The pessimist complains about the wind; the optimist expects it to change; the realist adjusts the sails. William Arthur Ward

There are many people in the world who enjoy being surprising, or put another way, spontaneous, even unpredictable. Probably the best of example of such a person would be our fearless leader, the grand poo bah in the United States, the ever volatile and certainly not bashful, yes, indeed, Donald Trump. Personally, as a young person growing up, I would have put myself in that category, but as gray hair comes in and one accepts middle age, I have become far more predictable. I enjoy the same things to eat, the same daily routines, and appreciate dependability. Interestingly though, I think it is foolhardy to believe that the world isn’t becoming more unpredictable with all the changes that are taking place across so many different segments of society. Much of this is due to the emergence and adoption of digital technologies. Every single company is faced with looking at their digital presence and issues like security of company assets, reputation with the public, and how to handle a situation which is all too familiar, the hacking of critical information. Moreover, the impact of different kinds of digital advances continues to affect businesses of all shapes and sizes. As an example, this week JP Morgan announced it is adopting a cryptotoken to help with its large treasury management business. So, if one wants to try and be pragmatic, call it realistic, understanding and trying to adapt to new circumstances makes a great deal of sense, especially if you look at the future and are trying to decide where capital is most optimally allocated. Mr. Ward seems quite prescient many years ago, didn’t he?

In the markets this week, there was plenty of news to keep investors occupied. If one were a pessimist, the December retail sales number of -1.2% would be reason to declare the economy is going into recession, as many economic prognosticators already have. Conversely, the earnings reports by Cisco, Nvidia, Hilton, Red Rock Resorts, and Hyatt would give you plenty of reason for cheer. If you adopted the middle ground and were trying to be prudent, then perusing a mixture of good and bad, like the numbers from Fidelity Information Services, Shopify, and CBS gave you a nice broad range of data to decipher. Pepsi and Coca Cola weighed in this week as well, with the former impressing and the latter giving weak guidance for the rest of the year. With equities bouncing back nicely from the fourth quarter selloff, what are other investors focusing on to prepare for a pullback?
It seems the common answer is the corporate bond market, as large companies continue to issue more debt. Some analysts believe the bond market has been structurally altered and there is a lack of liquidity because of fewer dealers willing to step in and provide capital when it is needed. In a bad economic climate where interest payments start getting skipped or delayed, the bond market could get torched. As an example, last week the European bond market did indeed get a big surprise when Italian large investment bank UniCredit elected to skip a payment on a Coco bond, and bond yields jumped across the continent. In combination with the Brexit negotiations (mess), it seems like the constant drumbeat of bad news that comes from Europe hasn’t stopped for the last few decades.

Another area which is worth continued scrutiny is in Canada. You see, for the last twenty years, real estate prices in the great white north have only headed one way, that being higher, so much so that in the major metropolitan areas, Toronto, Vancouver, and Montreal, the cost of living is as high as anywhere in the world. Many millenials have been priced out of buying a starter house because the lowest entry point is right under a million bucks, which is quite hard to muster up on salaries of maybe fifty thousand smackers a year. Just as importantly, the government posture of increasing taxes and raising minimum wages has started to drive many businesses out of Canada, and adjusting (chopping) worker levels. The Canadian economy has long been focused around oil and energy, and the changing government posture in that critical area has left many Canadians upset about the direction the country is headed. Certainly, if Canada’s economy were to drop off a cliff as some are predicting, it will have an impact here in the United States.

Finally, this week Charlie Munger held court at the Daily Journal annual meeting. Mr. Munger makes one or two appearances every year and is always worth paying attention to, so I included a clip of the meeting. I hope you enjoy it.

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.