Letting Some Air Out Of The Balloon

There’s a lot of noise in the market.

But there’s usually a lot of noise.

By definition — at any point in time — 50% of people think there’s enough bad in the market to sell their shares to the other 50% who thinks there’s good.

Can’t have a market otherwise.  That’s why I always scoff when someone refers to “easy” trading periods.  It’s never easy.

What helps guide you through the noise is whether your fundamental investment thesis is still intact.

Is mine?  I think the two biggest drivers of corporate profits — which drive the market — are the price of oil and interest rates.  Let’s see where they stand:

* While oil took a little run to the upside, I wouldn’t call it misbehaving.  In fact, it’s shed much of its 2018 gain

* Interest rates are spooking everyone… but 10-year is sneaking back down… and Trump’s on fire about the Fed messing things up — so much so that a few Fed governors have had to reiterate that they won’t, uhm, mess things up (i.e., “will still be accommodative for quite a while”)

* Sentiment is negative.  While that’s not comfortable, as a contrarian I prefer this

So, for me, at least right now, the noise is… just noise… and what we’re seeing is some healthy “letting some air out of the balloon”… which we like… so it doesn’t pop.

 

P.S.  A great example of “noise” was Caterpillar earnings.  They beat top & bottom line.  But everyone was fretting about China and tariffs… and the stock got pounded… even though if you read their commentary, you find CAT itself wasn’t so worried about the effect of China or tariffs on its business.  Here’s some commentary from their 10/23/18 earnings call:

* CATERPILLAR SAYS FEEL GOOD ABOUT EQUIPMENT DEMAND IN CHINA NEXT YEAR

* CATERPILLAR SAYS EXPECT BUSINESS TO CONTINUE TO IMPROVE IN 2019 VERSUS 2018

* CATERPILLAR SAYS CONTINUE TO EXPECT INDUSTRY SALES IN CHINA FOR 10-TON-AND-ABOVE EXCAVATORS TO BE UP ABOUT 40 PERCENT FOR THE FULL YEAR

* CATERPILLAR SAYS EXPECT IMPACT OF 25 PERCENT IMPORT TARIFF ON ADDITIONAL $200 BILLION CHINESE GOODS TO BE ‘QUITE MINOR’

These are all good things, right?!

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Microsoft Earnings Are Back To Being Incredibly Relevant

I have to hurry this post because Microsoft is about to announce earnings.

For the first time in many years, Microsoft’s earnings are incredibly relevant again.

As many know, MSFT is in the process of successfully reinventing itself… to be a big-time cloud competitor.

Their earnings after the market closes today are important because the market is in desperate need of some kind of clear signal… either that things are still ok in tech land… or they’re not.

It just so happens MSFT is announcing before Apple, Amazon, Google, and Facebook… which means all eyes will be on their report.

Now, Microsoft has a reasonable stage set.  Adobe reaffirmed guidance last week… which I believe single-handled stopped the market from another 5-10% slide… since everyone was/is feeling like we’ve driven off a cliff… given tariffs… and global tensions… and interest rate hikes… and Trump acting decidedly unpresidential most of the time.

And Netflix killed their earnings, too, which even though it doesn’t seem like it, also helped provide some footing in this decidedly negative market.

But some disturbing things are still happening.  iRobot (IRBT), makers of my favorite electronic device in the world (Roomba!), killed their numbers, too… and the stock was still hammered today… simply because they cited some potential tariff impact… even though they still raised guidance.

What the market wants — craves — now is more assurance… that the consumer is still spending… that interest rates, while increasing, will increase in a slow and measured pace… that oil isn’t going to spike… that tariffs are having a positive effect somewhere in the food chain…

… essentially that the foundation for investment is still sound.

A good report from the once most dominate and influential tech company in the world… that has clawed its way back into relevance… could turn everything on a dime.  Stay tuned!

UPDATE:  Earnings were solid.  Beat on both top and bottom lines.  Stock was up almost 5% at one point in the after-hours market.  (BTW, Tesla TSLA also reported and nailed it… it’s up over 10% in after hours… and ironically they mentioned tariffs and it doesn’t seem to be impacting the pop.)

Now THAT’S Acting Like A Leader, President Trump

I was OVERJOYED by this headline:

Trump says each Cabinet secretary should slash 5% of their budgets after he pledges to cut spending

Remarkably, even one of the slipperiest* figures in politics, Kellyanne Conway, said something COMPLETELY INTELLIGENT:

“He’s asking them to cut the fraud, the waste, the abuse,” White House senior advisor Kellyanne Conway said on Fox Business Network. “Cut the fat, not the essentials.”

I think Trump should have asked for 10% — in business that’s considering an easy and smart cut as it forces you to really examine all of your projects and cut the worst performing one — but 5% is fine to get this party started.

 

*  Sorry for tongue-tying word but that describes her perfectly.

Something I Haven’t Done In 40 Years

We had to be clean shaven in high school.  So when I went off to college, one of the first things I did was grow a mustache.

Longer (as was the style) in the 70’s and 80’s… and shorter for the last few decades… it’s been with me ever since.

Until today.

After 40 years, I’m not sure why I picked October 17, 2018 to shave it off.  Maybe it’s because I was meeting with a bunch of entrepreneurs at Draper University today… and was admiring how all these kids were stepping way outside their comfort zone to take on something new and risky.

And then I thought, I should do something new and risky, too.

For me, that’s not starting a business or investing or such, I do that quite often.

Nah, for me, it had to be something I haven’t done before… or at least something I haven’t done in a looong time… which I believe 40 years qualifies as.

And, so, out came the razor… !

 

P.S.  As you can see, the haircut is the same.  ;)

Please Stop Being An Embarrassment, President Trump

This shouldn’t be news.  On CNBC, no less.  It’s an embarrassment.  Grow up and be presidential, Donnie.

I Hate Blatantly Biased Political TV Ads That Pander To Non-Relevant Fears

A few years ago a proposition went on the ballot to add a $1 tax per pack of cigarettes… with 100% of the tax going to support medical research for smokers.

The logic was simple:  If you choose to smoke, you should also be responsible for the health care costs you will inevitably have.

The tobacco industry fought this by creating an ad that had nothing to do with the issue at hand.  It was like an ad that read, “aw, but don’t we all like puppies and kittens?”

It’s happening again.

The California Teachers Association — one of the largest lobbyist groups in California — has created a shell organization called “Kids Not Profits”… in order to disguise their efforts to torpedo anyone that challenges their dominance…

… a dominance that corresponds with California schools going from one of the top systems in the country to one of the worst.

The ads the Teachers Association are running make it sound like the non-union people trying to fix our school problem are all “greedy billionaires who want to kill puppies and kittens!”

P-l-e-a-s-e!  Come on, people… let’s use some common sense… the last thing anyone interested in making a profit would want to do is get into the education business, especially at the grade school and high school levels.  It’s just not a good money investment.

It is, however, a great people investment… which ultimate corresponds with a great community investment… which is why it’s called philanthropy:

the desire to promote the welfare of others, expressed especially by the generous donation of money to good causes.

On the other hand, let’s call a spade a spade:  The Teachers Association DOESN’T protect teachers… it protects the massive layer of administrative bureaucracy above teachers… those same administrators that now control one of the largest educational budgets in the United States… and those same administrators that have — literally — DESTROYED public education in California.

The California Teachers Association should call their new organization “Administrators NOT Teachers or Kids”…

… because all the money goes to the incompetent administrators, leaving bare nothings for kids and teachers.

The Definition Of Stupidity

Apparently California is using tax dollars to advertise against a proposition on the California ballot to repeal a gas tax.

Yes, that’s right:  Using more tax money to make sure we can tax more.

Sorry but that just doesn’t sound right.

Politics.  UGH!  Just fix the problem instead of throwing more money at it!