Category: weekly review

We just got through the first quarter of 2015.  And as it turned out, it was a pretty good quarter to be an investor, especially if you had diversified your portfolio to include international stocks.  Pacific stocks led the way up 8%, followed by Emerging stocks up 6%, European stocks up 4%, and US stocks up 2%.  Just for comparison, a bond mutual fund (VBMFX) was up about 1%.  So all things considered, that was pretty good.  What do these past three months tell us?

 

Things tend to balance themselves out:

Over these past three months, the markets have swung wildly up and down, but those swings tend to cancel each other out and you end up not that far from where you started.  Let’s look at the US markets here—it was up about 2% for the quarter.  During that time there were 63 trading days, and the Dow Jones Industrial Average was either up 100 points or down 100 points an astounding 36 times; that’s 57% of the time.  Think of all those times when the market was down 100 points and everyone was talking about how terrible things were becoming.  Think of all those times when the market was up 100 points and everyone was talking about how good things were.  All those balanced out and the US market finished about 2% above where it started, despite those crazy swings.

 

Tragedies tend to not impact stock markets:

Very sadly, we’ve seen several tragedies in these three months.  Terrorist attacks in France, Nigeria, Kenya, and other countries killed thousands.  Wars in Yemen, Syria, and Ukraine have displaced millions and ground national economies to a halt.  A demented pilot intentionally crashed an airplane, murdering 149 innocent passengers.  Plus the “usual” natural disasters which killed people and destroyed property as always happens.

All these things capture the headlines for days at a time, yet they don’t really have a noticeable impact on the global economy.  Cars and phone and t-shirts continue to be made.  Oil and gold and wheat and cucumbers continue to be plucked from the earth.  Lawyers continue to appear in court and doctors continue to treat patients.  Those tragedies impact us emotionally but it doesn’t change how much we produce and how much we consume.  In that way life goes on as usual.  Of course, there are tragedies that have a major economic impact (World War II is probably the best example), but those aren’t very common; certainly none this quarter qualify.

 

Headlines have a short shelf-life:

In the 63 trading days this quarter, there’s probably been let’s say 100 major headlines.  How many can you name?  Sure, some of those tragedies might come to mind, but what about on some random day like Wednesday, January 21?  The biggest national story of that day was the measles outbreak at Disneyland.  Two months later, does that even matter?  The aftermath provoked a nation-wide debate about immunization, but even the energy around that has died down as the nation’s attention moved on about 40 more times.

 

The Fed will change its mind a million times:

It seems every week there’s some event involving the US Federal Reserve.  Either some report is coming out, Janet Yellen is making comments somewhere, minutes from some previous meeting is be released, or something else.  The global financial industry hangs on every word trying to divine if that word means interest rates will rise or if that comment means they’ll stay flat.

In the past three months there have been no less than 10 days where markets moved up or down over 1%, largely driven by reactions to the Fed.  Think about that though—it swings up or down almost weekly, but add them all up and you end up almost where you started.

 

You’ve probably noticed a trend, and this is really the point of me doing these weekly and quarterly reviews.  For all the news that we’re constantly barraged with, most of it really doesn’t matter when it comes to investing.  If you were Rip Van Winkle and were asleep for the past three months, you’d wake up and see your investments were up 2% in the US and more in international markets.  From an investing perspective, would it have mattered that you missed those 100 headlines?  Probably not.

I say all this as a reminder that investing is a long-term proposition.  Everyday there will be plenty of “action” that gives talking heads and reporters fodder and makes the market “wiggle” but those effects only last until the next headline.  Wise investors look past this and benefit from keeping their eye on the horizon.

On that note, have a very happy Easter tomorrow.  Lil’ Fox has been talking incessantly about the Easter Bunny coming and bringing “candy eggs” all week.

This was a pretty tame week (it was also shortened, with no trading due to Good Friday), with the major markets in a pretty tight range: plus/minus 0.5%.  US and European markets were up 0.5%, Pacific markets were down 0.5%, and Emerging was right in the middle.  That said, if you look at things day by day, it was a little bit of a roller coaster with a big up day on Monday and then a big pull back on Tuesday.  So what caused all the excitement?

 

Economic projections in US looking good:

The National Association for Business Economists (how do I get to be a part of this group?) expects good news across the board in the coming years—lower unemployment, real GDP growth in the 3% range, and inflation less than 2%.  That’s about as good as it gets, right?  Certainly, the jaded investor might look at those projections with a jaundiced eye (I’ll believe it when I see it), but I’ve got to say they seem to ring true.

A major energy revolution is underway where the US is now the biggest oil producer in the world (who would have thought that would be the case ever again?).  That’s creating a lot of jobs, potentially giving the US energy exports, and keeping a lid on inflation.  Beyond that, there is a ton of amazing innovation out there that seems to be providing great opportunities to keep things moving forward.  Of course, these things are impossible to predict, but hearing such a positive endorsement does help.  The markets felt the same way, as they all rose on Monday over 1%.

 

Indiana’s “religious freedom” draws ire:

The news cycle was dominated by the passage of a law in Indiana which has been interpreted as allowing businesses to “refuse to serve” people who go against their religious convictions (i.e., gay people).  There’s been a ton of controversy on this one, and rightfully so.  Mike Pence, governor of Indiana, has been tracking and backtracking on what the law actually means and allows people to do.  Regardless, the business community has come down on the Hoosier state like a ton of bricks.

Many organizations threatened to relocate their conventions away from Indianapolis.  Angie’s List put expansion plans in Indiana on hold; Salesforce.com was assisting its employees in moving away from Indiana.  Obviously there are moral issues at play here and you may fall on either side of the debate, but from an economic perspective, this is unambiguously bad.  Certainly it’s bad for Indiana and its economy, but also for the rest of us.  Indiana is home to some great companies (Eli Lilly, DePuy, Zimmer, Johnson Outboard Motors, Weaver Popcorn to name a very few).  If consumers forego using their great products because of a reaction to the recent law, that hurts consumers as well.  Everyone loses.

Yesterday they passed a “fix” to the law which reserves a lot of the most controversial elements of the original measure, but the perception damage was done.  I imagine that the budding Indiana “embargo” and “boycott” will fade away, but this was definitely a bit of a negative for the investing community.

 

Iran nuclear deal:

The international community seems to have arrived at a nuclear deal with Iran which limits their ability to develop nuclear weapons and in return eases economic sanctions.  On the surface this is an unambiguously positive development.  The Iranian market will start to open up to the world so you’ll have 80 million customers buying clothes and food and energy and gadgets and all sorts of other stuff that they couldn’t buy before.  Also, it opens up the world to Iran exports, specifically oil which should continue to put downward pressure on energy prices.

That seems like a win-win and I think the markets have reacted accordingly.  Of course, there is a risk, best stated by Israeli Prime Minister Benjamin Netanyahu that this deal makes the world a more dangerous place by potentially getting Iran closer to developing nuclear weapons.  Clearly, opinions differ among the world’s leading politicians on this one, but if you believe President Obama’s talk track that the protections are in place to prevent that from happening, this news is a nice early Easter present for the investing community.

 

So that is my take on this week in the markets.  For those of you who celebrate Easter, have a great holiday and you’ll see my next post on Monday.

It’s been a great week if you’re an investor.  US market performed the worst, being up only 2.7%.  Wow!!!  If that’s the worst performance, it must have been a really good week.  Europe rebounded from a tough last week and was up almost 5%.  Pacific and Emerging were in between, being up 3.6% and 4.2% respectively.  So what caused it all?

 

 

Removing ‘patience’ doesn’t mean we’ll be impatient:

The biggest market move of the week was when US Fed Chairwoman Janet Yellen released a statement saying that the Fed would remove the word “patient” from their statement on when they would raise interest rates.  In practical terms that opens the door for them to raise interest rates in the next month or two, so on the surface that should be negative for the markets.

But she was quick to stress that removing the word didn’t mean that they intended to raise rates immediately.  That was where the uncertainly lay—everyone knows that interest rates will go up, but it’s just a question of when.  This was a huge relief for the market as you could see when they rose about 2% within seconds of Yellen making her announcement.

 

 

Euro recovers against the dollar:

Last week the Euro was battered against the dollar.  Such a violent move is never good for markets and it sent all of them down.  Remember, markets really like stability and predictability, so that makes sense.  This week the Euro recovered some of its losses, although it’s still down significantly from where it was at the beginning of the year.

Who knows how long this is going to last?  As always, the Greek epic looms over everything; yesterday the German Prime Minister had to intervene to make sure Greece is playing well in the sandbox with the others.  Plus you have other major European economies that still have sluggish growth.  I personally think that Europe has major systemic problems that need to get solved, the biggest being Greece and its implications for Euro membership, but at least it isn’t in total freefall right now.

 

Amazon gets FAA approval for drones:

On Friday the FAA said it would allow Amazon to start testing drones in a limited fashion (only during day time, at limited altitudes, etc.).  Amazon stock was up about 1.4% in a day when the markets were up 0.9%, so it’s not like it had a major impact.  But I think innovations like this are what are really going to drive our economy forward in the future and create immense profits for the companies that can figure it out.

Predicting the future is always hard, but you can easily imagine that there will be a day when a drone will fly any product you need to your door—groceries, carry-out Thai food, AAA batteries, library books, whatever.  It will be events like this one which will pave the way to a pretty amazing future for us and the companies that figure out how to bring it to market.

 

Enjoy this week.  You don’t get a lot of these 3%+ weeks, so maybe take your significant other out to dinner or something.  Have a great weekend, and my next post will be on Monday when I continue my March Madness investing tournament with Starting early takes on Tax optimization.

What a crazy week on Wall Street.  Tuesday we were down over 1%, Thursday we were up 1%, and then Friday ended the week down another 1%.  Net for the week markets ranged from being about flat with Pacific was down only 0.3%, to really taking it on the chin with Europe being down nearly 2%.  So what was the cause of all of this?

 

Euro depreciates sharply against dollar:

The major news event that dominated the entire week was the major decline of the Euro to other currencies and specifically the dollar.  Pundits spent the whole week debating if this was good or bad for Europe and good or bad for the US.  Based on the stock returns for the week, it seems like it’s better for the US—the US markets were down about 0.6% for the week while the European markets were hammered about 1.9%.

The reason behind all this is if your currency depreciates it makes imports more expensive and your exports less expensive to other countries.  So this is supposed to have a bit of a stimulus on your domestic economy because of a twin effect—exports from other countries are more expensive so your people buy domestic instead; also, your exports are more affordable abroad so foreigners buy more of that.  So on the surface this should be good for Europe and bad for the other economies.

But the deeper issue seems to be that Europe’s economy is not that strong right now, plus you have the nightmare situation in Greece which could potentially spread to Spain and Italy.  Because of all that, the currency is in free fall, so when you evaluate things it’s true that the Euro depreciation should be good for the Eurozone economies from an import/export perspective, but that is more than offset for the negatives that are driving the value of the Euro downward.  Any way you look at it, it sure made for a wild week and people swung back and forth from this being a good or bad thing.  Undeniably, it makes the prospect of the Fox family taking a European vacation much more tempting since our dollars will stretch so much further.

 

Apple watch revealed:

Apple unveiled its latest gadget, the Apple watch, on Monday including a $10,000 version if you really like the gold look.  In general Apple is beloved by Wall Street and the general media so this story got tons of coverage.

The consensus seems to be the product won’t be a blockbuster that will change the world, and the holy grail of a super-functional device that fits on your wrist but contains all the features of a smartphone is still in the future.

If it’s such a disappointment, then why am I writing about it?  Although it remains to be seen if the Apple watch will hit the mark, it does represent some incredible innovation.  Just like iPods changed our lives, and then iPhones and iPads, eventually this product or something like it will get traction and become a staple for us, creating tremendous value for its users and tremendous profits for the company that does it.  And that is really the cornerstone of the American economy—innovation—and that is why I am always to optimistic about investing in stocks, even on really down weeks like this one.

 

Video streaming displacing traditional television:

As if we needed to be told, numbers came out that showed that traditional cable television ratings were suffering in a major way due to streaming services like Netflix, Amazon Prime, and Hulu.  Similar to the idea of the Apple watch, in this case people aren’t watching less video programming (see you can’t even say “watching television” anymore because there are so many different devices they could be watching on).

Just some incredibly innovative companies are finding a way to make things more convenient, less expensive, and generally better for consumers.  This has led to amazing stock performance for those companies at the expense of some of the traditional media outlets.  As an investor, this changing of the guard will clearly have its winners and losers, but net-net you’ll come out ahead because a better product is being created which attracts for customers and leads to more profits.  Again, the innovation engine is clearly chugging in the US and around the world, and that will lead to higher stock prices for those companies who can best bring those advances to markets.

 

So there you have it.  Some sour political/economic news out of Europe put a damper on the week, but I still firmly believe that the value creation is still occurring at an amazing pace.  We won’t have a movie review tomorrow because next week I will have a post every day where I’ll be having a March Madness style tournament to see which investment strategy is the best.  Hope you have a great weekend.

 

The week was dominated by moves (or anticipated moves) by central banks.  We had a pretty flat week until the bottom fell out for everyone.  Pacific stocks did the best (Thank you China) being down only 0.7% while the US and Emerging stocks were down about 2%.  That leaves the European stocks which really got hit hard, down almost 3%.  Wow!!!  So what caused it all?

 

NASDAQ hits 5000 for first time since 2000:

On Monday Wall Street celebrated a bit of a milestone when the NASDAQ returned to above 5000 for the first time since the internet bubble popped 15 years ago.  It wasn’t a story to drive the market, as much as it was a story about how the market has been driven by amazing companies like Apple, Whole Foods, Amazon, eBay, Amgen, Cisco, and others.  Of course that didn’t stop all the news outlets from devoting considerable time to remembering 15 years ago.  My favorite part was looking at the CNBC footage from then and the hairstyles in vogue at the time.  You never realize how much those things change, even in a few years, but man do they ever.

Interestingly, the milestone did prompt a lot of soul-searching  as to whether or not we were in a bubble now, the way we were back then.  15 years ago, a lot of people got taken up in the euphoria of the skyrocketing stock market, only to get crushed when the party ended.  It’s natural to want to look at that now to avoid those painful experiences, but as we learned in A Random Walk Down Wall Street, crashes are really hard to predict.  Overall, this was a nice trip down memory lane, but nothing that really had meaningful implications for the markets.

 

Both China (Monday) and Europe (Thursday) ease monetary policy:

Janet Yellen isn’t the only central banker that can monkey with interest rates to drive markets.  The week started on Monday with China lowering its key interest rate.  As you would expect, this had a very positive effect on Pacific and Emerging markets.  However, this is always a bittersweet move, and one that may have some major implications in the future.  China is lowering its interest rate to spur economic activity because it thinks its economy is slowing.  In the past several years, China has been a manufacturing juggernaut, so to think that the second biggest economy in the world may be slowing down is not a positive for stock markets.

In a similar story in a different part of the world, the European Central Bank announced that it would mimic the US’s quantitative easing program by buying over €1 trillion (trillion with a “t”) in bonds.  Broadly speaking, the European economy is a mess right now.  At best you have the stronger economies experiencing slower growth, and at worst you have Greece in shambles and other countries like Italy and Spain thinking about following Greece’s “budgets be damned” path.  Certainly quantitative easing seems to have worked for the US (but the jury is still out as to its long-term effects), but Europe is in a very different place economically and politically compared to the US.  You kinda get the sense that the ECB is just throwing a bunch of “stuff” against the wall and see what sticks.  Not surprisingly European markets were down more than anywhere else, although they had a slight recovery on Thursday with this news (which was erased and then some on Friday).

There is no doubt that lowering interest rates (what China did) and providing liquidity (what Europe did) has a positive short-term effect on stocks.  But it’s like eating sugar; that gives you a short burst of energy, but it’s not sustainable in the longer term.  Continuing that analogy, a healthy body needs real food instead of sugar, just like a healthy economy needs earnings growth instead of government stimulus.  That’s why the markets were up on the day the stimuli were announced but have since fallen lower as people realize the state of the economy as the reason “why” the stimulus was needed.

 

Benjamin Netanyahu speaks to the US Congress:

When the Israeli prime minister spoke to Congress (without President Obama’s blessings) on Tuesday he took the gloves off and started blasting the Obama administration’s proposed treaty with Iran over its nuclear program.  As the speech went on and became increasingly belligerent, stocks softened moderately, but oil started to increase.

The fear of course is that Netanyahu’s speech portended armed conflict in the volatile Middle East.  A regional conflict wouldn’t be that big of a deal since the Middle East only represents about 3-4% of the world economy; that’s a significant amount but not a lot.  The initial concern is oil and the disproportionate amount that is produced there, and you saw how the threat of war impacted oil prices for a day (of course, the enormous glut in world oil reversed those gains quickly).

The bigger concern is that region has a tendency to draw other countries into its conflicts, especially the US.  As we know, wars are expensive and tend to be bad for the stock market as a whole (although good for particular industries like defense).  While the odds of that are pretty slim in my opinion that there is another Middle East war in the US’s future, Netanyahu’s speech showed the chances are rising, and the stock market acted accordingly.

 

Supreme Court hears arguments against Obamacare:

This is actually a big deal.  Healthcare has been one of the huge drivers of the US economy (and the world economy) during the past several years.  The Affordable Care Act really reshaped the landscape of the industry, and was largely seen as a boon to healthcare companies who started receiving more customers because of the insurance mandate.  Additionally, the government’s subsidies of insurance for lower-income people acts as a huge financial injection from the Treasury to the pockets of the health care industry.

As the Supreme Court reviews a key provision of the law, there’s the potential that all of Obamacare could unravel (certainly something the Republicans want).  That would be bad for the health care companies for sure.  When news came out that Justice Kennedy made some comments that seemed skeptical of the challenger’s case, hospital stocks rose sharply.  But even the uncertainty surrounding all this is bad, making it really hard for these companies to plan very far into the future, and I think that’s another reason that generally you saw stocks soften this week.

 

Job up but wages stay lower:

Friday’s news was dominated by the jobs report.  The good news was that employment was up, with the jobless rate being at its lowest level in about seven years, so that definitely seems to be a good thing (although the calculation is kinda weird because it doesn’t include people who have stopped looking for jobs).  However, the types of jobs are not high-paying jobs as reflected by the fact that wages were flat.  This means that more people are working, but they are tending to be lower paying jobs which is definitely a sign of underemployment.

Overall this has to be net good news, but of course it would be better if both employment and wages were rising for the economy.  Interestingly markets were down sharply on this news, which is counterintuitive; I think it’s probably because this good news makes it more likely the Federal Reserve will raise interest rates sooner.  But of course, that would change a million more times in the next few weeks.

 

So there you have it.  A bit of a bummer of a week for the markets considering we were on a pretty sweet winning streak.  Unfortunately, except for the NASDAQ 5000 celebration (ironically, the NASDAQ promptly fell to 4980 after it hit its mark) there seems to be some developments that are genuinely concerning.  I hope you have a great weekend and I’ll see you tomorrow with my review of The Millionaire Next Door.

 

The biggest stories this week were:  Fed speaks to congress (Tuesday, Wednesday), American cars get high rank (Tuesday), TJ Maxx raises wages (Wednesday), and Net neutrality regulations passed by the FCC (Thursday) .  Of course, there were the daily Greek gyrations, but I figured I covered that adequately on Wednesday.  It was a pretty tame week for the markets virtually flat across the board.

 

Fed comments:

Janet Yellen spent Tuesday and Wednesday testifying before Congress, and the markets were hanging  on her every word, of course waiting for any indication as to when  the Fed will raise interest rates.  As par for the course, about half the market watchers thought her comments dovish, indicating that the currently low rates would remain low for longer, while others thought her comments hawkish, indicating that a rate increase would happen sooner.

Of course, when the Fed does increase rates, it will most likely mean they think the economy is healthy enough to not to have to be propped up by the super-low interest rates  that have been present for the past 5+ years.  The markets will freak out when that happens in the short term, but it will be a good thing for the long term.

 

American cars do well:

Consumer Reports announced its annual winners for each car category, and American brands sat atop three of the ten categories, including Tesla being named best overall car.  This is important for a couple reasons: First, it shows that the domestic car industry is alive and well, creating really strong offerings.  This will of course lead to greater sales which will lead to higher profits and ultimately rising stock prices.  So that seems particularly good for the US automotive industry that was so bad for so long.

Second, the report really highlights the amazing technological advances that are going into all these cars.  These cars (and trucks) are becoming computers integrated into our lives in amazing ways.  They’re making driving safer and more convenient.  Over the next 10 or so years, I think we’re going to see a major transformation in the auto industry, especially as self-driving features become mainstream, which is going to be amazing for society but also tremendously profitable for the companies who can put it together.  Also, it doesn’t hurt that tremendous innovators like Google and Apple are entering the fray.

 

TJ Maxx raises wages:

On the heels of Wal-mart’s announcement last week, TJ Maxx announced that it was following suit in raising the wages of their lower-paid workers to $9 per hour.  In contrast Wal-mart’s experience, TJ Maxx’s stock rose sharply on the news; of course, that was the same day they announced really strong quarterly earnings.  So it’s hard to tell if the market thought that TJ Maxx’s wage decision was a good one, or if they thought it a bad one which was masked by the otherwise good earnings news.

Either way, it’s undeniable that now this movement has a little momentum.  Wal-mart and TJ Maxx are just two of thousands of companies that have low-wage workers, but now there are two more companies who are voluntarily raising their wages than there were before two weeks ago.  If this movement continues to grow, it will certainly have important implications for the stock market but also, more importantly, society as a whole.  It will pressure the profits of those companies (a bad thing for stocks), but it will also put more money in the pockets of a segment of the population that is mostly likely to shop at those stores (a good thing for stocks).

Also, probably the largest implications for this are appealing to my libertarian roots.  Wal-mart and TJ Maxx have voluntarily made these moves.  No government intervention was required (although perhaps it was the threat of government intervention, but I doubt that given our divided government).  Will this show that when left to their own devices, companies will find win/wins for themselves and their employees?  I hope so.

 

Net neutrality:

This is one that definitely will be a big deal; the only thing now is no one really knows if it will be a big deal in the positive or negative direction.  This legislation just passed by the FCC imposes rules on internet carriers similar to those placed on phone carriers.  It has a lot to do with how internet carriers now cannot provide preferential access to certain websites, etc. (although I must admit that I find the legislation confusing).

The reason I think this is so important is that this is one of the first steps in governing the largely “unregulated” internet, and that poses the question: “Is that a good thing?”  On the one had you could say that the internet has grown up and is now such an integral part of our lives and our economy that it has to be regulated to ensure fairness, safety, quality, etc.  On the other hand, you could say that the internet has grown to be so valuable because it has been given a free hand to grow as the open market dictates, and government meddling will just mess all that up.

I am a strong believer in free markets, and I side with the idea that less government regulation tends to be better.  These changes make me a little apprehensive.  The regulations the FCC is imposing are similar to the ones imposed on long-distance phone carriers 80 years ago, so reasonable people may wonder how appropriate that is.  Also, this is happening in a thriving part of the economy that has provided amazing technological advances that have given huge benefits to society, so the stakes are pretty high.  I just hope we don’t look back on this and say this is one of the things that hobbled the internet.

 

So there you have it.  Greece and the Fed took center stage and spent a lot of time saying stuff that didn’t have a lot of substance to push the market one way or the other.  But you also had some pretty interesting stories pushing stocks both higher and lower.  At the end, we ended up pretty much where we started, and isn’t that just the way with these things so often.

The biggest stories this week were: Greek debt restructure (every day), oil train explodes in West Virginia (Monday), US Federal reserve takes dovish tone on interest rates (Wednesday), and Wal-Mart raising wages for workers (Thursday).  US stocks were up just under 1% while international markets were all up about 2%.

Greek drama, continued:

I’m no longer calling this a Greek drama—it’s more like a Greek saga or Greek epic.  Monday everyone was playing nicely, Tuesday the Greek finance minister didn’t wear a tie and that insulted the sensibilities of everyone else, by Wednesday they seemed to be making progress again, on Thursday Germany rejected Greece’s bailout request, and today at the eleventh hour they agreed on a four-month extension which powered the US markets up about 1%.

Next week I’m writing an entire blog post on how this story is totally overblown and that it really doesn’t impact ordinary investors that much.  Suffice it to say, similar to the weather, this story is going to change constantly (that weather analogy does not apply to Southern California where it’s pretty constantly sunny and warm—sorry all you people buried in two feet of snow).  Greece bought itself some time, but you get the feeling they’re just kicking the can down the road.  The media is going to continue to pound this story because it makes good copy, and the markets seems to be bouncing with it between optimism and pessimism.  No way in the world the Greek economy is important enough to have this type of impact on the world’s stock markets.

 

 Oil tank train crash: 

I actually think this one has the potential to be a big deal.  As the North American oil boom unfolds, the logistics of how to get the crude from North Dakota and Alberta to market are becoming increasingly important.  Oil tankers on trains have carried most of the burden, and so long as projects like the Keystone Pipeline languish on the president’s desk, those trains are going to continue to need to do so.

The concern I have is that the oil tanker cars that exploded in West Virginia over the weekend were supposed to be top-of-the-line with enhanced safety features.  Fortunately this time no one was seriously hurt, but there have been several of these accidents, some of which have caused loss of life, all of which have caused significant damage.  Extracting oil from those shale fields has been one of the great economic success stories in the past few years (remember when gas was $4+ per gallon?).  However, there aren’t enough people driving cars in North Dakota to use all that oil; it has to get to market somehow.  If trains can’t efficiently, cost-effectively, and safely do it (do you see the picture of the fireball?) and regulators won’t approve pipelines, I have a concern that a real albatross might hang over the domestic oil industry.  Transporting the oil is going to be much more regulated and a lot more expensive.

Accidents like this are just going to continue to highlight the dangers, and even if the accidents are happening less than 1% of the time, can you blame people for getting concerned?  I mean, it blew up the side of a town.

 

Fed decision:

The US Federal Reserve released its minutes and seemed to indicate that it was leaning towards raising interest rates later rather than sooner.  The equity markets increased a little bit, but bond prices shot up like a rocket.

Everyone agrees that interest rates will have to go up (which tends to lower stock and bond prices).  What is up in the air is when those rates will go up, and today’s news said we’ll still have the lower rates a little while longer, confirming what it seemed most were expecting.

 

Wal-mart raises pay:

Surprise move from Wal-Mart, one of the most reviled companies in terms of worker compensation.  The major debate is asking if they did this because:

1. The economy is strengthening and they need to pay workers more to attract and retain the best people. If that’s the case this is pretty unambiguously great news for the economy, although it could be a sign that inflation pressures might be returning.
2. Political and social pressures finally compelled Wal-mart to pay its people more. If this is the case, it’s either good news or bad news depending on where you sit on the political spectrum.
3. Wal-Mart’s culture in its lower ranks is so soul-crushing that they needed to do something to shore up people’s spirits just do they don’t actively try to sabotage the company while at work. If this is the case, that’s really, REALLY bad for Wal-mart.

Either way, the market didn’t think this was good news for Wal-Mart.  The stock was down over 3% on a day when the market was pretty much flat.  My take is of the three reasons above, it’s closer to #2 than #1, probably about 1.8, with just a smidge of #3 sprinkled in.  Wal-Mart just increased its cost structure about $1 billion without a corresponding increase in revenue, making it a loss of about $1 billion.  If this is a populist pay increase (reason #2) which spreads through the economy, I think it will hurt other stocks the way it hurt Wal-Mart’s Thursday.  So it will be interesting to see how other companies who employ a lot of low-skill, low-cost workers like McDonald’s who have been in the “minimum wage” crosshairs react.

 

Have a great weekend.  I’ll be posting my book review of my absolutely favorite book on investing tomorrow so be sure to check it out.