You learn in this business… if you want a friend, get a dog.
-Carl Icahn

With a big storm approaching the Gulf of Mexico this weekend, and most of the country experiencing the standard summer sunshine (and then some here in Vegas), it would be understandable to have the attitude of staying at home, or near the friendly confines of a place where you know you are insulated from in-climate weather.  In the same kind of reasoning, many investors continue to adopt the tried and true strategy of owning what has worked over the last five years, that being big growth stocks.  It is reflected in the indexes, where a few outperforming stocks make up a large percentage of the Naz and S&P 500.  If a company is not one of those fortunate few, well, it can be very difficult for management teams to sell a story which compares to the large cap behemoths.  Much of that revolves around the need for growth, and with low bond yields and negative interest rates dominating the fixed income market for the last few years (at least), the top line has to meet the demanding threshold of 20% growth or more to give a company a chance of attracting attention.  One thing to keep in mind is things can change very quickly in markets, so as entrenched as the growth mindset is, it may not take much to alter that psychology.  Ok, like what says the skeptic?


Well, Mr. Powell changed his mind, or excuse me, the weakening data helped changed the policy stance of the Federal Reserve Board.  In case you noticed, Mr. Powell cut rates after the market slipped pretty badly during the back half of last year.  Conversely, if the market now roars as it has been, is it not out of the realm for Mr. Powell and his compatriots to decide that going back to ‘normalization’ would be appropriate?  Let us venture into geopolitics as well because, if you haven’t noticed, it has gotten awfully testy in the middle east recently.  First, Iran reportedly shot down a US drone, and this week, they decided their target would be a ship carrying oil from super major British Petroleum.  The British Navy had BP’s back, so nothing happened, but certainly things are a little testy, eh?  If things were to escalate even more and oil spikes, well, these things never seem to happen, until….  In combination with the joy that Venezuela has become, and throw in China and Taiwan’s little argument about sovereignty, and the world is not exactly singing ‘We Are the World.’  The bottom line is that if investors become more concerned with return of capital than return on capital, trillion and half a trillion might look a bit stretched in terms of market value, no matter how quick an entity grows or how big it has become.  
In a light week of earnings, Pepsi beat estimates, as did mighty mite WD-40 while Levi’s didn’t fit so snug after a tepid report.  Sprint and T- Mobile continue to try and negotiate with Dish about selling some spectrum to get their deal across the finish line, while the Justice Department and all three argue about how much each owns of the other and how another telecommute player might look.  Next week brings bank earnings and the always looked at Amazon Prime Day to get a feel for the strength of the consumer.


Here in Vegas, the NBA Summer League makes its annual stop.  If you don’t pay attention to the NBA, that is probably a good thing, because they live in their own stratosphere.  In some respect, it is good to follow moves in sports with a watchful eye to see how organizations with  capital allocate their precious dollars.  With the recent free agent movement of a few star players, many of the leading franchises have decided to pay huge money to aging veterans in the hope to become a champion.  Others have unloaded those assets for future draft picks with the philosophy of looking out two or three years to build a stronger organization and competitive position.  It is very similar to investing in capital markets in that those who use their resources wisely eventually benefit, although it may take a while for others to see the wisdom of their transactions.  The vast majority of investors don’t have payrolls of 150 million dollars to spend, and have to make the most out of their hard earned scratch.  Over the last 25 years, NBA franchises have only grown in value because of the popularity of hoops (clearly technology and social networks have helped), but maybe even more importantly, the scarcity of teams available.  Investors often make mistakes by incorrectly believing something is valuable because there is not much supply.  Yes, restricted supply is important, but only in combination with vigorous demand does an appreciating asset emerge.  It hasn’t been the capital efficiency of the NBA owners which as helped their cause as much as the willingness of a more well heeled titan of industry who decides ‘the NBA is fantastic.  In the capital markets, they call it the greater fool theory.  It has worked for Donald Sterling, Howard Schultz, and ex politician Herb Kohl, but you know the warning they give about the past being no guarantee for the future right?  Anyway, its hot here in Vegas and I hope you are enjoying your summer.

 Thank you for reading the blog this week, and if you have any questions about investing, please email me at information@y-hc.com.
Yale Bock, Y H & C Investments, its clients, and the family of Yale Bock have positions in the securities mentioned in the blog,  Investing in securities involves risk and the potential loss of ones principal.  Past performance is no guarantee of future results.  All investment decisions should be considered with respect to ones risk tolerance, return objectives, liquidity needs, tax considerations, and one's overall financial situation.  The fact that Yale Bock has earned the right to use the Chartered Financial Analyst in no way means or guarantee performance better than market indexes.