Week in Review (8-Sep-2017)

It’s been an up-and-down week.  US stocks ended the week down 0.6%, Pacific stocks were pretty much flat (we’ll tell you why in a second), and European and Emerging stocks were up over 1.0%.


North Korea tests another nuclear bomb

Over the weekend, North Korea captured headlines with another bomb test.  What made this different from previous tests was this bomb was much, much larger.  North Korea’s previous tests were in the 10 kiloton range or lower; this one was at about 100 kilotons.  That’s a far cry from 25 megaton nuclear bomb in the US’s arsenal, but it’s still troubling that North Korea is making steady advances both in nuclear and missile capabilities.

The news clearly rattled the markets.  When trading opened on Monday (Tuesday for the US since Monday was Labor Day), stocks tumbled.  Hardest hit was Pacific which makes since given the two biggest components there are Japan and South Korea.

Who really knows on this.  This has the potential to be more sabre rattling and potentially a mortar shot or two that freaks everyone out before things return to normal.  Or, it could start World War III between the US and China.  Obviously, WWIII would devastate the stock market (think down by 50% over 10 years—ouch).  There’s a lot of risk right now.


One-two hurricane punch

As Houston recovers from Harvey, Florida is bracing for Irma.  Just like last week, this is a human story and my heart aches for all the people whose lives have been turned upside by these storms.

However, there is also a major economic and financial impact.  It’s estimated that Harvey recovery will cost about $180 billion.  Irma is expected to hit this weekend so we don’t know how bad that will be but a lot of people who think Irma could be worse than Harvey.  Let’s hope not.

In dollars and cents, that means another 12-digit expense.  Those things add up.  The markets largely wrote off Harvey without a blink.  I wonder if the US markets are down because another hurricane with the potential to do so much damage is coming.  If the US needs to spend $400 billion in a recovery effort, that is a MAJOR component of GDP.  It becomes significant.


Rockwell Collins bought for $23 billion

In a story that looks more like traditional business an investing fare, United Technologies announced its intention to buy Rockwell Collins for $23 billion.  That is a big deal just because it’s a BIG DEAL.  You know all the coverage and energy that surrounded that?  It was a $14 billion deal.  This one is almost twice as big.

Again, I always look at these types of mergers as a good thing.  It shows confidence that things can be done better.  United Technologies thinks they can create value, the lifeblood of the stock market, in the merger.  They are putting their money where their mouth is by making spending $23 billion.  It even has an instant impact given that before the merger was announced, Rockwell Collins was only valued at about $20 billion.

So just a simple view shows that they think there’s at least $3 billion in hidden value there.  Probably more to make it worth their while.  That’s the stuff of investing and business—companies seeing opportunities where they can make something better and more valuable than it was.


There you have it.  It seems like a lot of uncertainty, both political and natural disaster-wise, has kept things a bit off balance.  Everyone have a wonderful weekend.


Week in review (25-Aug-2017)

Yawn.  What a boring week for the markets.  There weren’t any meaningful headlines or blockbuster deals that dominated the financial media.  Stocks just trudged along.  At the end of the week we were up 1%, Europe was up a bit more and Pacific a bit less, but still up 1%!!!  That’s really the perfect scenario, no?.  Nothing too crazy happened, the companies just created value in anonymity, and investors were rewarded.

Of course, there were some stories.  Here are the interesting ones that I think drove the market:


Home sales are softening

Data came out that home sales were slowing, particularly new home starts.  This is a bit of a big deal in that homebuilding and construction are a fairly large part of our economy.  If that slows that means fewer construction workers have jobs, less building material is being used, etc.  That will impact earnings of companies.

Second, and maybe more important, is that new home builds tend to reflect overall confidence in the economy.  Ultimately, these houses will be bought by someone almost certainly borrowing money with a mortgage.  Those people need to be confident enough in their financial prospects to take that on.  If that confidence is eroding which ultimately makes it to fewer houses being built that might portend the end of our pretty spectacular bull run.  That’s not to say that will happen, but it might be an early hint.

Somewhat related, durable goods orders fell more than expected.  Again it’s a similar calculus.  Durable goods represent a long-term investment so if people are less confident that might be the cause.  Stay tuned on this one.


US limits trade of Venezuelan bonds

What is going on in Venezuela is a tragedy.  You may recall I did a post with a former classmate of mine looking at how investments are done in that country.  At the time it seemed very pessimistic, but compared to now those probably seemed like the good ole days.

It’s so sad.  The real tragedy is the humanitarian toll the Venezuelan government is imposing on its people.  Kids are starving, people are going without medicine, simple products can’t be bought, and the currency is becoming tissue paper.  So sad.

The US government imposing these new restrictions is obviously an attempt to break the current Venezuelan government and get something better, ideally capitalist, in there.  It’s a long road but if that could happen a tremendous amount of investment would flood into the 32 million person country with the largest oil reserves in the world.  Companies could make a lot of money capitalizing on those opportunities.  Oh, and by the way, it would help all those millions get good jobs, fill their bellies, educate their kids, and get back to normal.


Amazon cuts Whole Foods prices

No week is complete without a story about Amazon changing the world.  On Monday the merger with Whole Foods will be completed.  Amazon made waves by saying they would drastically cut prices at the grocer.  This definitely follows Amazon’s playbook by bring logistic excellence to their operations and passing the savings on to the consumers.

Some have complained this might start a price war with grocers.  I say “bring it on.”  Who loses there?  Maybe grocery stores that haven’t invested in improving their operations so they can’t compete.  Sorry about your luck, but you need to keep up.  Who wins?  We do.  We get better service at lower prices.  Amazon can definitely create tremendous value which makes them money and saves us money, which we can spend or invest in other things.  All that’s good for the stock market.


Debt ceiling war

It’s a long time before it would happen, and it’s far from certain that it would, but a debt ceiling showdown looks like it might be coming.  These things are always high drama, and then always have a way of resolving themselves either right before the government would actually shutdown or shortly after it did.

A government shutdown has huge economic implications.  Federal government spending is something like 20% of GDP so it’s a big deal.  Last time this happened, during the Obama administration, stocks fell about 4% when the government shutdown.  After it was quickly back up, stocks regained all that back.


Hope you all have a great weekend.

Week in review (18-Aug-2017)

It was a bit of a roller coaster for stocks this week.  After stocks were down big last week, stocks shot up over 1% on Monday but gave all those gains back and more on Thursday.  The week ended with US stocks down 1% for the week, Pacific stocks up 1% for the week and European and Emerging stocks in between.


Merck CEO quits President’s advisory team

Similar to last week, the biggest business news story was a very important social story that cast a shadow over everything: The despicable neo-Nazi terrorist attack that left one woman dead horrified the country.

However, the real story became President Trump’s response.  His delay in overtly condemning white supremacists lead to public outcry.  Merck’s CEO, Kenneth Frazier, was the first of several leaders who cut ties with the president by leaving his American Manufacturing Council.  As the story continued to spiral, Trump eventually disbanded the council.

Given the racial overtones here, Frazier’s departure is particularly notable in that he is one of only five black CEOs of Fortune 500 companies.


Chinese company tries to buy Chrysler

Rumors circulated on Monday there was a Chinese suitor looking to buy Fiat Chrysler.  This is interesting just because Chrysler has been bought and sold a few times, first to Mercedes and then to Fiat.  I’m not sure any of those transactions worked out well for the buyer.  Now it might be a Chinese company.

Second, and more broadly to the market, I think merger and acquisition activities are generally positive.  If a purchase is made, it will certainly be at a premium over Fiat Chrysler’s current market value.  That’s good for Fiat Chrysler’s shareholders in particular, but it’s good more broadly in that it shows that there are companies out there who look at assets and think they can do it better, and they’re willing to put their money where their mouth is.  It will be interesting to see how this unfolds.


Amazon creates pickup locations

Amazon continues to change the world.  They announced this week that they are piloting locations where you can order something online and then go pick it up minutes later.  It’s easy to see how this can be tremendously convenient.  It’s also not a big leap, if this is successful, to see this concept expanding to the point where we eventually get on-demand, nearly instantly-delivered products.

I kind of feel like twenty years from now this is how the world we’ll go, and we’ll be telling our kids how things were before 2017.  They’ll look at us like we were crazy to have to wait a couple days to get stuff online.  From a stock perspective there are going to be huge winners that are going to enjoy tremendous value creation as they make our lives easier.  Who knows if Amazon is going to be one of those winner, but it’s certainly hard to imagine them not being there based on their current winning streak.


China’s Alibaba shows tremendous growth

Amazon may be taking over the world, but there are other companies that are playing in the game too.  Alibaba, which is basically China’s version of Amazon, has been growing tremendously.  On Thursday they announced they grew over 50% to have quarterly revenue of about $7 billion.  That’s a far cry from Amazon’s $38 billion a quarter, but who knows?

The world of retail is changing in unimaginable ways.  The world of international commerce is also changing and the opportunities presented in China are unimaginably promising.  Like the note above on Amazon, I think Abibaba is also good news for the stock market.  Obviously shareholders of Alibaba are doing well, but this is a real rising tide raises all ships.  As Alibaba does well they are serving new and richer consumers who really haven’t been served before.  That’s a lot of upside, and that translates to good news for the companies that are involved in that and by extension their shareholders.


Foot Locker plummets

Since we’ve spent so much time talking about retail and how it’s changing, it seems appropriate that the week ended with an old-model retailer, Foot Locker, missing earnings big and their stock plummeting.  It’s pretty amazing to see such a colossal transition happen so quickly.

Foot Lockers were staples in the mall, where a teenage Stocky and his friends would marvel at the new Jordans, wishing our parents would give us a $150 to spend on a pair of shoes.  Foot Locker’s employee uniforms (black and white striped referee shirts) entered the sports lexicon when fans would complain that refs who made a bad call should “go back to Foot Locker.”

And now it looks like it’s ending.  Another brick and mortar retailer is being replaced by a better, faster, cheaper online buying experience.  As consumers, we’re benefiting and as shareholders we are (so long as you don’t own Foot Locker).  While the tide is rising, there are individual winners and losers, and it’s a bit nostalgic to see one of those titans from yesterday in the process of crumbling.

Week in review (11-Aug-2017)

Every day there are hours of airtime on CNBC and Fox Business filled with commentary on what is going on with the stock market.  Why did it just go up, or Why is it poised to go down?  Add to that the thousands of articles and post positing the same thing, and it’s a lot.

It makes you wonder if there are really that many intelligent things to say, or are they just filling time.

Every Friday I am going to do a quick post looking at the week for stocks and trying to distill what the really important stories were that drove the market.

For this week stocks were pretty much completely flat through Wednesday.  Then North Korea and some earnings misses hit on Thursday and Friday, knocking the US markets down about 1.5% and international markets down about 2.5%.  Here is my take on what caused it all.


Google’s diversity memo

You know it’s a slow week for business news when the top story is a memo regarding gender diversity from a Google employee.  It’s not that the story isn’t important—it is.  However, it seems like more of a social issue than a financial markets issue.

This wasn’t a story about how Google is growing it’s sales or earnings or how it is going to expand into new, profitable markets.  Those are the things that typically drive stocks.  This seems more like the type of story that leads the “News” section on mainstream news outlets like The New York Times and CBS Evening News.  It did that for sure, but it also got top billing on Yahoo! Finance and The Wall Street Journal and CNBC.

Early in the week when the story was hottest, the market didn’t move a lot.  It was a story on a very important issue (gender equality) in one of the most dynamic industries (tech) at one of Wall Street’s darlings.  That made it an important news story, but it didn’t really reflect anything driving the financial markets.


North Korea showdown

This was the dominant story for the week.  Tensions have been high with North Korea for a while as it pursues a nuclear ICBM.  Wednesday after the markets closed President Trump and North Korea’s Kim Jong-un started a war of words that put the world a bit more on edge.

Trump said North Korea would face the US’s “fire and fury.”  Kim said they were targeting their missles at Guam.  Trump said the US was “locked and loaded”.  That’s where we end now.

Stocks fell sharply on Thursday as the market digested this.  I don’t think most believe a nuclear war is likely (if it was, stocks would have fallen much, much more).  But this does open the door to some ugly possibilities, namely would a war between the US and North Korea ultimately lead to a war between the US and China.  Remember, in World War I millions of Germans and French killed each other after a Serbian rebel killed an Austrian prince.


Snap misses

Snap is one of the new social media companies that has become a Wall Street darling.  They don’t make money but there are (were) worth over $15 billion.  I have never used Snapchat and can’t say I fully understand how it works.  But I know my neighbor’s 13-year-old uses it and says that what all his friends are doing.  Those crazy kids.

Thursday night they released earnings and subscriber numbers that badly missed expectations and their stock cratered about 13% early Friday.  This is actually good news because it shows the market isn’t getting caught in “new economy” euphoria, but evaluating these companies on fundamentals like sales, earnings, and growth prospects.  It reminds me a bit of the internet bubble, but it seems we’re being a bit more rational this time around.

Obviously this stock weighed the markets down a very small bit.  But the silver lining is that it shows that all these new companies aren’t going to make it, but that some will be strong and emerge as titans (Facebook).


Brick and mortal retails slows less

Traditional brick and mortal retailers like Macy’s and Kohl’s reported earnings, showing that their sales are continuing to fall, but at a less rapid pace.  That’s a bit of a backhanded compliment—things are still bad but they aren’t as colossally bad as they’ve been.

We’re experiencing a generational shift in how consumers buy things.  Stocks like Macy’s and Kohl’s and other retailers are getting hammered, but all that business isn’t just evaporating.  It’s shifting to other companies like Amazon who are giving consumers those same goods just in a different way.  For the overall economy that’s a good thing, a great thing.  There will be winners (Amazon) and losers (Macy’s) but overall we’ll end up ahead, and that’s good for the stock market.

2015 year in review

I hope everyone had a great holiday season and a happy new year.  For us, the cubs got too many gifts under the tree (note to self: next year, make Christmas less materialistic).  I was the only one still up to ring in the new year, and I did that binge watching A Game of Thrones.

We made it through a pretty wild year for stocks.  In no particular order, here are some of the major stories, events, decisions, and issues that drove the stock market:


2016 stock performance 

Down year for US stocks—This was the first year since 2008 that the US markets had a down year.  That’s pretty good: a 6-year streak.  And this year really wasn’t that bad.  US stocks were down less than 1%, so I suppose if you are going to have a down year, this is the kind you’d like.

Of course, even though stocks ended the year very nearly where they started, it was a crazy ride in between.  At one point, stocks were up for the year about 4%; a couple months later they had lost all those gains and then some, being down about 6% for the year.  After all those zig-zags, they settled where they started.  There’s probably a lesson there, that if you stay calm and look past the short-term craziness, these things tend to work out.


International stocks still struggle—International stocks had a much tougher year than did US stocks, being down about 2-4% (depending on how you define “international stocks”).  As wild as the ride for US stocks was, it was even wilder for international stocks.  They started out like a bat out of hell, gaining about 10% by the time summer came around, but just like their US counterparts, they swooned in the fall, losing all their gains and then another 4% or so.  That’s pretty crazy, a 14% swing in a couple months.

Looking back on the major stories that drove that, to me there are two: Greece and China.  The Greek epic (or should I call it tragedy?) continued with high-level brinksmanship rattling the markets as the deadline for their debt loomed.  Sadly, the powers that be kicked the can down the road, giving Greece another short-term loan that will carry them for a couple years.  Mark your calendar, we’ll do through this whole thing again in 2017.

China also rattled the market.  After years of 8-12% economic growth, China’s economy has started to show some real signs of slowing down.  In 2016 most experts are predicting something in the range of 6%.  Make no mistake, that’s still a lot of growth, much higher than the US’s 2% or any other developed nation’s.  But that’s a major pull back for China, and of course that directly translates to a lower market.

Finally, there was the horrible terrorist attacks in France.  This was probably the biggest story of the year, so that’s why I mention it.  However, as deplorable as they were, they pretty much had no impact on the stock market (they took place in November which was a mixed month for the markets).  Sure, the days following the attacks the markets were a little shaky, but that wore off when people started to realize that companies would still produce products and people would still consume those products.  I bring this up as a reminder that many of those events that are most troubling to us have little impact on the stock market.


Fed raises rates—After seven years of keeping interest rates at about 0%, in December the US Federal Reserve raised interest rates by a whopping 0.25%.  A quarter percent really isn’t that much, but this was largely symbolic.  During the 2008 financial crisis, the Fed dropped rates to that 0-ish% level, the lowest they had ever taken rates in history.  I certainly look at this as good news, in that the Fed thinks that the US economy is strong enough to withstand higher interest rates without slowing growth or raising unemployment.


So that’s the year in a nut shell.  When you take an entire year, and condense it to a few hundred words, I think it does put things in perspective, especially with the stock market.  In 2015, there were probably over a billion words written on what was happening, what had just happened, and what would happen the next day.  In the end, we had a flat year.  To me this just shows how much energy and emotion gets put into this stuff which is largely wasted.  You can just invest your money and then focus on other, more important things like if the Broncos can win the Super Bowl or if Jon Snow is really dead.

Finally, I would be remiss if I didn’t thank you readers for taking this journey with me.  I am especially thankful to all those who left comments and helped me make this blog and fun and informative one.

Here’s to a great 2016.  As to what I think will happen: I have no idea but I am fully invested.

Week in review (8-May-2015)

Talk about a whipsaw week.  Most markets dropped about 2% by Wednesday only to mount a furious comeback and end up pretty much where they started.


This week is one of the really good examples of why I started these week-in-review posts.  There was a ton of energy and excitement in the financial markets, starting out with doom and gloom and how  everything is going to hell, with the markets falling accordingly.  And then on Friday everything seems to be all better, so let’s forget all the bad stuff we thought was happening.

Weeks like this are classic illustrations of why a buy-and-hold strategy is such a good choice.  You avoid all the distractions that come day to day in the market.  Of course, I love all the day to day craziness just like I will enjoy watching the Bulls take on the Cavs tonight.  However, in both cases, the events are pretty meaningless and a month from now we won’t even remember what caused all the excitement.  But while we’re where, what did cause all the excitement?


Productivity falls:

On Tuesday the US Labor Department announced that worker productivity had fallen for the second quarter in a row.  That coupled with reports that the US economy probably shrank in Q1 sent markets tumbling about 2% or so over the Tuesday and Wednesday.

Obviously GDP growth and productivity are the core engines of the economy and therefore of the stock market.  So to here that some fissures are forming is certainly not good news and the markets reacted accordingly.


“Stocks are quite high”:

Wednesday Janet Yellen, Chairwoman of the US Federal Reserve, added to the stock market’s woes by saying that stock prices were “quite high”.  It wasn’t nearly as colorful language as Alan Greenspan’s “Irrational exuberance” comment from the late 1990s, but it had the similar affect of rattling the markets.

But has there ever been a Fed Chairman/woman who said that stocks were low or fair-valued?  They always seem to be predicting doom and gloom in a 30-year period that has shown an amazing track record for stock performance (actually “amazing” probably isn’t even a strong enough word).

Sometimes you get the sense that they just like to rattle the markets to show that they can.  I imagine Janet Yellen telling Mario Dragi (her counterpart in Europe): “Hey, watch.  I’m going to say something that will bring the markets down a percent or two.  You should try it.  It’s a lot of fun.”  I’m totally kidding, but what is the point of her saying anything about the prices in the stock market?


Unemployment falls:

Friday morning the employment report came out showing that the US economy added about 220,000 more jobs.  So all is right in the world again.  Wasn’t it just a couple days ago that we were all freaking out because economic growth and productivity were down?  Plus Janet said stocks were too high.  But wouldn’t you know it turned out they weren’t high enough, so stocks shot up 1.5% on Friday.

Seriously, this is why stock markets are like . . . .  I don’t know what is a good analogy but the lesson here is definitely to not get caught up in the day to day gyrations.  Hopefully you’re investing in your 401k and dollar cost averaging your other investments.  You can enjoy the comedy of the daily market moves, and all the silly pundits that try to make sense of it all.


I hope you have a great weekend.  And to all you mothers out there, have a wonderful Mother’s Day.

Week in review (1-May-2015)

This was a bit of an odd week for the markets—Europe finished up (0.5%), US and Emerging markets were down slightly (-0.9% and -0.6% respectively), and Pacific which had been the best performer for the year took a bit of a drubbing finishing down 2.0%.


Looking back on the week, I’m actually surprised that the markets didn’t finish lower than they did.  And I’m a bit amazed that Europe was able to finish up.  I suppose that Europe has been trading at such a discount for so long because of the Greek situation and the generally slow economic recovery there, that any news short of disaster is coming across as good news.

So with that, what were the drivers of the market?


US growth is microscopic:

On Wednesday the US Commerce Department announced that the economy’s growth slowed to just 0.2%.  That’s still growth so let’s not get carried away, but that is a far cry from the 2.0% to 2.4% that it had experienced over the past year or so.  A FAR CRY.

It seemed that this caught the markets by surprise as the bottom fell out of the market over the next two days.  I always wonder about these things because the government report was reflecting the January to March time frame—that was over a month ago.  So shouldn’t everyone already know if the economy was growing quickly or slowly?  I guess there is some finality when the government puts its official stamp on things, but I would just think this is old news and certainly not something to drive the markets down almost 2%.  But it did, so what do I know?

I still think the US economy is in a very strong position.  Unemployment is low, profitability seems high, and pretty cool innovation is taking place (see below).  As you would expect from me, I’m not worried about this blip, just another good time to buy more stocks through my 401k.


Social media armageddon:

Three of the biggest social media stocks took turns taking an absolute dump this week.  On Wednesday morning Twitter stock fell 20%; on Thursday Yelp fell 20%; and on Friday it was LinkedIn’s turn, falling 20%.  All three of these social media darlings all had weak earnings which showed they weren’t going to keep growing at the break-neck speeds that would mean they would have 10 billion users by next year (who knew?).  What’s remarkable, is they all had remarkably similar moves as each step up to the gallows.

Social media

In a perverse way this actually seems healthy (of course, if you owned one of these stocks your wallet may not agree).  There are a lot of social media stocks out there, and history has shown us that most will fail but the strongest will emerge as amazing companies.  There were a ton of search engine companies in the late 1990s and Google emerged; there were a ton of e-retailers and Amazon.com emerged.  Are we in the shaking out period for social media?  If you look at the charts Facebook seems to be the one that survived unscathed.  I think the race is far from over, but you can definitely look at the first quarter of 2015 as a sign that Facebook is pulling away from its rivals even more than before.


Tesla unveils its newest toy:

On Friday Tesla finally confirmed the rumors that it was introducing a new battery product to the market, the Powerwall.  A colossal battery capable of powering a house for a day or so.  The media was quick to comment—some hailing the idea as genius and others deriding it as a neat product that won’t meet any market need.


The truth will probably fall somewhere in between.  Rarely is the first iteration of a product the one that really changes is successful from a commercial perspective (the iPad is a notable exception).  However, you can really start to see where Elon Musk thinks the future is heading.  His Solar City solar panels will generate electricity which will charge your Tesla automobile and your house during the day.  When the sun goes down the extra power from your solar panels which went into your Powerwall will run your house until morning.

It’s an incredibly ambitious endeavor.  Of course, the technology right now is too expensive for all except early adopters, but just like computers or cell phones, if the volumes go up then the prices will come down and that’s a whole new ballgame.  I have no doubt that in 20 years, most of us will have solar panels on our roofs and industrial batteries sitting along side our hot-water heaters.  Will those batteries be Tesla brand—Who knows?  History tells probably not.  It’s rare that the first entrant will ultimately win the race.  But some company will win the race, and they will make their shareholders boatloads of money.


I hope you have a great weekend, and check back on Monday to see me break down the financial considerations of buying or renting your home.

Week in review (24-Apr-2015)

Remember last week?  Everything was going great until Friday hit, and the bottom fell out of the market.  Well, this week was looking just like last week—through Thursday we had a steady upward trend going and everything was great.  Then Friday happened, and this week, instead of dropping like a stone, the markets kept trudging upward.  Yeah!!!!  We like weeks like this.

This seems like a “no-news-is-good-news week.”  We didn’t have a single day where markets were up over 1%.  Yet, just a steady upward march had markets in the black across the board—from 1.7% for US markets to 2.9% for Pacific markets and Europe and Emerging markets in between.  That’s an amazing week by anyone’s standards, yet in kind of seems like it flew under the radar screen.



It’s still about earnings:

As has been the case for the past couple weeks, we had a lot of companies announcing their earnings, and it all seems to be generally positive.  Microsoft beat their earnings target on the strength of its hardware sales and cloud computing.  Amazon similarly beat expectations with strength across all its business.  Keeping up with its Seattle big brother, Starbucks had a strong quarter thanks to 18% revenue growth.

Of course, there were some companies that didn’t do nearly as well, but there seemed to be a silver lining even in those cases.  General Motors showed powerful revenue growth (up 400% from last year); GM did miss its earnings estimate, but even there they are showing they’re going in the right direction.  Google grew revenue about 15% which fell short of expectations (are you kidding me?  15% seems like a lot of growth to me, especially for a very large company).

So there was good news and bad news.  But the bad news didn’t really seem all that terrible.  Companies were growing revenue a lot, just not as fast as Wall Street would have liked.  That seems like a pretty good problem to have.  I look at this week’s earnings, and really earnings for the whole season, as a feel-good story.  Revenue is growing, innovation is happening, the US is going strong and Europe finally seems to be getting its house in order.  Those are all positives for the market, and investors were rewarded with an amazing week.


The merger that never was:

On Friday the big financial news was that Comcast called off its acquisition of Time Warner Cable.  This was a gigantic move, valued at about $45 billion.  Ultimately, regulators killed the deal over a variety of issues, mostly of the anti-trust variety.  It seems Comcast finally threw in the towel and moved on.


Interestingly, Time Warner Cable’s stock was up about 5% today on the news.  This may seem counter-intuitive since target stocks tend to go up when they’re being bought, not when the deal is scuttled.  So what gives?  I think over the past several weeks and months, as it became apparent there was a lot of resistance to the merger, both companies stocks took hits.  Once the parties finally agreed to go their separate ways, that allowed both companies to focus on the future without dragging around this merger anchor.

In past posts, I’ve been a true believer that mergers are a sign of good news for markets.  I still believe that, but I think this one just wasn’t destined to happen.  I am sure there were amazing synergies that they could have brought to consumers, but anti-trust concerns (which are very valid, and I’m glad the government tries to preserve competition) were just too big a hurdle.  Oh well.  Dust yourself off and move on.


I hope you all have a great weekend.  On Monday I am going to try to answer the question: “Should you use an investment adviser?”

Week in review (17-Apr-2015)

Daaaaaang!!!  We were having another great week of investing to build off of last week’s.  It was a boring but steady move upward—through Thursday the markets were up about 1% for the week.  And then Friday came along and the bottom fell out of everything, erasing the gains for the week.  The US markets took the worst of it, ending the week down 1.0%.  But all the markets were down about 0.5% or a little less.  So what ruined the party?



Earnings, earnings, earnings:

As we mentioned last week, we have entered earnings season, and that is rightfully dominating the news.  By and large, it seems like things have been going well.  Several banks came in with strong earnings.  While the banking industry is the one everyone loves to hate, whether we like it or not, 2008 proved that a healthy banking industry is pretty critical to a healthy economy.  Commercial banks came beat expectations on the meat-and-potatoes business of holding money and lending money.  Investment banks like Goldman Sachs were pocketing nice profits from all the deal-making going on (which we discussed last week).

General industry seemed to have mixed results.  Oil companies like Schlumberger are feeling the pinch from low oil prices, softening their earnings and leading them to start more lay-offs.  Others like GE, despite reporting a loss, are showing that their industrial and manufacturing businesses are really strong.  Plus you had stories like Etsy’s IPO showing that growth and innovative business models are creating value.

Any earnings season is going to be mixed, but I view this one as largely positive.  Banks tend to be a bellwether for the economy at-large and they’re doing well.  Other companies are showing moderate growth that are the green shoots of an economy that is continuing to grow and emerge from a really long period of doldrums.



On Friday everything went to hell and one of the causes is that the CPI released March numbers that showed that inflation is starting to come back.  That by itself isn’t a bad thing, many argue that low levels of inflation are actually a good thing, so what’s the deal?

Remember that the Fed (it always comes back to the Fed) has been holding interest rates down because they haven’t observed any inflation.  I’ll write a whole blog on my thoughts on the Fed in a future post, but the short story is: once the Fed starts seeing inflation, they’re more likely to raise rates.  I think today was a reaction to the reality that rates are going to go up before too long.



I promised I wouldn’t discuss the Greek epic, but what can I say?  Friday details of talks between Greece and its lenders started to come out showing that Greece really doesn’t have a plan to emerge from their debt problems.  Remember a few weeks back, that the ECB and IMF said they had a deal with the Greeks, contingent upon the Greek government putting a credible plan togetherThe market reacted to the news like it was catnip, and no one really seemed to ask themselves the question: Can Greece put together that credible plan?

It’s looking like they can’t.  This week Greece’s finance minister, Yanis Varoufakis, faced off with his lenders at a gathering in Washington DC.  Basically he blasted the previous Greek administration and the lenders for putting together a program that clearly hasn’t worked (he’s probably right on that).  He the claimed that it is Europe’s best interests to liberalize the lending terms for Greece (I’m not sure he’s right on this one).  Of course, it’s going to come down to if Europe is willing to allow Grexit.  Varoufakis is fearmongering, hoping they don’t call his bluff.

As always, this is a steaming mess.  I personally believe that the sooner the world accepts that Greece won’t pay its debts the better off we’ll all be.  Maybe it will be rocky for a little while, but then things will improve because this Greek drama won’t rattle the markets every other week.


Everyone have a great weekend.  Grandpa Lynx (Lil’ Fox and Mini Fox’s grandfather, my father-in-law) came in to town yesterday.  Lil’ Fox woke up at 5:30 this morning trying to go into Baba-Lynx’s room, so I had to put the kybosh on that until 7am.  We have a fun-filled weekend planed where Lil’ Fox will take Baba-Lynx to the local playground about 14 times.  I hope you have equally fun plans with your family and friends.  I’ll see you Monday when I post on “Managing your debt”.

Week in review (10-Apr-2015)

It seemed like a pretty boring week for the markets.  We didn’t have a single day where indicies were up over 1%, which is a pretty serious departure from the roller coaster ride we’ve been on the past several weeks.  All that said, when you look back on things we’re up across the board: 2.9% for Pacific, 1.9% for Emerging, 1.6% for US, and 1.2% for Europe.  First, let’s acknowledge that’s a pretty good week.  What caused it all?



Alcoa announces earnings:

We have entered earnings season, with Alcoa in their traditional role kicking things off (Alcoa’s ticker symbol is AA so they are kind of like New Hampshire during elections, being the first to go).  Alcoa had a mixed report, beating expectations on earnings but missing on revenue.  That said, the general feeling in the market was that earnings were coming in strong due to a generally positive direction for the economy.

In the past several week-in-review posts, I’ve covered all sorts of things from natural disasters to terror plots to geopolitical crises to business restructuring.  But one thing I haven’t mentioned a lot is earnings.  Earnings are the fundamental ingredient in investing, and I’ve been waiting for earnings season to kick off to really hit this topic.  Everything else is background noise compared to earnings.  Remember, when you buy stocks, you’re really buying a slice of the companies’ earnings; the bigger those earnings are the more your stock is worth.  Over the next couple weeks as more companies report, we’ll definitely be looking to see how all this impacts the markets.


Mergers, mergers, everywhere:

This week was dominated by merger, acquisition, and restructuring news.  On Monday Federal Express announced its intention to acquire TNT Express, a Dutch parcel service; the stock for TNT rose 25% on the news.  On Wednesday Shell announced a $70 billion purchase of BG, making this the biggest merger in the energy sector since Exxon and Mobil merged in 1998.  BG was up 35% on the news.  Finally, on Friday GE announced it would divest its $27 billion finance/banking arm; GE stock was up about 7%.

So lucky you if you were a TNT, BG, or GE shareholder.  Doing back of the envelope calculations, those stock increases equated to about $30 billion in new value.  That’s a lot of money, but given that the US stock market alone is worth about $19 trillion, that’s really a small drop in the bucket.  So why do the rest of us care that three companies were bought at substantial premiums?

First, this isn’t the first time we’ve mentioned this.  It seems we’re having a lot of mergers/divestures lately.  Is that a good thing?  I say “yes”.  When these things happen you can see that substantial premiums are paid.  That means the buyer thinks they can do better with the company than is currently happening.  Certainly it doesn’t always happen that way, but going in that’s the plan.  That’s a good thing right?  People are putting their money where their mouth is, saying they can drive more efficiency, more sales, more profits from assets.  As an investor, that’s your lifeblood.

Just looking at these three you can see it:

  • FedEx and TNT do largely the same business in different parts of the world.  If they combine their forces, wouldn’t they be much more efficient while also providing more streamlined service than two separate companies?


  • Shell and BG are coping with a world where oil prices are down 50%.  Doesn’t combining allow them to cut costs by eliminating redundant functions, allowing both companies to be more profitable than if they were separate?


  • GE has long succeed as a diverse conglomerate, however, they were severly hobbled by the 2008 financial crisis.  Does it make sense for the industrial arm to focus on “making stuff” and spin the financial arm off to someone who can focus on being really, really good bankers?


Maybe we’ll look back on these moves as inspired, or maybe they’ll earn places in the merger “Hall of Shame” along side Time Warner-AOL or Boston Scientific-Guidant.  But coming out of the gate, you can see the potential for value, and those at the center of it all are betting billions on their ability to bring that value to reality.  So I think this is definitely a good thing for the markets, and one of the justifiable reasons for the uptick in stock markets.


Have a great weekend, and I’ll see you on Monday when I post about an “Inflation Killer”.