural desire. As one acquires more life experience, a few wrinkles under the eyes, call it seasoning, the importance of popularity can start to slowly drop towards the bottom on the priority list. For many people, it may be at the bottom at a far earlier age. How one approaches popularity is a subjective and personal perspective. The concept of popularity is also quite important in financial markets, especially in the stock market. Institutional investors are often known as lemmings, flocking in mass to the securities which are performing well. On the opposite side of the equation, the ‘me too’ type attitude can be found on the long list of losers which are shunned by the big money crowd. After all, the best must only be associated with only successful companies, right? Uh, no.
In the current market environment, there are plenty of areas and individual stocks which are out of favor, hated, unloved, shunned, or tainted with the scarlet letter. Retail and luxury head the list of the unpopular as you can take your pick of which specific company is despised the most. Target did not help the cause any when it posted results this week which disappointed on the top line. Investors also continue to fret about the ‘Will they, Won’t they’ Federal Reserve decision of potentially raising interest rates in June. Stronger economic results, inflation readings, and hawkish comments from board members have also increased the tension in the market. My own personal view is the status quo, as it has been for a long time. Mrs. Yellen leans dovish, has shown no inclination not to lean dovish, and was weaned on the feet of Mr. Bernanke, better known as ‘helicopter Ben’. The fact annualized inflation might be 1.9812 versus the estimated 1.9810 is not going to cause a rush to raise, at least from my perspective anyway. Keep in mind my view is the popular one, but according to Mr. Wilde, it is often incorrect.
Earnings reports continued to trickle in as retailers L Brands and the Gap added to the dour sentiment across the landscape, although Wal Mart showed a glimmer of hope with a nice surprise. In technology, Cisco reported a good result and Applied Materials bolstered the sector with a good number on Thursday after the bell. Oil continues its march higher with different one time supply events holding back production in Canada, Nigeria, and now potentially Venezuela. Some observers believe the economic environment is so bad there oil production is going to retreat. Don’t tell Hillary or Bernie, but when you have too much government control over critical industries, eventually the corruption starts to affect how the business is being run. In combination with the dramatic cut of employed oil rigs in the shale areas of North America, at some point global production should fall, especially if the OPEC countries cannot make it up. It may take until the end of the year, but if demand stays solid across the emerging markets, black gold might become even more interesting as the year winds down. Closer to home, literally, it appears Leon Black and the Apollo Group are trying to work out an agreement with Caesars Palace creditors to arrange a recapitalization of the debt laden monster which has been holed up in the bankruptcy courts for what seems like forever. Second line creditors like Apaloosa’s David Tepper are the holdup to an agreement. Summer approaches and the hot weather requires a cold drink, a good book, and an afternoon nap.
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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.