Investors Ride Nice Earnings Wave As Markets Jump!

Investors Ride Bank Earnings Wave As Markets Jump!

When you ride the wave, the thrill is so exhilarating that you forget everything else. You live in the moment where nothing else matters, so intent on riding the wave perfectly that you and the wave become one.
Marshall B. Rosenberg


Ride the wave, dude.’ Up and down Pacific Coast, there are all kinds of beach towns that attract people because of the warm weather and proximity to the ocean. Laguna, Newport, Huntington, and Seal Beach are in Orange County. Belmont Shore, Redondo, Manhattan Beach, and Santa Monica move you north through Long Beach towards Los Angeles. If you live in Southern California, you hear plenty of talk about surfing when you are at these beaches. I can recall my freshman year of college at UC-Irvine, late in December (dude, like 27-28 ish) going to the beach and watching guys jump into the ocean. Given the great climate, you can understand why people love California and the ability to feel the sand between your toes at any time during the year, although increasingly it does have it’s issues. So why do I mention surfing?

The ocean is a powerful natural force, and good surfers learn the practice of reading the ocean to anticipate where a large wave will break. If done correctly, the surfer navigates the sea to enter a long tube and can be in that state for an extended time, all the while moving quite quickly, almost like a drop in a roller coaster. Surfers find the sweet spot of these tubes addictive. Of course, surfing can be very dangerous because of long falls and the dangerous reefs underneath the ocean. Similarly, investing requires the ability to handle a large entity which cannot be controlled, like the ocean, in our case, the market. We know that investing can be quite dangerous to your financial health, especially if you use leverage or have too much exposure to poorly performing assets. On the other hand, many find investing quite addictive, especially if you have success. So on that note, let’s turn to the current market environment.

Over the last few weeks, investors have decided now is the time to embrace risk. Without question, they are riding the balmy conditions of low interest rates, minimal inflation, strong corporate profits, and plenty of liquidity. One of the largest and well known investors around, David Tepper (Appaloosa Management), used a different analogy but expressed the same sentiment when he said, “I love riding a horse that’s running. “We have been long and continue that way. At some point, the market will get to a level that I will slow down that horse and eventually get off.” There are a few questions which might be considered. Using our analogy and not Mr. Tepper’s, when might get you out of the ocean, and why? Why might you stay, for how long, and what would change to make you take your board and head towards the comfortable sand? Meanwhile, right now, at least for the foreseeable future, the water is quite pleasant and there seems to be plenty of sunshine, soft white sand, available lotion (all natural, no chemicals or preservatives mind you), and even available parking. Imagine that.

Over the course of the last week, the headlines which bolstered investor sentiment were the strong bank earnings which dominated the landscape. The star performer, as has long been the case, was Chase. JP Morgan posted the most profitable year ever reported by a bank in the United States. Not far behind were Citi and Bank of America. Wells Fargo reported a miss, which again reinforces the continuing evidence why the bank rhymes with smells, although in this instance, it was an earnings disappointment and not the usual problem of finding a way to take advantage of customers. On the investment banking side, Goldman beat on revenues but missed because of a billion dollar charge related to the disclosure issue in Asia. Morgan Stanley remained consistent with an improvement in the fixed income area, which was also evident in the other big banking institutions.

In considering the market these days, we will be deluged with plenty more on the earnings front. Next week will bring reports from the media area, of note will be Netflix and Comcast. On the strategic front, the valuations are at the higher end of historical ranges, so you have to be wondering if we have pulled forward future gains and gotten a little ahead of ourselves. Not the most pleasant thought, but one to ponder while you get yourself a nice iced beverage and catch some rays on that soft chair as you prepare for the next wave. Surfs up dude.

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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