“To Travel is to Live” – Hans Christian Andersen

If you have ever visited the Irvine/Newport Beach/South Orange County area, you know it is a very unique region. The area has grown dramatically, and people from all over the world are attracted to the fabulous beaches, weather, and increasing standard of living. The academic institution which dominates the scene is UC-Irvine, yes, my alma mater. If you visit the campus today it looks very little like the one I attended many years ago. As a student, the nickname given was UCI- under construction indefinitely. It now has many more schools and buildings and is considered one of the premier public academic institutions in the country. When I came to Irvine many years ago, I was too young and inexperienced to understand what kind of economic opportunity there was at the time. Others did, and if you invested in anything property related at the time, there is a good chance you made many multiples of your original investment. Now, the area is quite crowded and bustling nearly everywhere. High tech entities looking for computer science and engineering wizards dominate the landscape, as they should. Every big company you can think of is on or near the campus, think Google, Amazon, Microsoft, etc. From an investment perspective, traveling and visiting the area was interesting and offered some insights that might be applicable today as well.

First, understanding opportunity is very much about analyzing a specific situation and evaluating the merit of the case of why money spent today for an asset will be worth more in three, five, or ten years. Thirty years ago, Irvine was a greenfield opportunity, now called white space, meaning it was significantly under penetrated. Those kinds of situations are the holy grail of investing, called secular growth stories. It means there are years and years of potential growth ahead. Now, the region is pretty well built out in terms of real estate or companies which have a well established presence. Yes, there is land, but the prime acreage is already accounted for. If you want in now, you are going to have to pay up, and up, and up. The same holds true for residential real estate near the beach. It is pricey and available, but everyone wants it and owners know it. Very few bargains there as well. In addition, the sheer number of people in the region make the cost of living quite high relative to my home town of Las Vegas, a mere four hours away. In sum, Newport, Laguna, and Irvine are one of a kind, are attractive, but are priced that way, and patience is required for buyers looking for investment success.

In the equity markets last week, the second quarter finished up on a high note with equities generally looking at nearly 20% gains over the first half of the year. Fed Chairman Powell continues to follow in step with his predecessors by teasing the investment community one week (with potential interest rate cuts), and then walking them back with vague language the next. In specific company news, Walgreens reported a nice number, and the largest banks passed the annual stress tests with the approval for massive capital returns in both dividends and stock buybacks. As earnings season rapidly approaches, trade issues and company guidance will dominate the landscape to determine if the back half sees profit acceleration or 
more of the same caution about future growth. Oil and gold saw a moderating of gains they enjoyed the previous week, and the heightened awareness about geopolitics and future interest rate cuts will remain a focus for quite some time, so those assets may be worth paying attention to for the foreseeable future (or much longer).

In the political realm, the first two Democratic party debates offered the country a chance to see and hear the best, brightest, and most well funded candidates vying for the opportunity to take President Trump down in 2020. The first night showcased Elizabeth and the 9 wharves all declaring war on corporations in every industry. Banks, oil and energy, health care, insurance, yes, companies in all of these segments of society are villains intent on keeping working people from having a high standard of living and a good life. On the second evening, Mr. Sanders joined in on that theme, interrupted only by Senator Kampala Harris questioning ex Vice President Joe Biden about his racial equality commitment. The usual grandstanding was evident as well, from answering questions in Spanish to prepared jokes and outrage about the other side, and obviously, Mr. Trump. The cheerleaders/questioners/moderators offered up the usual red meat, but do the Democratic party a disservice by not asking legitimate questions that are important to the country’s future (maybe one question about how to transition to a green energy economy while the country is still 90% dependent on fossil fuels, or mentioning the country’s biggest foreign adversaries are dependent on foreign oil and strategically it will be important for decades to come). In any competitive situation, it is not how you start but how you finish. Personally, I thought Mayor Pete showed well, but in a twenty horse race, after the first furlong, one does not have any idea how things will play out. It certainly bears watching for investors. In the meantime, with July 4 approaching, I hope your travel plans go well and make for a great week of the 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.