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Investment Banks Lead Market Higher On Earnings Parade!

‘Time Is Precious, Choose Wisely.’

Understanding the link between outcomes and the choices one makes is an important issue for anybody, and it applies to all kinds of significant situations in life. Clearly, the company one surrounds themselves with will affect what kinds of activities a person is involved with. We should be familiar with the old adage, ‘Birds of a feather flock together.’ Academically, it is why students are grouped into skill levels, so the honors kids are in the same classes, the bulk of the student population in standard programs, and those needing help in ‘remediation.’ Naturally, those that might want to move ahead in the standard group might associate themselves with the honors, and similarly those in remediation might spend time with the broader population. Choosing your peers matters as a kid, and it also can be influential as an adult. The famous coach from Notre Dame, Lou Holtz, used to say the only difference between where you are and where you will be five years from now are the books you read and the people you meet. Networking is typically seen as one of the most important ways to plant seeds for career growth, especially as a young adult, so choosing how you spend your time and who you spend it with becomes increasingly more important as we age. From an investment standpoint, how time is spent and the choices which are made can have a dramatic impact on investment results. Let’s take a closer look at why this is the case.

There are over two hundred countries in the world, and many have stock markets. As of October 2020, there were six thousand publicly traded companies in the United States. The bond market is typically twice as large as the stock market in the United States in terms of dollar value. Between stocks and bonds there are plenty of choices to consider. Each of these asset classes has a wide variety of categories to choose from. Much depends on your circumstance and what you are trying to accomplish. The 25 year old with their first job is going to have a different perspective than a fifty year old who has held many corporate positions. The rise of the Robin Hood, Davey Day trader crowd dramatically increased enthusiasm for individual and risky stocks among individual investors, and at the same time, passive investing has never had more assets allocated to the low cost index approach. Essentially, technology has enabled investors to be able to invest in whatever asset at whatever size and in whatever form you want. In addition, it is quicker and cheaper than ever to click, click, and quickly have ownership of your prize asset, and that has been the case for many years now. I believe where you hunt to allocate capital and the system you use to evaluate those assets is what is crucially important. Spending time on an Argentinian ETF might not be the best use of time, especially if the stock market is not your prime focus. It is better to focus on a specific area of a market, and probably choose a single sector and size you want to really dig deep on. I would also eliminate areas you have no interest in before you begin your quest. In sum, your time is precious so allocate it knowing it’s considerable value.

In the markets this week, the large investment banks, Goldman Sachs and Morgan Stanley, had impressive reports with big numbers in the fixed income and asset management areas. Netflix missed the bottom line number but investors were pleased with its subscriber growth. Elsewhere in technology, Intel posted a big earnings beat but many investors till believe the company is poorly positioned relative to other semiconductor entities. The large regional banks reported on Thursday with southern power Truist posting a nearly 20% surprise. On the macroeconomic front, jobless claims came in at 900k, less than the predicted number of 935k. Probably more important is the rate at which vaccination numbers begin to improve as today, the total number of vaccinated citizens in the United States sits at less than half of what was projected (18 million versus 36 million). The uniter is projecting 100 million vaccinations in one hundred days. Investors will watch that number closely. I suspect the way government works, especially one just getting its beak wet, it will take closer to six months than three months to get to the 100 number.

Finally, as the uniter begins his term, a crucial item to watch in the Senate is when the Democrats will begin to call for an overturn of the filibuster rule. Senate moderates hold the cards there, especially Mr. Manchin of West Virginia, long a good friend of Senator Schumber of New York. After publicly stating he will not support an overturn of the filibuster rule, Manchin comes from a heavily conservative state where flipping his position would be seen very poorly by his constituents. As always, time will tell, and we know the progressive wing (ultra liberals) is just chomping at the bit to get rid of the filibuster. On that note, I like the Packers and am rooting for the Bills this weekend, but it should be fun watching regardless of how it turns out.

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Thank you for reading the blog this week, and if you have any questions about investing, please email me at information@y-hc.com.
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 CFA designation does not mean Y H & C Investments will outperform broad market indexes.

Bank Earnings, and Thinking About the Future!

In a time of change, especially in the midst of a pandemic, considering what economic trends are growth areas and likely sustainable, is a reasonable approach for investors. If we flip this on it’s head, paying more attention to those places where you think there are going to be problems, or, let’s call it disruptions, is probably a better use of time. About twenty years ago during the height of the internet bubble, billions of dollars were spent on communications equipment based on projections of a huge increase in demand for internet based services. Those forecasts proved accurate over time, but many providers and telecom companies were hurt badly because of the overcapacity which was left from the huge expenditures. Overcapacity destroys the capital of those who allocated money to projects which were believed to yield a high return. You typically see the destruction of capital in situations where many companies rush in on the belief that there is a new age, and the opportunity is so vast that it warrants investment. Let’s consider some current areas where this might be the case.

As I am in Las Vegas, the most obvious one which comes to mind is the area of mobile sports betting. It seems the whole gambling universe is offering all kinds of incentives (free play) to attract customers to bet on sports. Plenty of deep pockets are involved, and it is going to be needed. Another prime area for poor investment, electric cars. With the unifier (polarizer is more apt) taking office next week, the push by the Federal government for all things green is going to attract billions, maybe trillions. Return on investment for that capital might not look so good five years from now. Shhh, don’t tell the Prez elect. Next up, how about cryptocurrencies? With bitcoin hovering at 30k, it’s surely headed to 100k, then 400k right? Don’t forget, you have light-coin, stable-coins, ethereum, and on and on. Heard enough? Nope, one more for you, how about the rush into weed? A few years ago those stocks ran up, then fell back to earth. With optimism about legalizing ganja federally, capital may flow dramatically into this, let’s call it, smoking hot area. It will take three to five years to play out, but my feeling is there is going to be plenty of capital destruction in these and other areas where too much capital is chasing too little return. Investing is about risk and reward, and risk is running pretty high in some of these hot sectors.

It was a relatively non eventful week in the markets highlighted by the money center banks reporting earnings on Friday. Chase took center stage first, followed by Citi and Wells Fargo. All beat estimates, helped by the release of loan loss reserves from prior quarters. On the macroeconomic front, weekly jobless claims came in at a much more elevated level than predicted (965,000). Clearly, the rising Covid numbers and continued restrictions across many states doesn’t help consumer or business confidence. One situation investors really need to pay attention is the increasing scrutiny of the largest technology firms by governments across the world. Facebook, Google, Amazon, Microsoft, and Twitter are at the top of the list regarding privacy, encryption, content moderation, and anti competitive behavior towards competitors. When a company has to spend a great deal of money on compliance and legal issues, it certainly is possible it can affect their ability to put capital into the areas where growth has a higher probability of occurring. Given the multiples on many of these companies, government scrutiny probably won’t help the cause of shareholders.

Back here in Sin City, one of the legendary business visionaries of our generation passed away, Sheldon Adelson, the majority shareholder of the Las Vegas Sands. Mr. Adelson did things his way, with a unique flair that attracted millions of visitors to his properties all over the globe, especially in Macau and Singapore. He was a very generous individual, especially to Israel, Jewish causes, and yes, the Republican party. In the most recent election, reports are that he contributed over $200 million dollars to support Republican candidates. Like Donald Trump, Mr. Adelson was a polarizing figure, but he walked it the way he talked it. In this election cycle, the money he spent on the presidential election was misallocated, not so much on many of the congressional races. Even the most brilliant people don’t bat one hundred percent, but Mr. Adelson was pretty accurate when it came to business investment. It will be interesting to see how others fare over the next few years when it comes to their capital allocation decisions. Next week brings a deluge of fourth quarter earnings reports in a shortened week, along with the uniter taking the oath of office. Lucky us.

Get all Y H & C Investments weekly blogs and monthly newsletters by sharing your information below-

Thank you for reading the blog this week, and if you have any questions about investing, please email me at information@y-hc.com.

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 CFA designation does not mean Y H & C Investments will outperform broad market indexes.

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