Apple Crushes It As Yellen Lite Becomes Fed Chief

 

When I was a young, single bachelor, I would go to the supermarket to get the groceries for the next week or two.  After a half hour or so of choosing the items, especially after a long day at work, the last thing I wanted to do was stand in line and yet, invariably, there would always be a long wait just to pay for my stuff and head on my way.  If you go to the bank to deposit checks or withdraw money, the same thing can take place.  Doctors offices and hospitals are known to take a few moments, and uh, I think I am being kind there.  As you get older, you realize one thing all humans have in common is there are only twenty four hours in a day for anyone.  Consequently, if you want to get the most accomplished in any day, you try to be as efficient as possible.  It is why logistics are important, especially for any kind of travel or transport related activity.  

 

 

In the equity markets, efficiency is also quite important, as more profitable and efficient companies are rewarded with higher stock prices, lower borrowing costs, and acquisition opportunities which can make a company even larger and more profitable.  In fact, if you look at many of the dominant companies today, they are built through acquisitions and using digital technologies.  Anyway, what is happening in the financial markets is investors allocate capital based on where they think growth is going to take place, and what companies will be most efficient in participating in that expansion.  If you are not growing, and aren’t efficient, well, good luck attracting interest from today’s investors.

 

 

If you look at the current market environment, one of the tough choices to consider is the difference between say, a highly valued young company in what appears to be an attractive area, like maybe Snap or Twitter in digital media, or Tesla in electric cars, and the very low valuations in an area like traditional retail, where companies like Macy’s, Kohl’s, Target, or in groceries, like Kroger, which are um, interesting.   The less seasoned companies have young leaders, markets which look immense, and access to plenty of capital, both financial and intellectual.  Some of the companies in the traditional industries have long records of good leadership and own quality assets, but are seen as being in dead industries.  So which area do you fish in?  You can cast your net in both places, but remember, you only have so much money, so you want to make it count.  You are trying to be efficient with your money, there is that idea again, efficient. 

 

On the earnings front this week, a couple of the large integrated oil companies reported much improved results.  I would also add a year ago the CEO’s predicted oil in the 60 dollar a barrel range, and low and behold, guess where it trades?  You may not like the oil guys, but that doesn’t mean they don’t know what they are doing in their industry.  In technology, Facebook, Alibaba, and Apple absolutely crushed their numbers.  When you look at the size of those companies and how quickly they grow, and how much cash they generate, it is unprecedented.  Facebook, with nearly 10 billion a year is quite large, but they pale in comparison to Apple, which will post over 60 billion dollars of cash flow for the year.  Facebook grew nearly 50% last year, and Apple is also growing quite nicely given its size.  Of course, investors loved these figures, as they should, and it is why markets head higher.  When Google, Amazon, Microsoft, Facebook, Apple, McDonald's, and the oil companies post big numbers, higher stock prices are the destination, regardless of how the financial media portrays it.

 

Earlier this month, China elected its President, Xi Jinping, to a new five year term in office.  A big priority for Mr. Jinping is the Belt and Road Initiative, a plan to connect China economically and through infrastructure to the rest of Asia, Russia, Europe, and Africa.  The logistics and idea are quite interesting in that it essentially makes China an economic hub for those continents and if the infrastructure gets built to do so, the consequences are quite dramatic, especially for global financial and currency markets.  In our neck of the woods, President Trump has reportedly chosen existing Federal Reserve Board member Jay Powell to replace Janet Yellen as Fed chief.  Call Jay, ‘Janet light’ in that his policies are thought to be identical to Yellen’s easy approach.  Powell is known to be calm, reserved, and above all, prepared.  He worked in the private equity shop at Carlyle Group, was an investment banker and lawyer, and has an impeccable reputation.  The progressives won’t like his hands off approach, but hey, these days there is not much they do like.

 

Finally, I just wanted to mention the ongoing issues with data privacy that technology titans like Amazon, Google, Facebook, and even Apple are involved with.  The European Union is taking an especially hard look at the way Google and Facebook treat information as consumer data is incredibly valuable, especially viewed through the lens of these companies profits from obtaining and then reselling it.  These companies are seen as the leaders of our next generation and they have all kinds of ethical issues in terms of data use.  Oil companies, which are involved with a valuable natural resource which is quite dangerous to find, are seen as the scourge of the corporate world, especially by environmentalists.  You may have seen the advertisement by Tom Steyer calling for Mr. Trump’s impeachment.  Mr. Steyer, in case you were not aware, leads the green movement.  Anyway, the Google and the Facebook's of the world are among the most profitable, and efficient in the globe.  Is it any wonder we came across that word again, efficient?  

 

 Anyway, thanks for reading the blog, and if you have any comments, thoughts, or questions about the it or investing, please email me at [email protected].  

 

One reminder, tomorrow I will post our second podcast of Chasing the Elephant- A Discussion of Potential Investments.  The guest, Richard Berger,  will talk about Mr. Softee, formerly known as Microsoft.  

 

If you are interested in finding out about your investment personality, click here for an interesting quiz!