Discipline Yourself So Other’s Won’t Have To. John Wooden
When I was a young boy, and I mean a very young boy, think five years old or so, there were college basketball games on television, and nearly every week, UCLA would be the featured team. They would call it the Pacific 8 game of the week, and at the time, the head coach of UCLA was John Wooden. Wooden would win 10 championships in 11 years, led by great players like Lew Alcindor, Bill Walton, Gail Goodrich, Jamal Wilkes, and many others. In terms of records, the most astounding accomplishment was an 88 game winning streak that may never be broken in college basketball. Wooden has all kinds of great quotes that are applicable in life, and his ex players were usually very loyal and caring to their old coach. The saying above might be as applicable in life as anything you can find anywhere. You could use it in teaching, sports, politics, business, and nearly important activity in life. Something to think about as we move into spring and summer.
In the financial markets this week, the biggest event was the March jobs report, which came in at a better than expected 196 thousand jobs versus the 177 that were the consensus estimate. Over the last few weeks, the inverted yield curve has been the prime focus of investors with the idea that global economies are slowing down. The fourth quarter selloff last year may have been a case where the end result was being attributed to a major slowdown, when in practice, it may have been a situation where plenty of gains were on the table and ripe for some profit taking. Yes, the global economy probably slowed down some, but not enough to cause a twenty five percent drop in three months in almost every financial market across the globe. So, attributing the selloff to an oncoming recession, and then throw in the always imposing inverted yield curve, and low and behold, you have seemingly logical explanation, but, given the strong jobs number, maybe that really ain’t the case. Maybe terrible winter weather didn’t help, but it could be the jobs number shows improvement and the economy should be pretty solid for the foreseeable future. Something to ponder.
Elsewhere, one of the highlights of the financial year is the annual shareholder letter from Jamie Dimon, Chairman and CEO at JP Morgan Chase, which was released this week. If you are serious about business and finance, it is a publication that touches on all kinds of areas in quite an intelligent way (https://reports.jpmorganchase.com/investor-relations/2018/ar-ceo-letters.htm). I would note a few specific parts that stood out. First, Mr. Dimon brings up leadership and management and why facts, analysis, and detail are an integral part of the daily routine, in every area of business decision making. Second, the emphasis for his company is finding places to invest in the business, and relegate share buybacks behind reinvestment in terms of capital allocation policy. Third, the financial strength in the banking system, and JP Morgan of course, is noteworthy, so much so that the excess capital in the largest banking institutions should be considered unproductive and inefficient. Mr. Dimon goes on to give his opinion on solutions to government policy mistakes and how to potentially fix those long standing problems. Finally, the understanding that no matter how large a business or organization is, the sense of urgency and attitude to solve problems for customers comes through. Make no mistake, JP Morgan walks it the way they talk it. The biggest bank in the country is applying artificial intelligence and cloud computing to nearly every area of their business in an effort to become more efficient. My wife makes the argument that maybe the easiest way to invest is just to buy more JP Morgan Chase stock. It makes a whole lot of sense, but keep in mind, you have to place that idea in the overall context of what you are trying to accomplish and your overall financial situation, and yes, we own it for clients, family, and self.
Another interesting factoid this week was details of Saudi Aramco profits in conjunction with a bond offering. Apple is one of the largest publicly traded companies in the world, and thought to be the most profitable. Nope. Apple does net income of anywhere from 40-60 billion a year. Saudi Aramco will do 110 billion or so this year, but clearly, much of that depends on oil prices. The leadership in the the country, led by Prince Salman (known as MBS), wants to diversify the economy using Saudi Aramco as the piggy bank. It has been the funding source for decades in that country, as is the case in most of the oil rich middle eastern countries. What was interesting is quantifying the extent of the profitability of Saudi Aramco, versus merely having an idea. On the earnings front, Walgreen’s, Gamestop, and Signet all missed their numbers and investors were not pleased. Lyft’s IPO went south, but when you lose nearly a billion on 2 billion of revenue, I am not sure why anyone would be that surprised. Next week will bring the start of earnings reports, and investors will be watching quite closely to see which companies have disciplined their organizations. Any sign of problems, and their capital providers will step in to provide the discipline for them, just as Wooden suggested.
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