7 December 2018/ Pearl Harbor Day
Well, no one ever said it would be easy. We continue to invest in stocks that offer value and we have expanded our universe of issues owned to include large Cap companies that have been under pressure. With markets flat on the year the shares we own and are purchasing are down 25% to 50% from their highs this year and many are at multi-year lows.
We can't predict what Trump will twitter next. But it is obvious that the big boys and girls and their computers are having fun with his tweets that are roiling markets as their computers feast on volatility or at least are the proximate cause of the 2% intraday movements.
Coupled with the rush to the doors by FAANG (Facebook, Apple, Amazon, Netflix, Google) holders (and other wonder stocks) who bought the hype and are now reaping the losses or longer term holders who are attempting to lock in still remaining prices the mood of Mr./Mrs. Market remains sour. Interestingly- with the major market measures flat for the year, the go go stocks (1960s term) are all coming back to earth. Apple is down 20%, Facebook -40%, Amazon -20%, Google -20%, and Netflix 20%. Square is off -30%, Roku -40%, Alibaba -25%, Nvidia -40%, Applied Materials -40%, Salesforce -15%. All except Google and Apple are still priced for perfection but the pain is real for many day traders who didn't hop off in time.
There is pain even for those of us who didn't chase the rainbow but felt many stocks were fairly valued. Those stocks we bought are now more fairly valued. ☺
the possible inversion of interest rates (short term rates are higher than long term rates- for example a two year maturity Treasury would have a yield of 3% while a ten year Treasury would have yield of 2.9%) the mavens are worried about recession because past inversions have preceded recession. our take is that in past cases interest rates were twice what they are now and inversion was more meaningful because of that. Also the increase of computer trading and algorithmic computers programmed to make decisions on past data can create inversions trading without affecting the economy.
Coupled with yearend tax loss selling and portfolio primping the markets are volatile and the Trumpster is not helping.
As with Mexico and Canada we think Trump will continue to create his daily reality shows vis a vis China but in the end he will settle with Chairman XI and declare the best most wonderful all-time stupendous trade deal ever negotiated in the history of the world and Universe. Until then volatility remains.
We currently own:
AT&T: down 30% from its yearly high, priced at 10X and yielding 6.3%.
GE is off a bunch and in the dog house. It is an oversize position that we will reduce in the New Year when selling pressure abates and its share price rises. Why GE is priced where it is:
Bristol Myers Squib: - 20% and prices at 13X with a 3% yield.
Caterpillar: - 30%, 8X and 2.7% (traded twice already for 10% profits each time)
IBM down 35% 8X and 4% yield. Has as large a cloud business as Microsoft and Amazon and earns real dollars. Down in part because Buffet sold.
Whirlpool: down 35%, 8X and 3.8%.
International Paper: off 20%, 8X and 4.4%. Think Amazon boxes.
Goldman Sachs: lower by 35%, 7X and 1.7%
BankAmerica: off 20%, 10X and 2.6%
QUALCOMM: down 20%, 14X and 4.4%.
Micron Tech: down 40%, 4X and 3.6%.
AMD: -35%, 40X and 0%.
Western Digital: -60%, 6X, 4.7%.
3D: -42%, ~X, 0%
Abercrombie: -30%, 20X, 4%.
Chico's: -35%, 17X, 4%.
The Gap: -20%, 10X, 3.2%.
Marathon Oil: -25, 20X, 1.2%.
Apache Oil: -30%, 16X, 3%.
Devon Energy: -33%, 17X, 1.1%.
Hain Celestial: -40%, 16X 0% 15 year low.
Ford: -30%, 6X, 8%.
Ascena Retail: -42%, ~X, 0%.
The story below suggests stock picking has underperformed broad market ETFs for the third year in a row.
For those clients of LY & Co and other
interested persons the Quarterly Report on the routing of customer orders under