Y H& C Investments Blog

Is the Market Rigged?, $75 Oil, and Bank Lending-

2014-04-04T13:56:00.000-07:00

The Sixty Minutes program on Sunday night about High Frequency Trading, based on the book "Flash Boys: A Wall Street Revolt" by Michael Lewis, has become the central focus of the investment community. Today, Attorney General Eric Holder announced an investigation into the improprieties involved with HFT market makers. Accompanied with the Justice Department query is an additional look by the Securities and Exchange Commission. Several CEO's of large companies like Charles Schwab and Toronto Dominion Bank have jumped into the fray by stating they believe high frequency trading should be banned.

There are many issues involved with high frequency trading, but much of it centers around broker dealers using technological advantages of high speed fiber lines, superior software design and coding, and the implementation of routing techniques to either front run trades, create dummy transactions and use the information to arbitrage price differences between dark pools and the the open market, or a combination of the two schemes. Mr. Lewis's book and the 60 minutes piece, while attracting a lot of attention and selling quite a few books, ignore the past five to ten years as this has been taking place for quite some time. Wall Street brokers have always benefited by scalping more than their fair share from investors, the difference here is the spreads are narrow because of decimalization and computer trading. History has shown for a hundred years the investment banks, exchanges, and broker dealers control the the mechanics of buying and selling securities. If you have read Warren Buffett's and Charlie Munger's opinion's on trading and why investors should minimize it, as well as the fact they have long thought high frequency trading was front running, none of these issues are surprising. What is surprising, though not shocking, is how long the regulators have not been paying attention.

Even further, using the term that "the market is rigged" is also in many ways quite irresponsible. At no point during the television segment was any kind of attempt made to break down what the capital raising process is, what ownership of a stock is, how many people own stocks, and then tie trading costs into any of these basic principles. Also, at no point was anything mentioned about what the alternative to the "rigged market" might be. If you are advocating the market is rigged, the logical conclusion for a viewer would be to stay away from that entity. If you stay away, where else might you go? How might staying away from the nefarious activity affect life goals in the future? At a time where the general public has very little faith in stocks, irrespective of the massive gains for shareholders over the last five years, the media's sensationalism make any kind of a rational and fact based discussion difficult. During the week, Mr. Lewis and the protagonist of his book, who set up a competing exchange free of conflict and one which neutralizes HFT advantages, and the CEO of a competing trading company lined up on CNBC to have a discussion about the matter. Naturally, the result was a vigorous argument about the merits of HFT trading by those involved. The bottom line is high frequency trading is indeed not good for market participants as it raises the costs of buying and selling assets, and allows some to benefit at the expense of others in what can be viewed at as a zero sum game. However, I might also point out the guys who are the sharpest and wealthiest investors, Buffett and Munger, made their money investing capital in equities. Speaks for itself, I'd say.

The jobs report today was not the greatest, and the market continues to sell off hard, especially in momentum, technology, and biotechnology related names. The lack of any kind of accelerated strength for job creation continues to lend fuel to the fire that the current policies being employed are at best inefficient and not well thought out. The only real job creation which took place was from the private sector, what a shock, huh? The misguided notion of an enlarged role for government is the underpinning of the Affordable Care Act, which has recently made headlines about meeting the seven million enrollment number. One notices nobody mentioning the number of those who have made their premium payments. I suspect the chicken has yet to come home to roost on the public's verdict of the Affordable Care Act.

In the oil market, the continued movement to rationalize portfolios and asset ownership by the large integrated oil companies is occurring all over the globe. Whether it is in North America, Europe, Africa, Australia, or Asia, the largest oil enterprises are starting to make the hard decisions about what assets they want to own and where they want to own them. Whether it is Shell selling in Nigeria, BP closing down a refinery in Australia, or Exxon scaling back projects in North America, big oil knows their capital investment programs and returns on capital are going to evaluated very closely every earnings report and year, and it will probably not change for quite some time. As a shareholder, these are good things as capital allocation decisions are always crucial for the future, no matter how large the entity is.

Barron's had a cover article last week on the increased possibility of $75 oil because of technological improvements in a variety of different ways to potentially increase the supply of oil in the future. Some of us who majored in or studied economics also know there is another part of the equation, which is demand. I would argue the Barron's piece missed the demand side of the equation and where the growth of demand will go, especially in Asia. The largest oil companies all predict the majority, if not all of the expansion of demand will take place in Asia. If you look at the projections of both supply and demand, it is hard to see how oil goes to $75, unless supply absolutely explodes. In addition, there is the additional variable which has to be considered, and that is how oil gets moved. Given the fact that we in the United States currently have been waiting six years to find out whether the Keystone pipeline will be approved, a point recently made by Boone Pickens, lets just say our ability to streamline the process for different ways to move oil and gas ain't exactly perfect. Some in Europe want the U.S. to just start shipping liquid natural gas to help relieve Europe's dependence on Russia's Gazprom. Seems like a good idea, right? You would think Mr. Obama would endorse it and go with it. Even if he did, it takes five years to start making the terminals and planning the logistics to build the facilities. The private sector is itching to get it done and has been for years. The problem is the leadership and it's loyalty to a constituency which does not understand the strategic importance of energy. Yes, the environment matters, and the future of the planet is important. No one denies it, and the oil companies work in nearly every kind of environment there is. In fact, the engineers and scientists from the largest energy companies probably care as much or more about the planet then those who continually criticize and complain about them, including the pandering politicians. The political positions in the United States and Europe regarding energy continue to leave our citizens in a far weaker situation than we ought to be.

Elsewhere in the market, it seems some believe bank lending might be turning a corner. Mortgage lending is still a problem and is showing contraction, but business lending is expanding. Any expansion of interest rates would improve banks net interest margins, and the large money center banks would benefit immensely if it were to materialize. Last week the regulators gave the red flag to Citi's capital plan and turned down a potential dividend increase. The fact Citi let $400 million dollars of loans go misplaced in Mexico I am sure did not help their cause. Prudent lending is not an easy job, and don't the boys at Citi know it. Having gone through four CEO's in six years do not inspire confidence, let alone having an equity lose ninety percent of it's market value. Still, Bob Rubin and Sandy Weill get no heat, so I guess, as they say, timing is everything.

Thank you for reading the blog this week, and I am sorry it took so long to post. Any comments, thoughts, or questions on the material are most welcome and please share them!

Y H &C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder.

Dead Money Disses, IPO Heaven, and Buffett's Billion Dollar NCAA Tournament Bracket-

2014-03-22T15:31:00.000-07:00

"Dead Money" is the term derisively given to an investment which does nothing (like the current President and Congress of the United States, but that is an all together different matter). The worst thing for anyone investing capital is to plunk your hard earned money down, and then watch the asset lose 20-50% of its value very quickly. If you do your homework, having a bad experience like this should be the exception but not the rule. Once in a while it happens to even the best investors. Look at what happened to Warren Buffett with his investment in TXU bonds, it went south real fast. Ackman's short of Herbalife cost him at least 25% last year, and that is starting to change, but still, the position went against him very quickly. Still, these kinds of experiences are not something anyone wants to get accustomed to. However, probably much more common is the idea of "Dead Money."

Of all the situations investors have to handle the most, a non performing asset has to rank up there as the most common and the most frustrating. When you own something for one, two, three, five, or even more years, and it gives you no benefits, well, an intelligent person has to question why they own it. My own opinion is dealing with the non activity portion of investing is incredibly important if you do want to have better than average returns. In all too many situations, while an asset may not increase in market price for a long time, the fundamental value of the company may be growing quite substantially. The disconnect between market value and business value gets overlooked by those who have to see market price gains to think they made a good investment decision. Then, with no announcement, and no fanfare, the pet rock which you thought you owned suddenly starts to become your favorite item in the whole world. The next time you hear anyone, especially traders, start pontificating on the "deadness" of a specific company, you might take a very good hard look at that particular area.

Janet Yellen's commentary this week sent the market into a bit of a tizzy on the idea interest rates might actually get increased sometime before the next century. Still, I find it questionable, at best, that the difference between 2.6875% and 2.87986% on the 10 year bond is going to be your determination on whether you want to own a risky asset like a stock. If it were judging between 2.6875% and 12%, I could see the concern. Since we are nowhere near that variance in interest rates, well, some people might want to just calm down a bit.

The IPO activity and pipeline keeps getting more active as it certainly is time to cash in for a few lucky groups. The investment banks and Silicon Valley venture capital firms have to be loving 2014 as the dollar bills keep raining down from the skies. Can you just imagine what will happen when Pinterest and Dropbox get ready to go public? Dropbox has raised capital at a late stage value of $10 billion. By the time these companies get ready to have an IPO, you could be looking at $30-$50 billion dollar valuations. If WhatsApp is worth the $19 billion Zuckerberg paid for it, and they don't have much revenue, well, consider Pinterest's sales pitch to the investment bankers. We have X in revenue and Y in cash flow and Z in users, so we are worth G(azillion). The bankers just nod their heads and go, kaching, kaching, kaching, in the hope they are selected as the lead underwriter in the syndicate. Now, if you are buying these IPO's in the hope of an appreciating asset, make sure you do your homework very carefully bv reading the prospectuses, if you can get your hands on one.

Elsewhere in the market, the Biotechnology sector had a very rough go of it during the past week. If ever there was a sector which most closely resembled a dice game, small cap biotechnology would have to be it. I am not saying it is impossible to do well in this area. In fact, over the last year, it would be very interesting to see how it performed versus a regular small cap index or the S&P 500. However, the analyst part of me has to bring up the fact that many of these companies have no revenues, no cash flow, and may have drug pipelines which are limited to a few compounds, and in many cases, only one drug. Even worse, they are merely at stage one or stage two of the FDA licensing and approval process, and there are usually all kinds of twists and turns in navigating that obstacle course. Consequently, I don't even bother to touch biotech as it is hard enough to invest in companies with revenues and cash flow, let alone those which have none.

Apparently some banks and those in charge are starting to rethink their opinion on Apple as the prospects for the I-phone 6 and a larger screen may be better than originally thought. I also would note it will be interesting to observe how the retail part of Apple is coming along under ex-Burberry chief Angela Ahrendts. If you combine these things with a new China Mobile partnership, and any innovation in products like the I-Watch, I-TV, I-Car, I-Plane, or I-Underwear (oops, you get the point), well, let's just say don't count out the big shiny red object crew just yet (yes, my company owns Apple for clients).

Finally, the NCAA Tournament began this week and like always, it proved to generate massive interest. Warren Buffett's Billion Dollar Bracket challenge also created plenty of enthusiasm as the potential billion dollar prize has more than a few people curious, to say the least. As of this writing, it seems Mr. Buffett's ability to calculate the risk reward ratio of a premium payment weighed against the odds of a winning contestant is quite good. There are no possible winners thanks to the fine efforts of Harvard, Mercer, and the hard working lads at North Dakota State, among others. Maybe next year.

I hope everyone has a great spring and thank you for reading the blog this week, I very much appreciate it.

Y H &C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder.

It Is Getting Tougher-

2014-03-15T15:00:00.002-07:00

Five Down Days In A Row as China and the Ukraine Trouble the Market

For the week of March 15, 2014, the Dow Jones Industrial Average fell 2.4%, the S&P 500 dropped 2%, and the Nasdaq retreated 2.1%. As is usually the case, when the mood of Mr. Market changes, it happens rapidly. After several weeks of positive results, it was time to hit the sell button, especially on Thursday the 13th, when the Dow dropped over 200 points. Many attribute the weakness to a realization that China is not going to be a source of strength for those looking for growth, but could indeed be a major problem. The same issues of too much building, commodity weakness, and inefficient use of capital by the large government controlled companies all are seen as root causes of the slowdown in GDP growth. Many believe the canary in the coal mine for continued market weakness is the sudden drop of the price of Dr. Copper, which could be saying the real concern should be deflation, and not inflation. When combined with the situation in the Ukraine and the eventuality of the Crimean peninsula electing to join an increasingly aggressive Russia, the urge to sell was overwhelmingly elected by market participants.

I noticed the Herbalife situation has, shall we say, taken a sudden change as well. After nearly a year of seemingly beating his head against a wall, and in the process losing investors hundreds of millions of dollars by shorting Herbalife, Bill Ackman's Pershing Square fund saw a little sunshine as the Federal Trade Commission opened up an investigation into claims Herbalife is really a pyramid scheme. I would only note Mr. Ackman is an exceptional investor and his track record is such that on something where he has this much conviction, even though it has not gone his way yet, I would not be betting against him. You know what they say, though, conviction is for convicts.

I would note one of the real interesting situations in the markets these days is how traditionally large, incredibly well known brands across quite a few industries are not very highly regarding by investors these days. If you look at companies like McDonald's, Coca-Cola, Pepsi, AT&T, Weight Watchers, and others, they are seen as being no or low growth companies. If you look at the intangible assets on the balance sheet of these entities, you can make a reasonable argument that brand recognition is worth in the billions of dollars, especially of those I just mentioned. Yes, these individual enterprises face challenges, but what business doesn't? I don't know about you, but you cannot tell me that 10 years from now, people are not going to recognize McDonald's and Coke just as much as they do today.

The U.S. government decided to release 5 million barrels of oil from the strategic patroleum reserve as a way to test market readiness. The current U.S. government position regarding energy continues to be completely unrealistic as it places far too much importance on alternative energy. A practical approach would be to work with the oil, gas, and coal industries in a more inclusive way to help the country use it's growing energy strength as an effective economic tool against those in the world who might be concerned with U.S. interests. Is it possible things might change regarding energy policy? Yes, and if you believe that, I have a bridge to sell you , too.

Finally, it looks as if the long awaited Alibaba IPO will take place fairly soon, to the tune of over 150 billion dollars. Yahoo will get a big cash infusion, and the pressure on Marissa Meyer probably will grow, as investors are going to want to see progress of an operational turn around. I suspect Google, Facebook, and Twitter are going to paying very close attention to the lovely lady running Yahoo nation.

Thank you for reading the blog this week.

Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder.

The All-Airport President, a Bitcoin Blowup, and Dysfunctional Government-

2014-03-05T13:29:00.000-08:00

When the famous ESPN commentator Dick Vitale was once head coach at the University of Detroit, he had a nickname for guys on his team who were tall and looked good, but could not play a lick-
"All-Airport". As President of the United States, Barack Obama should be nicknamed the "All-Airport President" because while appearing to play the part of the country's leader, when one evaluates him using any kind of objective criteria, he fails on nearly every level. Anyone who has been involved in leadership of a business, organization, or athletic team knows credibility is the vital ingredient to making an entity operate well. Barack Obama currently has the big goose egg in the important c-word area in both the foreign policy arena and on the domestic front.

When the Soviet Union sent military forces into the Crimean portion of Ukraine, it validated many of the arguments long time opponents made about Barack Obama. For five years, his critics have criticized him for not confronting aggressive leaders from Iran, Syria, and now Russia. Those who have found fault also believed he should have been far more supportive of democratic interests during the Arab "Spring" and during the killing of American diplomats and military personnel in Libya. In none of these prior situations was anything done to stand up to those who might harm U.S. citizens and members of the armed forces, destroy U.S. assets, or potentially hurt U.S. allies. Now, the United States faces a very different globe in terms of how the rest of the world views us.

In the Civil War, General McClellan was in charge of the Northern Army, which held a far superior manpower position when potentially fighting the Confederate Forces, led by General Lee. Eventually, Lincoln said about McClellan he had a case of "The Slows", because he would never confront the enemy. It appears as if President Obama and General McClellan have the same illness.

On the domestic front, the brainchild known as Obamacare continues to plague the country, and with it, all members of the Democratic party. Another genius of our government, and a politician who makes many ill merely by appearing on the television screen, is Senate Majority Leader Harry Reid and key Obama ally. Reid recently commented that all of the hardships reported by people about the Affordable Care act were complete lies. The delusional nature of Mr. Reid is indicative of the arrogance of the current administration regarding their attempts to cram down on the country's citizenry it's beliefs about how large parts of the economy should be operated. It also is the best example within the country on why Barack Obama has a large credibility problem, and one which he will wear like a cheap suit for the rest of his presidency.

Like nearly every situation which involves confrontation, it is always instructive to pay attention to the economic aspects to gain a better understanding of the root of the matter. In the Ukraine, a major issue is how oil and gas from Russia is piped through the country to end up in Europe. Almost 25% of all gas used in Europe comes through the Ukraine pipelines and is supplied mostly by Russian national gas company, Gazprom. The Western European countries and the United States are trying to help Ukraine pay for debts piled up in past years and owed to the Russian company, something in the neighborhood of $30 billion. Our group has come up with a whopping 1 billion in loans to help the Ukrainians. Europe is badly hamstrung in the dispute because it needs the gas supplies.

This brings us to Mr. Obama's energy policy, all of which are centered around green and renewable energy. As anybody who is familiar with global energy markets can tell you, oil, gas, and coal will be the dominant sources of energy for many years to come. At best, in five years time renewable and green energy will make up 5-7% of all energy sources. Essentially, by not having a good working dialogue with the oil and energy industries, in fact, one could argue the current administration is downright hostile to those groups, President Obama has taken a huge strategic advantage of improving energy production in the United States and turned it into a wasted asset. Russia's government is nearly completely dependent on energy revenues from Rosneft and Gazprom to fund their government. Any kind of market share shift towards the United States and North America in oil and gas is crippling to Russia. If you unshackled the energy industry with the regulatory constraints it is littered with, it potentially could very much shift the political dynamics all over the globe, especially with countries like Iran, Libya, Venezuela, Egypt, and Russia, who ain't exactly our best friends. Instead, Mr. Obama is more concerned with what time happy hour is. Great.

In the financial markets, an interesting event occurred involving Bitcoin, the digital currency. The largest global exchange in Japan for Bitcoin went belly up, and another exchange failed yesterday. At one point, one bitcoin traded for over $1200. The current bitcoin price is $640.5 so some investor's might find it to be a bargain. No comments from the management on that one.

In another interesting area, a few business development companies have commented they believe we are at the peak of the credit cycle now, with far too much capital available chasing too few opportunities. Business development companies are interesting creatures because they borrow money in the capital markets, and then make investments in the debt of either venture capital type companies or small to mid market businesses. If a company gets sold or the debt gets repaid on time, everything works out well. If not, well, the BDC has to refinance their debt or sell assets to repay whatever may come due. When these companies say we are at the peak of the credit cycle, you have to know debt is probably going to get more expensive in the near future.

Over the last week, the equities market has vacillated based on the current status of the situation in the Ukraine. As spring is nearly upon us, I am sure many retailers are eagerly looking forward to a bit of nice weather as it would not be surprising to see the eastern and middle parts of the country really happy to get out after a very tough winter. I hope some of the nice weather here in Vegas will make its way to the rest of the country.

Finally, today an interesting situation took place during the House of Representatives hearings regarding improper action by the IRS (Me Thinks You Doth Protest Too Much) It speaks to the dysfunction in the government, and when you have the IRS targeting specific non profit groups based on political affiliation, there certainly have to be questions raised about abuse of power. Worse, when people don't want to answer questions about uncovering what took place, the government has serious problems. Mr. Cummings, me thinks you doth protest too much. Thank you for reading the blog this week, and let's hope for some better weather.

Y H &C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder.

Big Boy Finance- It's Major League Time on Wall Street

2014-02-21T12:31:00.000-08:00

It has been a very interesting two weeks in the financial markets as investors have seen groundbreaking deals which could potentially alter the competitive landscape in the media and telecommunications industries. We have seen massive bets placed by large participants in the quest for market share and future growth. Let's take a look at what has transpired and what the implications may for quite a few different segments.

A few days ago, Facebook's Mark Zuckerberg placed a $19 billion dollar wager by buying WhatsApp, a mobile messaging service which is growing like a weed and has accumulated nearly 500 million users. WhatsApp has an interesting business model in that users don't pay fees for the first year of usage, and after the initial annum pay a whopping $1 a year for unlimited SMS and other services. Facebook is betting on the continued growth of its acquisition, especially in large markets like India and Brazil. In some Southeastern Asian countries like South Korea and Thailand, companies have created large user bases with free SMS services and then tried to make money by adding additional pay layers to the free service, with some traction. Facebook is trying to duplicate their success of buying Instagram, especially on the strategic front. Many view the purchase of WhatsApp as a defensive measure because it tries to address the growing naysayers that Facebook's s popularity with young users is slowly eroding. Zuckerberg financed most of the deal by issuing Facebook stock, and used cash as an incentive to retain the WhatsApp employees.

Deals in Silicon Valley are done primarily with stock as a way to retain the upside potential, but with interest rates where they are, the deal strikes me as one which probably could have been done a bit differently and would wind up far more tax efficient. Still, the main issue in the future is going to be how well Facebook can take WhatsApp and create a large and ever growing cash stream from the user base. The purchase price is a big hurdle and some of us old fogies remember services like AOL's Instant Messenger which were going to lead to large revenue streams in the future. Until they weren't. Still, it is a bold bet and certainly probably made the boys and girls from Google, Yahoo, and Apple sit up nice and straight in their chairs, or penthouse suites, and take notice.

If that were not enough, last week saw Comcast agree to buy Time Warner Cable for nearly $160 a share, or a market value of nearly $50 billion I certainly have been very vocal about thinking John Malone and Charter Communications would ultimately wind up with Time Warner Cable (full disclosure- at every level- company, personal, and family, all members of the Liberty Media "family" are holdings). Many investors and the media have portrayed John Malone as 'losing' to Brian Roberts and Comcast because Charter was not able to merge with Time Warner Cable. As is so often the case, there is far more involved with this situation than to declare a winner or a loser. Let me offer up my thoughts as to how to potentially view what transpired, keeping in mind I am looking at it from the Liberty shareholder point of view.

First, the person who really recognized the value at Time Warner Cable is John Malone. The management at Time Warner Cable, including current CEO Rob Marcus, has not invested in their own infrastructure for a number of years, and it's customer service is notorious for being, shall we be kind, substandard (atrocious could also be used as a description). As such, Time Warner Cable has proceeded to lose cable subscribers for the last two years.

John Malone's has a fourty year track record of literally turning feces and urine to gold. If you have been an investor in almost any of Malone's public companies you should be congratulated because chances are, he has made you money, and probably quite a lot of it. John Malone bought nearly 30 percent of Charter from a group of private equity companies, and when he did he knew Charter has something like $7 billion dollars of tax loss carry forwards as tax assets. In addition, Liberty Media has a 52% ownership stake in Sirius Satellite and voting control of its path forward. Sirius also possesses something like $5 billion dollars of tax loss carry forwards, has over 25 million paying subscribers, and generates over a billion dollars a year of cash, which should also grow nicely in the future. Liberty is trying to consolidate its ownership of Sirius by buying the rest of what is does not already own. John Malone's attempt to merge Time Warner Cable with Charter would have taken Charter's paying subscriber base from 4 million to over 15 million in one transaction. A new entity could then shield it's substantial income from taxes with over 10 billion dollars of tax loss assets. Just as important, Charter does not compete with Verizon or AT&T's broadband tv services in nearly any area of the country. Charter has a clear path to growth for a long time, especially after spending this year upgrading their systems to a digital platform. Even now, Charter is an appealing company for any cable company which is cash generative and looking for additional scale to better negotiate with content owners like ESPN, Discovery, Fox, and others. Charter has a relatively small subscriber base of 4 million, so if it merges or acquires customers of 3-4 million, the growth in subscribers is potentially very dramatic. Adding 11 million paying customers would have been transformational, and potentially a big home run for Charter and Liberty Media, call it a asymmetric payoff. So what happened and why did Malone "fail"?

Malone had two large problems in trying to make this one happen. First, he came to a gun fight with a knife. What I mean is while Charter is just starting to generate larger amounts of cash and has significant tax assets, it was trying to acquire a company three times its size. Comcast is nearly ten times the size of Charter in terms of revenue and five times it's size based on cash flow. In reality, the only reason Charter could even entertain thoughts of buying Time Warner Cable is because John Malone led the charge and saw the potential in a possible deal. Once he did he made a very bold bet and tried to make it happen. In fact, he did so for nearly a year and was turned down three times by the Time Warner Cable management, an entrenched group if ever there was one. Malone is not someone who is easily dissuaded and eventually Charter nominated their own board to potentially replace the existing one. My own personal opinion is he was probably gaining traction with many of the institutions who owned large blocks of Time Warner Cable stock, and Comcast was very aware of the situation. It is reported Charter and Comcast were negotiating about how to potentially split up the subscriber base and eventually disagreed about what Comcast should get. Also, and this is crucial, Comcast disagreed with Charter about how to structure the deal and wanted it to be all equity, which is how it wound up. John Malone is not going to do a deal which is not tax efficient, and this probably was a big source of the disagreement as well. Another key point is also the price as TWC's stock is up over 65% during the last year, and probably a great deal of it was based on speculation a deal would get done with Charter. In the end, Malone did not have the firepower to compete with Comcast, and very few companies would. Still, once Comcast recognized Charter could realistically wind up with TWC, they essentially paid full price. So now we turn to the implications of the deal and what might take place in the future.

All across the media landscape, including content providers, cable companies, telecommunications carriers, and social media enterprises, the purchase of Time Warner Cable by Comcast is very important. If the deal gets approved by all government agencies, Comcast would provide over 30% of all U.S. homes their internet access, a massive market position. New court rulings have thrown out net neutrality provisions, but the FCC has now indicated they are looking at new ones which better reflect market reality. Comcast has indicated it will abide by the existing net neutrality rulings and maintain them once the transaction is approved. Comcast is saying they won't raise prices on content providers for quite some time. If you are one, like Netflix, Google or Facebook, you have to be very wary of this deal because already Comcast is starting to charge more for preferred access to their networks- the "dumb pipes" if you will. You can see the content owners are going to lobby very hard to get, at the very least, their pound of flesh in terms of concessions by Comcast, and if possible, a way to deny the deal. I suspect the transaction will be approved, but not after plenty of political grandstanding, especially by those with a very liberal slant. You already see this from the comments of Senator Al Franken, and one can only imagine what Elizabeth Warren or Ed Markey is going to come up with. Still, Comcast has plenty of lobbying experience and is very tight with the current administration, so odds are it will probably get done.

As for Liberty and Mr. Malone, the great thing about them is you never know what they are going to do, but you know they are trying to find ways to "create value" in every possible manner. In fact, what made me a bit uncomfortable about this situation is it was not really a Malone kind of deal. Usually, you just wake up and something is announced, it is done. With the Time Warner Cable situation, it took way too long and there were too many rumors. You know the old saying- loose lips sink ships. I would bet Malone will continue to try to expand Charter and to try and to use those tax losses. He will also try and buy the rest of Sirius and get that done. You know, 10 billion dollars of tax shields is quite a lot. Come to think of it, maybe the owners of Cox Communications might think they are attractive. Malone has been partners with Cox and the Newhouse family for a long time in the ownership of Discovery. Many investors find investing in Liberty Media too troublesome and too confusing. Still, I'll take my chances with Malone, Maffei, Charter, and Liberty's path forward versus what Comcast has to offer any day of the week. Five years from now, it will be interesting to see which group created greater shareholder returns.

Thanks for reading the blog post and have a great weekend.

Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder.

Yellen, Obama's Phone and Pen, and Shark Tank-

2014-02-12T11:58:00.000-08:00

Janet Yellen is now the head of the Federal Reserve, and on Tuesday she gave an update to House Financial Services Committee on the state of the U.S economy. The Fed "Head" indicated the current policy of slowing down the purchase of fixed income securities remains in place ("Tapering" for those who don't pay attention to Fed speak). According to her testimony, it is apparent the priority is reducing unemployment closer to "full" employment, which simply means they want far more people out looking for, and actually obtaining, jobs. As part of the Fed's dual mandate, the other main objective is to control inflation. With the big "I" submerged at an annual rate below 2%, the Fed clearly believes they have inflationary forces under control. Many skeptics believe deflation is the major problem the country faces, with still stubborn low labor force participation and factory capacity utilization rates. The most recent jobs report indicated progress on both fronts, as the two categories were at their highest levels in quite some time. Obviously, the equity markets liked what Mrs. Yellen had to say, as low interest rates for as far as the eye can see remain a soothing balm for long skittish investors.

President Obama's recent quotes about having "a pen and a phone" are certainly suggestive of the realization by our nation's "leader" he is legislatively frozen, and probably acknowledgement of the potential loss of the Senate during the November elections. As such, the comment speaks to what he can accomplish on his own through Presidential directives. Looking at it differently, an objective observer might ponder the serious question of unilateral decision making in a country which was founded on the idea of a government based on a series of checks and balances. Consequently, when you see how the Affordable Care Act has now been modified in quite a few ways since it has been implemented, one gets back to the principle of checks and balances and whether of not our "leader", along with his partisan pal Senate Majority Leader Harry Reid, have any recognition their policies might not be working. Opponents of Mr. Obama might say that instead of having a pen and a phone, a brain would be more useful.

The Olympics started last week in Russia, and Mr. Putin's face was never more evident as he proudly unveiled the Winter Games in the new facilities that many companies in Russia ponied up hundreds of millions of dollars for in the hope of being reimbursed. Nyet, and in reality, the country will probably face a situation where many of these monuments won't get near the kind of usage they thought when originally conceived. Enjoy the games, Vlad, you will be paying for them for quite some time.

Over the last few months, the market has corrected some and the sector which has seen the largest beating would be in the social networking space, where Twitter and LinkedIn had some of the froth taken out of their stock prices. Certainly, there are other companies which still enjoy stratospheric valuations, like Tesla and Amazon. Another interesting tidbit is Google overtook Exxon in market capitalization last week. I took a look at both companies and on nearly every financial metric, Exxon has larger numbers, but in the crucial statistic of free cash flow, Google is relatively close. What this speaks to is the difference in the kinds of business each company has in terms of capital efficiency. If you add in the fact Google is growing much quicker, it is not out of the realm to see why Google overtook Exxon. It does not mean I agree with it, or it is a permanent situation either.

The television show Shark Tank is now prominently featured on Tuesday night on CNBC. If you have not seen it, four prominent investors, including Dallas Mavericks owner Mark Cuban, listen and evaluate pitches by entrepreneurs in search of funding to potentially grow their start up companies. One striking thing about the show, or at least my impression of it, was many of the presentations were from business owners who really do not show up fully prepared. The other aspect which really bothered me was how disrespectful, mean, and arrogant the venture capitalists are towards their potential partners. Yes, they are asking for an investment, which requires serious analysis. However, nobody deserves to be made fun of and it seems the venture capitalists find it their job to be as insulting as they can. The show can be viewed to see what other interesting ideas people have and how they might be applied to your business, but the negativity of the "Sharks" makes it very painful to watch.

In traveling around the world on vacation, it was nice to see the various attitudes which come across when in different locations. For example, in London, the airport was bustling and manners were prim and proper. The Brits do everything they can to be pleasant, or at least those who I encountered did, and it was much appreciated. In Africa, the laid back attitude of the locales was very prominent, and you certainly could make the case a more professional approach might be considered. Interestingly enough, the first Burger King in the country opened while we were there, and the lines were two hours long. If you ponder the idea people actually lined up for the Whopper, well, not much more needs to be said.

Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder.

The Wolf of Wall Street, Oil Issues, Security, and Earnings!

2014-01-18T14:29:00.000-08:00

This past week I was in the locker room at my gym when I ran across a friend who told me he went to see the movie "The Wolf of Wall Street." My reaction was one of disgust as I went to see the it a few weeks ago and found it to be lacking of any redeeming quality. It is even more amazing, at least to me anyway, the film has been nominated for five academy awards. What does this say about Hollywood? Charlie Munger has a very appropriate saying which is applicable (and in many other cases as well), "Eat my bread, sing my song."

Martin Scorsese uses the life of a criminal, drug addict, and misogynist to glamourize everything wrong with the investment world. In fact, probably 90-99% of those responsible for investing other people's money are trying to do a good job for people. In a sad, but memorable scene with Matthew Mcconaugey, there is only derision given to the idea of a mutually beneficial relationship between the client and those who invest their capital. Leonardo Dicaprio is a good actor who has done fine work in many other films. However, he is as complicit as Scorsese in making a production which is garbage, at best. The bottom line is the film is typical of what Hollywood has now become, a place where studios churn out anything in search of a buck, irrespective of the validity or ramifications of what it produces. I find it interesting there are so many good stories around in history and in all areas of life and yet the major studios in Hollywood make gutless choices like this as a way to attract audiences to their films. I certainly won't be seeing any more Dicaprio or Scorsese productions, and I hope you won't either.

Moving from fantasy to reality (although many valuations of companies these days could very well be thought of as make believe, too), this past week opened the earnings season for corporate America. A few of the major money center banks performed nicely, while Citi had a subpar report. In the consumer space, two enterprises which had poor reports were Sodastream and Best Buy. The stocks were obliterated, one down nearly 20% and the other 40% over the course of two days. These two situations are just further proof volatility remains at least one constant in the equity market. Fluctuations can either be feared, or embraced, depending on the approach of the participant.

In the energy market, the big news came from Shell, who guided down their results for the final quarter of 2013. Shell has been hurt by the tough refining environment in Europe and Asia, as well as poor choices related to shale projects in North America. Still, with a new CEO on board, Shell as indicated their priority will be return on invested capital as opposed to finding sources of new production growth. All across the energy sector, the rationalization of investment versus returns on capital will be a theme which have a permanent seat at the table. In addition, choosing projects with stable operating environments certainly is going to have to factor into these decisions. When it costs billions to invest in a project, the prospect of facing terrorists while trying to find a very valuable resource just does not make much sense.

Elsewhere in the energy world, the most recent railcar crashes in North Dakota yet again highlight the danger of working with resources like oil. As more and more "black gold" gets moved by railroads, accidents like these have a higher probability of occurring . Historically, the safest method of moving oil has been pipelines. North America actually remains underserved by the pipeline network, which is why the Keystone proposal has plenty of merit to it. However, the decision has been delayed for going on four years now. In fact, the Canadian government has indicated it's frustration with the slow pace by the notoriously ineffective Obama Administration. Essentially, it's (bleep) or get off the pot. I am afraid the Canadians are probably going to be disappointed by the ultimate outcome.

All over the globe, a more apparent problem are the security issues related to the use, storage, and processing of data facing businesses, government, and consumers. You see this with the lapses at Target, the NSA, and most recently, Starbucks (if you consider it a breach). As technology evolves, these issues are going to take on even more importance as the public is not going to accept situations where their data could be compromised. Especially in business, where every lawyer under the sun is looking for any reason to sue a company with financial resources, it is becoming more obvious that paying more for proper data security is going to be a fact of life going forward.

In the emerging markets, the major story which has broad implications is the effort of the Chinese government to move their economy from one heavily dependent on infrastructure spending to one which is more based on domestic demand. For countries whose economies are very much based on exporting raw materials, worries about sharp reductions in GDP growth has resulted in some currency weakness and capital flight. As a result, the investment world is starting to become far more interested in different growth possibilities in countries like Mexico, Indonesia, Vietnam, and Malaysia. The world is a big place with plenty of possibilities, and the quest for investment returns never stops.

Thank you for reading the blog, I hope you have a healthy, happy, and productive week!!!

Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder.

Winners Are Bold-Liberty, Apple, Marissa, and T-Mobile-

2014-01-09T12:11:00.000-08:00

In the competitive environments of business, politics, and sports, the most applicable saying is- "To the Victor Goes the Spoils." If you are a participant in the business or investment world, in many industries there are typically one or two large companies which control the vast majority of market share, and the remaining entrants are left to scrap for the crumbs. As a result, the largest valuations and premiums in the market are given to the biggest winners. Taking this reality even a step further, companies are in a competition to acquire as many customers as possible and fight as hard as they can to maintain, keep, and grow their bases. The natural conclusion is every public company has to strive to create the perception in the public eye that they have the best offering in market.

As an investor, I think you have to try and identify situations where leaders realize they have to be bold and make big bets which are rational and have good risk reward potential. In addition, it is not enough to take swings, companies have to execute on the leaderships vision. For example, JC Penney thought they had a trans formative leader in Ron Johnson and tried to change the company. It failed because of an inability to implement his plans in an organized, coherent, and predictable manner. So, it is not enough to have grand plans, the ability to "Bring it to life," is the name of the game.

When it comes to grand leadership, John Malone and Greg Maffei at Liberty Media stand out in a universe of, shall we say, mediocrity. Malone's latest plan is to buy the rest of Sirius XM Satellite and exchange it for a new class of non voting Liberty Media shares. Naturally, the Sirius-XM shareholders don't like the price being offered. The noted consumer advocate and long time want to be serious presidential candidate Ralph Nader even weighed in on the supposedly ridiculous offer, even commenting that Carl Icahn should get involved. Law firms from all over the country have announced they are looking at the proposal for fear the Sirius shareholders are being taken advantage of. As a shareholder of Liberty's for well over 15 years now, the plan is classic Malone, and if Sirius shareholder don't think they are getting a fair price, they can vote no on the offer. However, I would just note that this is not Malone's first rodeo and I suspect eventually Liberty will buy in the rest of Sirius and move on to the main event, which, for those of you following the saga, is Time Warner Cable. If you are a Sirius shareholder, just a thought, you might want to stick with the Malone guy.

Turning to the next large wager, Apple has decided to place their retail stores in the hands of ex-Burberry CEO Angela Ahrendts (here is a nice article exploring her background even further-http://www.macrumors.com/2014/01/06/how-angela-ahrendts-burberry-experience-could-drive-the-future-of-apple-retail/). She is very familiar to me as a Burberry shareholder and did a great job of positioning the company perfectly for the future. I was sorry to see her leave and go to Apple. She will have a large task ahead as the Apple retail opportunity is currently about $20 billion in size, compared to $6 billion or so at Burberry. In time, I suspect she will make a big impact on Apple and it is a great example of how human capital and strong leadership skills could potentially have a major impact on an already important industry leader.

Another lady who is not afraid to make massive wagers is Marissa Meyer, the CEO of Yahoo. She spoke this week at the CES show in Las Vegas while announcing an acquisition. Yahoo investors essentially get a call option on her big bets as their existing position is almost based entirely on the their ownership stake of the Chinese giant Alibaba, which will have an IPO later this year. If managements investments in human capital, a change in the corporate culture, and a overhaul of their mobile platform begin to work, shareholders potentially could have a reason to "Yahoo."

On the audacious leadership front, T-Mobile CEO John Legere certainly does not lack for chutzpah. He decided to crash an AT&T presentation at CES and the publicity he received from the stunt has been through the roof, which won't hurt the business. In fact, Legere has been very innovative in going after Verizon and AT&T customers and during the recent quarter, a record 1.6 million consumers became subscribers. Just last week, T Mobile began an offer to pay hundreds of dollars as an incentive to get AT&T customers to jump to T Mobile. Do you think that had anything to do with why Legere was thrown out of the AT&T presentation?

Finally, it appears the markets is starting to reprice assets which probably needed to be adjusted. Last week, a very good friend of mine commented on Twitter's valuation and how it was probably a very easy short. I dismissively thought otherwise, for any number of reasons, but the bottom line is the stock is now down 17% since that time. No, we don't own shares and I think Twitter has a bright future, however, in many cases, market prices in no way reflect business reality, and this may have been one of those situations.

Thank you for reading the blog and if you have any comments, opinions, or questions about the blog, please feel free to email them to me at information@y-hc.com!

Y H &C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder.

Lessons of 2013, Casual Dining, and Big Oil Looks Ahead!

2013-12-23T13:32:00.000-08:00

The end of the 2013 is upon us and it certainly has been quite a year. Reflecting on the prior twelve months is always a good exercise to consider how things turned out versus the way you might have expected them to. In evaluating the major surprises, the most obvious place where the results have turned out far better than nearly anyone could have expected would be with the specific positions of HP and Best Buy (full disclosure- we own both positions for clients). They have been massive winners in a year where there were all kinds of gains to be had. The biggest mistake there is to be so concerned with the potential of a changing business, or "falling knife", and not to recognize the real strength of the cash generation capabilities which are still present, though in decline.

Another area which took me by surprise was the amount other investors would pay up to gain exposure to fashionable areas, certainly in the social networking, cloud, and biotechnology areas, to name a few. There are many ways to invest, and certainly momentum is a strategy plenty apply to their practice. When combined with quantitative approaches, you can see how volatility can appear day after day with stocks which might appear to be outrageously priced. I personally am not a practitioner of momentum, in fact, I tend to try and avoid the "hot" areas of the market as much as possible. Still, you have to admire the bravery (intelligence, obliviousness- choose the one you want) of those who are willing to buy the biotechnology stocks which are already up 200% and have no earnings.

In looking at other noteworthy areas, the relative lack of performance of many large banks certainly has to be pondered. Usually, when the yield curve steepens, money center and investment banks print money hand over fist. As a result, they become favorite targets when there is any indication the economy is strengthening and yields inevitably will rise. All played out exactly the way the textbook outlined it, except for stock strength of the financials. It may be the Volcker rule, it may be lack of leverage, it may be a reduction of fixed income trading and underwriting, but financials have not been big winners in 2013, for the most part.

Turning towards the current market environment, today news that Apple signed its long awaited deal with China Mobile to carry their products provided the market a reason to go up. I find it hard believe Apple still is thought to be in the same class as a Microsoft and a Dell. If you look at industry positioning, you could make a very strong argument there is nobody as well positioned as Apple, though I am sure Sergei and the Google fellows might beg to differ.

In the casual dining space, it appears more than one investor has gotten indigestion with Darden Restaurants. A few major institutions are disappointed with the ongoing problems at the owner of the Red Lobster and Olive Garden and are calling for the company to be broken up. You might wonder how reasonable it is to expect a company which has performed admirably for a long time to now be under pressure because of a few bad years? I agree, however, having eaten way too many times in the past at Olive Garden, let's just say right now the end result as an investor is pretty much the same byproduct you get after a spaghetti dinner.

Another company which is struggling in the dining space is McDonald's, where the trend towards healthier food is slowing down the traffic for "Happy Meals" and other fast food offerings. In fact, McDonald's is now stuck with 10 million pounds of left over chicken wings because they did not sell very well at the prior price point. In Japan, McDonald's profits have dropped fifty percent compared to the prior year's same period. When the corporate strategy is to copy whatever is working from other businesses, problems eventually will arise. Chicken wings anyone?

In the oil area, the large integrated oil companies got a huge win when Mexico decided to open up their industry for potential private exploration. You have to believe Exxon, Chevron, Shell, and BP are licking their chops just waiting to get involved with Pemex, the national oil company of Mexico.
Much will depend on the kinds of terms which are offered to the majors, but without their expertise, Mexico's oil plans will go unfulfilled. Another interesting development with the large oil companies is they are acquiring the oil trading platforms of many of the large money center banks in the United States. The banks are faced with heightened scrutiny on their commodity trading businesses, and have come to the conclusion they are better off without them. JP Morgan Chase exited the business, and Morgan Stanley just sold theirs to Rosnoft, the national oil company of Russia. A final nugget for the majors is coming in the form of Mary Landrieux, the democratic Senator from Louisiana, becoming a member of the Senate Finance committee. As such, she will be heavily involved in deciding the fate of the Keystone Pipeline, as well as other matters pertaining to oil She is from Louisiana, certainly considered an oily state, so things may be looking up for big oil. A better economy certainly would help demand, too.

Happy holidays everyone, and I hope 2014 is full of health and joy for all readers! Thanks for reading and visiting the blog.

Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder.

Yellen, Buffett and Exxon, and A New Web Site-

2013-11-22T12:09:00.000-08:00

"Steady goes the ship," is the motto we might hear from the almost confirmed Federal Reserve head Janet Yellen with regards to the ongoing domestic economic recovery. You see, Mrs. Yellen has passed the Senate banking hearings with flying colors, and her final approval awaits a full vote later this year. Yes, it was a veritable love fest this week, although I suspect Mrs. Yellen should get her rest and enjoyment now, because when the new year approaches, market participants are probably going to "greet" her with plenty of skepticism. I was at a seminar yesterday (the topic was convertible bonds) where the presenters believed the biggest bubble in capital markets is U.S. Treasuries, especially at the long end of the yield curve (years 10 and greater). I have thought the same for well over a year, and as bond yields tick up, bond market participants have to start wondering about the supposed "safety" of those holdings.

Another interesting piece of information is other Federal Reserve board members are starting to publicly state their disagreement with continuing quantitative easing for too long. Many believe "tapering" will come sooner rather than later because of data which is showing a little more economic strength. A more robust economy is a good thing for investors, so we should want tapering as soon as possible. Self sufficiency is typically a good thing, in this case, our country's economic and employment growth.

Ambercrombie & Fitch, Sears, and Intel, among others, reported their financial results this week. The first two are good examples of retail businesses which have great histories, but are experiencing operational, merchandising, execution, or marketing issues. Intel has long been dominant in the semiconductor industry, but the emergence of the mobile smart phone and tablet trends has rendered them to be too reliant on a declining personal computer market. The new CEO has made mobile a priority and many feel Intel is making a strong move to gain market share in the mobile space, especially away from Apple based products.

Elsewhere in the equity markets, newly minted IPO's are seeing a resurgence, which certainly will help Silicon Valley and it's abundance of venture capital firms on Sand Hill Road. Equity markets have seen a big reduction in the free float of stock available to be bought by the public over the last five years. Much of this is tied to the massive amounts of stock which have been bought back by companies in all industries. When a management believes a stock is cheap, buying it back reduces the number of outstanding shares freely available, which can help improve per share profitability ratios in the future. When you have lemons (a cheap stock), making lemonade is a good strategic option.

Consistent with making the most of a cheap stock price, Warren Buffett disclosed he bought $3.8 billion of Exxon-Mobile stock over the last few months. Other large international oil companies having been buying back their stock as well. Buffett does not miss much, and I suspect Charlie Munger had a large influence on this purchase. Munger believes oil will only become much more valuable in the future, and I absolutely agree. Many investors do not realize how much of the world is dependent on oil related products, which is especially the case in nearly every transportation related industry.

As Thanksgiving approaches, let's talk about another turkey, yup, Obamacare. In about ten days, the web site should be fixed to allow people to purchase health insurance from Federal exchanges. At least, this is the current plan. I do not see how the brilliant politicians will be able to avoid delaying or even eliminating the law. Sometimes, the best way to clean up a mess is to just start over.

Finally, it has been a few weeks since I last wrote a blog post. I have been busy trying to get our revamped site up and running, along with a few other operational concerns. I would very much appreciate you visiting the site at www.y-hc.com, and if you have any feedback about it please email me at information@y-hc.com I hope everyone has a great Thanksgiving as well and thank you for reading the blog!

Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder.

Obamacare, Oil, and Twitter-

2013-11-06T13:07:00.000-08:00

As the year winds down towards 2014, the biggest story over the last few weeks has been the introduction of the new Federal Health Insurance exchanges to the country and how few people have been able to use the new web site to enroll for coverage. I read a venture capitalist blog where the software community is absolutely incredulous that a great majority of the site was not open-sourced to help save the government money. It is amazing the cost of the site is now being projected at nearly $600 million and it still does not function correctly.

There are quite a few Republicans who think the various execution problems, and you could probably add other kinds of issues as well, are going to be the gift that keeps on giving as the 2014 mid-term elections approach a year from now. Last night's surprisingly close governor election in Virgina and the re-election of Chris Christie in New Jersey will provide more ammunition to strategists who believe the health care debacle is just what 'the doctor ordered' for Republicans to strengthen their control in the House of Representatives and even take back the Senate. The problems with these exchanges may have only just begun as web site bugs and "glitches" may soon take a backseat to real life issues like doctor and network availability, dropped coverages, and last but not least, price.

President Obama is discovering what many people in the business community have long know, and that is execution and implementation is much harder to deliver than sales speeches and puffed up ideas. General George Patton was a big believer in violent and ruthless execution delivered swiftly. I am sure many democrats would take a working web site by the end of November and would breathe a big sigh of relief at the very thought of no more complaints about the exchanges. I suspect that is not going to be in the cards.

Twitter will make it's public company debut with the long awaited and much publicized IPO tomorrow. I would expect it will soar and be valued at over $20 billion. Elsewhere in a different part of the equities market, the large integrated oil companies reported their earnings over the last few weeks and generally speaking, production growth has been muted while downstream margins have compressed quite significantly. The largest companies are taking different approaches to dealing with the current environment, with some selling assets, while others continue to invest heavily. Institutional investors have delivered a firm message to big oil in that they want the capital expenditures to slow down if they are not going to yield more production growth. Return on capital is back in vogue, at least as far as investors in big oil are concerned.

In Europe, many refineries are closing as profitability is very difficult to achieve. All over Europe, energy and electricity costs are very high, in fact I saw a report where the average household in England spends nearly 10% of their monthly revenue on energy and electricity. Many are starting to question the effectiveness of alternative energy programs and the high taxes on traditional carbon based production. The leaders in Europe have to be looking at the energy sector and wondering how they are going to get competitive in the midst of the current political environment.

The NBA season started last week and the NFL is entering the part of the season when, "the games to remember are played in November." Oops, that was college football. Anyway, at this time of the year in basketball, many teams are just learning how to play with their new teammates. Of course, interestingly enough, you could say probably the same thing at the end of the year as well. Hope you enjoy the games everyone!

Finally, next Thursday, November 14, 2013, I am presenting a webinar at 11:00 PST to the Opal Financial Group- here is the link if you are interested in attending- http://www.opalgroup.net/webinars.php

I hope you have a great week and thank you for reading the blog!

It's Party Time On Wall Street-

2013-10-21T15:08:00.000-07:00

Wall Street is throwing a party, and it will probably last a good few months, fittingly, through New Years Day. You see, with the fear of Armageddon gone (a default of U.S. debt obligations), there is little in the way to prevent the stock market from rising through the end of the year. Yes, naturally, there are the quarterly earnings announcements where winners and losers are determined, but that is the case every quarter. However, if you look at the check list of potential problems investors have had to grapple with over the last few months, it certainly can be said all of them have been answered in a relatively painless way. The new Federal Reserve Chairman is thought to be a dove, so monetary policy should be, hint hint, accommodating. Tapering is off the table, at least for the foreseeable future, because the economy is thought to have weakened because of the government shutdown. Many money managers, especially hedge funds, are trailing all major indexes, so they are looking for any opportunity to buy stocks which can help their performance. Bonds are trading at all time highs, and any increase in interest rates will cost an investor money. Iran is thought to be starting to see the light about their nuclear ambitions, although that has yet to be proven. Finally, corporate earnings are rolling in, and as has been the case for the last five years, big business is just rolling in profits. Anyone for some refreshments?

Speaking of earnings, last week was full of them as Bank of America reported a better quarter because of lower loss reserves, IBM showed weak earnings growth, and Verizon had a very good quarter with a whole lot of I phone additions added to the paying customer list. Google reported a very good quarter as mobile and broad based advertising strength continue to power the search giant. Morgan Stanley also reported a better than expected number because strength in the asset management business offset poor fixed income trading results. Today, it was announced that a private equity group is taking Tellabs private, and Netflix reported a beat on international subscriber numbers. McDonald's also reported this morning with weaker than anticipated revenue but matched the earnings per share number. The rest of this week and certainly next will bring a flood of numbers and I would expect most will be pretty good.

Al Gore has certainly benefited from the stock market over the last ten years, mostly because of his board positions with Apple and Google. Most recently, he sold a cable network to Al Jazeera, I believe, for a nice profit. Anyway, now that Al is an expert in business, he believes international oil companies could be considered the same as some of the investment banks which had problems during the 2008 crisis. He believes that some of the reserves the oil companies have accumulated will ultimately not be burned and they are due to get repriced (fall). Earth (tone) to Al, hello, they are already cheap. Al should also be reminded when he gets on his jet, that the oil companies helped him get from point A to point B.

Finally, had to mention the complete stupidity of Ted Cruz and the tea party in the way they handled their negotiations with other Republicans, as well as the President. Cruz made himself a hero of the tea party, at the expense of moderate Republicans. The primaries will be full of candidates in both parties gerrymandering and running extreme campaigns. As if the country needs more extremism from our elected representatives!!! Big business is gearing up to move to the center and support more moderate Republicans as they saw how destructive the recent standoff could be for business. Money is the mother's milk of all politics, and I expect a move to the middle for the Republican party could prove very beneficial. Time will tell.

Thanks for reading the blog this week, and if you kind of feel the same way, and would like to share your thoughts, it would be most welcome.

What A Week On Wall Street- Yellen, Debt Limit, and Malone!!!

2013-10-11T12:06:00.000-07:00

Oh boy, what an interesting week it has been on Wall Street and in the world at large. The most obvious event is the ongoing drama in Washington D.C. regarding the debt ceiling negotiations, government shutdown and budget issues, as well as Obamacare. I would just call attention to the fact that the Japanese and Chinese started to voice concerns about a potential default, and low and behold, both Democrats and Republicans decide well, maybe, yeah, let's negotiate with the other guys. When you don't have your own financial house in order, you have to listen to your biggest creditors, in this case, the largest owners of U.S. debt, to the tune of multiple trillions of dollars. If the U.S. were to default on it's debt, the value of those trillions of dollars gets obliterated, so, you can see why the Chinese and Japanese are more than a little "concerned" about our political dysfunction. You follow the incentive, you get answers about why people do things, according to Charlie Munger. In this case, as in many before this one, Munger is right on 'the money.'

Today, JP Morgan and Wells Fargo reported their financial results for the previous three quarters. Wells posted strong results, while Chase had their first quarterly loss under Jaime Dimon. Elswhere on Wall Street, Jos E Banks made a hostile bid for Men's Wherehouse, which was promptly rejected. The reason I bring this small transaction up is it speaks to the merger and acquisition environment. Money is still very cheap, and as such, companies are going to look to take advantage of it and do deals, or by borrowing to finance corporate transactions of some sort.

President Obama named Janet Yellen to be the next Federal Reserve Chairman, which is what Wall Street pretty much expected. Yellen has an impressive academic background, with a doctorate from Yale, and she taught 5 years at Harvard, as well as the London School of Economics and UC- Berkley. She also has been part of the Federal Reserve Board of Governors for quite a few years. However, one thing she should be prepared for, and you can count on this in a big way- Wall Street and the investment world is going to test her from the first second she takes the job. The boys on Wall Street give nobody a free pass so she will have to prove herself very quickly.

With respect to the government shutdown, I found it very interesting the attitude which certain parts of the federal government has adopted during the midst of the crisis. At the Grand Canyon and Yellowstone National Park, rangers have apparently been told to make life miserable for the general public. At a Veterans Memorial in Washington D.C, the government tried to erect 2 foot barriers to prevent World War Two veterans from visiting their family members or friends. Family members of soldiers killed in Afghanistan have been denied immediate death benefits to greet the bodies and luckily, a private organization is paying the tab until the government opens again. Even more delicious is Congress has decided that it's members get benefits which are not under the jurisdiction of the Affordable Care Act. The public has given Congress a 5% approval rating, which might be a bit overstated.

On the opposite side of the spectrum, the genius of John Malone shown through at Liberty Day yesterday. One of the great things about being a shareholder of the Liberty family is you know he is trying to help shareholders and he does not sit still, unless of course, he probably should. Over the last few weeks, the various companies have engaged in a number of very interesting transactions by issuing convertible bonds, engaging in swaps or tax free exchanges for their own stock, borrowing money at 1 and 3/4% for 10 years, and announcing new tracking stocks. He also invested in a solar energy product with a very high return which is tax efficient due to the tax advantages (tax credits, government guarantees) of alternative energy investments. From a finance perspective, the guy is great and you only get a few chances a year to listen to him a year so it is always worthwhile to take the time and do so.

They say that the wheels of justice grind every slowly, but eventually justice is served. In the case of Malone and the Sirius Satellite board versus suing shareholders, the judge ruled completely in favor of Malone. British Petroleum was awarded a victory when the court of appeals ruled that the fund administrators for the 2010 oil spill has partially erred in the way they are awarding those with claims. There will be more on the matter in the future, as well as the determination of how oil was spilled and whether BP was grossly negligent or negligent in the way it handled the explosion. Obviously, a very sensitive subject for many people and it will probably be a long time before a final conclusion to the matter is rendered.

Here in Vegas, the weather is great and the casinos are open. As an interesting side note, Y H & C Investments will have a new web site in a few weeks.

Last, I was selected to present at a webinar for the Opal Financial Group on November 14, 2013-
http://www.opalgroup.net/conferencehtml/current/webinar_building_flexible_portfolio/webinar_building_flexible_portfolio.php.

I hope everyone had a great week and will have a super weekend.

Wall Street's Universe, Tesla, Big Oil, and More-

2013-09-25T13:41:00.000-07:00

We all know Wall Street lives in its own universe, it is a given, but increasingly now more than ever. If ever there was a time in the financial markets where there is a disconnect between reality and price, the current environment is it. As a prime example, recently Wall Street analysts decided Apple was doomed because their new I-phone was not priced lower and the company did not sign a deal with China Mobile. Even further, the company was criticized, and the stock sold off, in part because they are seen as not innovative and have not introduced a new 'cool' product in a few years. So guess what? Over the last weekend, Apple sold 9 million I-phones, shattering any previous weekend sales number by a wide margin. Wall Street gets it right a great deal of the time, but to think they don't make mistakes would be wrong as well. The key point is to try and identify those mistakes, and potentially profit from them. It is easy to say, hard to do.

If you want even more evidence of the delusional forces which are currently in place in the equity markets, just investigate the market price of Tesla Motors versus nearly any stock in the energy complex, especially the major integrated international oil companies. Tesla is now valued at over $20 billion and operationally has had one cash flow positive quarter in the last four. It would not be surprising to see this situation last for the rest of the year, however, Elan Musk better sell millions upon millions of electric cars over the next five years or this could be a repeat of the internet bubble tragedy. Just a caveat, I have been wrong about TSLA since it was priced at 50 bucks a share, so take that for what it is worth (it is now at 182 and change).

Meanwhile, the biggest oil companies in the world are being given very little respect by the market. Yes, big oil has some issues to deal with right now, but upon careful investigation, the environment might be starting to improve in this sector. In Brazil, the largest oil companies passed on bidding for a new block available in conjunction with the state run oil company, Petrobras. In Nigeria, a few major international companies are selling their ownership stakes in their blocks. Even further, all over the globe countries are discovering they need the expertise which big oil provides in order to get these precious and valuable resources out of the ground. Usually, it involves deep water discovery, so finding trained and competent people who want to work at state salaries to potentially risk their lives is not in the cards. As a result, these trained professionals, who are rare and very much in demand, are typically going to be employed by the biggest oil companies in the world. Human capital and specialized skills are going to go where they will be compensated well, treated fairly, and given incentives to be rewarded when they do a good job. This would be dramatically different from a state run enterprise, where questionable practices, if not out and out fraud and cronyism, are the typical modus operandi.

In conjunction with these human capital problems, large international oil companies are now thinking very long and hard about what projects they are going to spend billions of dollars on. You can be sure that where those projects are located, who they are partnering with, and how the rule of law is implemented are going to factor into their calculations. The current situation in the public markets where these massive international oil companies are valued at historically very low multiples is not going to sit well with their management teams and board of directors. They all have long histories of creating quite a bit of wealth for shareholders and I am sure they believe they will continue to do so for quite some time. Elan Musk and Wall Street might not necessarily currently agree, but I suspect when we revisit the issue in three to five years time, how investors see these companies may be dramatically different.

Elsewhere in the financial markets, Facebook recently received several upgrades from investment banks and the stock has rocketed higher over the last few months. Twitter publicly announced, in a tweet interestingly enough, they are going to go public. In addition, the massive internet giant Alibaba is going to go public on a U.S. exchange as opposed to somewhere in Asia. In the meantime, investors are looking at the debt limit and budget negotiations, the incompetence of our politicians, as well as the initial implementation of Obamacare, and have adopted a very cautious approach- unless of course, they own Tesla.

If you ever want a sense of how dominant the I-phone is- http://www.businessweek.com/articles/2013-09-25/listen-up-apple-haters-iphone-sales-eclipse-microsoft-and-amazon#r=rss

The new JOBS act enables crowdfunding in all sorts of different areas- especially startups-

http://www3.cfo.com/article/2013/9/credit-capital_jobs-act-general-solicitation-crowdfunding-morrison-foerster-form-d-securities-exchange-commission

If you think being a CFO in a private equity job is a picnic, uh, think again-http://www3.cfo.com/article/2013/9/job-hunting_private-equity-jobs-john-touey-salveson-stetson-recruiter

Thanks for reading the blog this week, and enjoy the lovely fall weather. If you have any comments, thoughts, or questions regarding the blog, please post them!

Y H &C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder.

No Taper, No Compromise, and No Idea?

2013-09-18T13:25:00.000-07:00

In what can only be seen as a very interesting non event, the Federal Reserve decided not to reduce it's purchasing rate of fixed income securities. Wall Street was absolutely convinced this was the month when the so called, 'Taper', would begin, along with the inevitable rise in interest rates, especially at the long end of the yield curve. Surprise, shock of shocks, helicopter Ben decided, nope, not me, I am not going to be the guy who gives investors bad news. In some ways, it is not surprising because it is well known Mr. Bernanke is leaving the administration as head of the Fed. Why should he leave on a sour note? Why should he take the risk of potentially causing a rise in interest rates when the economy continues to grow at a very slow rate? As a result, no taper, and whatever the long term consequences are, well, let someone else deal with that mess.

It is apparent both in the political and financial realms, there is no room for middle ground. On Wall Street, the dominant mood is either euphoria or despair. The political atmosphere in Washington is similar because both parties absolutely will not look to find ways to compromise with the opposition. Absolutism is the rule which typically has won out, especially over the last 20 years.

Going into the last ten days of the third quarter, the country faces several issues which are going to require a solution. First is the passage of a budget and extension of the debt ceiling, which has to get done by October 1, 2013. Republicans are looking to defund Obamacare, and will try and use the issue as leverage with Obama in the negotiations. Should be a lot of fun to watch, eh?

Next, the selection of who will be the next Federal Reserve Chairman is also undecided. The odds on favorite turns to Janet Yellen, after ex-President of Harvard Larry Summers withdrew his candidacy. It is apparent that politically, Summers would never have been confirmed in the Senate, so he fell on his own sword. The only question about Yellen is she has no previous relationship with President Obama, and could be seen as not the President's person. It is not a lock that she will be the choice, but it certainly does look that way.

Finally, as we get ready for earnings season and the fourth quarter, a reasonable question to consider is if the economy is improving, why not remove government assistance and let it stand on it's own two feet? As we move toward the end of the year, market participants are going to focus on this very question. It will be interesting to see how the Federal Reserve approaches policy for the rest of the year, but I suspect, as is the case most of the time, the prudent man knows more surprises are in order.

Bitcoin is all the rage, but most businesses don't think it is ready for prime time-http://www3.cfo.com/article/2013/9/it-value_bitcoin-digital-currency-ripple-zipzap-alan-safahi-expensify-ari-zoldan-quantum-networks-mt-gox-sc5-martti-malmi

Earnings calls are important for both investors and companies, but they certainly could be made more efficient-http://www3.cfo.com/article/2013/9/governance_mckinsey-gaap-earnings-call-sec-expeditors-international-

Amazon.com is a great company, but even they face problems once in a while-http://www.bloomberg.com/news/2013-09-18/staples-radioshack-yank-amazon-lockers-from-stores.html

Thanks for reading the blog this week, and I hope you have a great rest of the week and weekend.

Verizon-Vodaphone, More on Lawyers, Syria, and the 5 Year Anniversary of Lehman!

2013-09-09T12:18:00.001-07:00

The investment world was informed last Saturday that Verizon would be buying out the 45% stake of the Vodaphone- Verizon Wireless partnership which was owned by Vodaphone at a price tag of approximately 130 billion dollars. The rationale for doing the deal now is that bond yields are now rising, so it would be more expensive to do the deal later next year. In addition, both parties had an incentive to end the partnership now so they could pursue their strategic interests unencumbered by the other side. For Verizon, they now have total control of Verizon Wireless, an entity which is the largest of it's kind in the U.S. and generates annual cash flow of nearly $30 billion. The figure is certainly enough to pay down very quickly whatever debt is used to fund the purchase of the Vodaphone stake.

For Vodaphone shareholders, they will receive a nice cash award- nearly 5 dollars per share, as well as Verizon shares. Vodaphone now will have a big war chest to put to use in Europe and Africa in the pursuit of better growth. It remains to be seen how they will use the capital. Some believe they will look to cable assets, while others maintain the telecom area in Europe and Africa is the priority. We will soon find out. In Europe, the deal provides a tremendous boost to many shareholders of Vodaphone as they can use the cash, and many will ultimately wind up selling the Verizon shares early in 2014, when it is expected the deal will close.

The acquisition is one of the largest corporate transactions to ever take place. More importantly, it may set off a wave of consolidation in the global telecommunications, media, and technology industries. Given the massive scale of many of these companies, like AT&T, Yahoo, Verizon, Google, Apple, Vodaphone, Amazon.com, Comcast, Time Warner Cable, Cox, Liberty Media and Liberty Global, it would not be surprising to see large 50-100 billion dollar deals continue. If so, the investment bankers will be kept busy for quite some time.

The more I read about the lawsuits which get filed on behalf of disgruntled shareholders the more I get disgusted with the legal system we have in the United States. Over the last two weeks, a shareholder filed a suit against the Verizon board claiming the Vodaphone transaction was not in shareholders best interest. John Malone and the Sirius Satellite board was in court defending itself from a similar suit from Sirius shareholders, who were rescued by Malone and Liberty Media when the stock was at 16 cents. It is now at $3.50, and if Malone did not extend them a $530 million dollar bridge loan, the shareholders would have been wiped out by their other alternative at the time, Charlie Ergan from Echostar, who would have put them in bankruptcy. The shareholder contention is they did not get a takeover premium from Malone and the board at Sirius did not do its required job.

The next legal situation which gets more interesting by the day is with BP, where the company agreed to a settlement on specific terms, and now the basis of those agreements are being misinterpreted by a new claims administrator. The new person responsible has staff members who have been found to have a financial interest in the claims of clients who were represented by law firms the staff members had a ownership stake in (the sum is 9 million just for one law firm). If we add to these situations the time consuming nature of almost any part of our legal system, the documentation and time costs required by nearly any settlement, not to mention the emotional grief people go through on nearly any case, the country needs to completely revamp the legal system. Yes, I know, the lawyers will hate me. They already do. Big wet kiss to the lawyers, they need it.

U.S. involvement in Syria certainly looks like it is not a popular decision in the country, nor around the globe. As of this writing, it is doubtful at best the House of Representatives will vote to support some kind of military action against Syria. President Obama will address the country on the issue tomorrow evening. The potential ramifications of a military strike are enormous. Russia is heavily invested in Syria, and as China is now increasingly dependent on Russia for oil supplies, both have blocked any attempt by the U.S. to get United Nations support for an intervention in Syria. If weapons are used against Syria, retaliation against Israel, the United States, Europe, or all is certainly possible, not just by Syria, but by Iran, Russia, and their assorted proxies. To say this is a complex situation is mild at best. The important question to consider regarding U.S. leadership (from behind?) is after two years of doing nothing about the civil war in Syria, now the United States wants to step in because chemical weapons are being used. You have to wonder what we have been doing the last two years, don't you?

Finally, the equity markets have continued their uptrend on better economic results from different countries in Europe and China. In addition, the August jobs report turned out to be weaker than expected, so many believe a September tapering is not in the cards. The month of September is historically the worst of the year, but I have found it typically turns out to be nearly not as bad as people fear. It is also the five year anniversary of the Lehman Brothers bankruptcy and global sell off. At the time it was painful, but for those who took advantage, as of this moment, it might have been the greatest buying opportunity we will ever see in our life. Time will tell.

Thanks for reading the blog, and I hope you have a great rest of the week. Please post any comments, thoughts or questions you might have!!!!

Are There Problems Everywhere?

2013-08-28T14:48:00.000-07:00

The winds of perception are clearly changing on Wall Street as Mr. Market has turned gloomy. Like a young child who cries one minute and is happy the next, global investors now see the world as full of all kinds of problems. First on the list has to be the potential U.S military involvement in Syria and all of the possible repercussions from an intervention. Obviously, the recent two day jump of oil prices gives a hint at how Syria can affect the price of an asset class or specific commodity. Even further, the emerging market currency rout in India, Brazil, and Indonesia underscores the idea that capital is now flowing towards the appearance of safe harbors. Yet another example of an area which is being seen as troubling is housing, where the spike in interest rates of the 10 year Treasury bond to nearly 3% has put a chill on red hot home building stocks. If we add to this cocktail a sprinkle of the woes of the retail industry, where Ambercrombie and Fitch, Target, Wal-Mart, and Sears issued disappointing financial results, well, the recent downturn in financial markets across the globe could be seen as understandable.

A little bit further on the horizon is the debt ceiling negotiation at the beginning of October in order to prevent the United States Government from shutting down. You can rest assured the usual cast of characters will parade to the television cameras to warn us all of the impending world doom if our country is not allowed to borrow more money. The excitement of seeing Barack Obama and Harry Reid on television again might be too much to take for any sane person, let alone a rational one.

One thing I want to highlight is how the potential conflict in Syria should only reiterate how crucial energy supplies are as a strategic resource for any sovereign country. One of the reasons why oil prices are spiking is the logistical importance of Syria within the Middle East. Syria itself is not a major oil producing country, but Iraq, Libya, Iran, and Saudi Arabia most certainly are. Any supply disruption in any of these countries changes the aggregate output on the oil market. The transport of oil by pipelines and ships are the major transportation methods used to move 'black gold', and a military conflict only makes it incredibly difficult to get it from point a to point b. As such, the longer the United States is potentially engaged, or actually participating, in Syria the more I would anticipate oil prices to rise.

I would expect September to be a very interesting month in the global financial markets as the full range of market participants will be engaged and actively participating. Summer is winding down and many money managers will return from the Hampton's, or wherever their second or third houses may be. Trading volumes will probably rise dramatically as the past few weeks it has been very minimal. The recent outage at the NASDAQ is not helpful in trying to restore confidence the public might have in the integrity of capital markets. When you look at opinion polls by those who consider investing, many still are very skeptical of Wall Street and what transpires there. I consider it a shame because investing is still an activity which is can help change peoples lives for the better if it is done well.

A great story on Marissa Meyer, how she got the job at Yahoo, and her efforts to change the whole business-http://www.businessinsider.com/marissa-mayer-biography-2013-8

An interesting attack on a company it seems can do no wrong- http://www.bloomberg.com/news/2013-08-28/costco-s-second-class-citizens.html

Even though they may deny it, the investment banking window is always open for IPO's-http://www3.cfo.com/article/2013/8/capital-markets_ipo-window-equity-markets-timing-vix-bookrunner-pricing-underwriter-share-price

Thank you for reading the blog this week, and I hope you have a great Labor Day Weekend!

Retail Rolls Over, Price Is Truth (Huh?), and the End of Summer-

2013-08-19T11:55:00.000-07:00

It happens every single summer, almost like an annual July 4th holiday, only for investors who participate in the stock market. Last week, Wal Mart, Cisco, and Macy's reported earnings and the investment community was certainly not impressed. Wal Mart's whopping miss of one cent per share, along with Cisco's tepid forecast for the rest of 2013, and Macy's future guidance caused the downturn last week as the Dow Jones Industrial Average sold off over 200 points. All over Wall Street, analysts and strategists are questioning the strength of the domestic consumer for the rest of the year. It seems we get this same kind of issue every summer, as if this period is not a time where activity naturally slows down. On an anecdotal level, almost every family we know has been on vacation the past few weeks. Yes, back to school shopping is in high swing, and the summer driving season is hitting its peak as well. Still, anyone who participates in the business cycle on a consistent basis knows the summer months just are not a rip roaring time. Unless of course, you reside on Wall Street.

The 10 year Treasury bond yield keeps advancing higher and is now approaching 3%. You would think borrowing costs are incredibly high the way some people are reacting to the dreaded three number. Anyone who has some knowledge of financial markets knows current borrowing costs are historically low. Until the 10 year bond hits 5%, any other conclusion about borrowing costs is just silly. However, for bond investors, the dramatic and quick rise of the 10 year yield brings serious pain as every tick higher in that rate brings additional capital loss. The simple lesson is no matter what financial asset an adviser recommends, there is always some kind of risk in owning it.

If ever there was a questionable comparison of companies whose market worth is diverging, the current valuations of Tesla against the large integrated oil companies is, shall we say, interesting. The Elan Musk creation is now priced at a little below $18 billion dollars and will sell below 25 thousand cars this year. The largest oil companies in the world are priced between five and ten times earnings (trailing or forward, you choose), and all come with nice dividend yields which could very well increase, even dramatically, over the next 20 or 30 years. Still, if you follow these stocks every day, TSLA goes up and the oil companies go down. Until it changes, I continue to hear traders say, "Price is Truth." Tell that to Buffett, or in this case, the oil companies, who have been buying back their own stock. One final note, I have been very wrong on both Tesla and the oil companies for quite some time, so please take my thoughts with a grain of salt.

The fall swiftly approaches and the joys of football, the leaves turning, and a little cooler air will be upon us. The toxic and noxious fumes coming from Washington regarding the debt limit negotiations also approach as well, so if you are concerned about your health, or sanity, try not to pay too much attention to the windbags. At the very least it will be a welcome relief to have the kids in school, at least until the first moment they make you help them with their homework.

The shale oil and gas revolution in the United States will have consequences for quite some time-http://www.bloomberg.com/news/2013-08-18/shale-grab-in-u-s-stalls-as-falling-values-repel-buyers.html

Another area where the U.S continues to lead is in cloud computing, which also brings a dramatic shift to both small and large enterprise technology use-http://www3.cfo.com/article/2013/8/the-cloud_gopro-camera-cloud-netsuite-nick-woodman?currpage=1&pid=00000000-0000-0000-0000-000000000000

A nice story on how one CFO is managing growth- http://www3.cfo.com/article/2013/8/growth-strategies_wayfair-nick-malone-technology-international-growth-infrastructure-?pid=00000000-0000-0000-0000-000000000000&currpage=2

Thanks for reading the blog, and I hope everyone has a great final few weeks of summer. If you have any thoughts or comments on the blog, please post them!!!!

Y H &C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder.

Summer Stuff, More Big Oil, and Google vs Apple-

2013-08-13T13:14:00.000-07:00

It is always interesting to see how businesses in the same industry are operated, and last week I experienced a notable difference between two theme park operators. Both are located in San Diego, and one is a public company which recently had an IPO. The other is owned by a European family and also by Blackrock. Both parks charge premium rates to attend their locations. The former had very old facilities, and for lunch, we had to stand in line for an hour to order a sandwich. When we got to the front of the line to place my request for a healthy turkey burger, we were then told they were out of those burgers, it would be another half hour before they would have them. In this eating area, they had one register working, and the other two registers were not being used. They also had no trays to place food on. An interesting way to treat ones guests.

The second park was noticeably different in there were eating locations all throughout the park. The facilities, while not new, have been recently upgraded. The food establishments also offered an assortment of good nutritional choices for those of us who are interested in maintaining a healthy lifestyle. There were a few areas where this park could have improved on as the long wait times for rides were a turn off. In graduate school, we had to take a mandatory course on manufacturing and part of that entailed line theory. At the time, the object was to understand how to reduce plant waste and make manufacturing situations as efficient and profitable as possible. However, the queing issue is important because customers don't like to wait. I hate waiting in lines and think companies which force you to wait don't respect other people's time. The group which is the most responsible for this is doctors, but they have the insurance companies to partly blame. Anyway, the big theme park operators have a captive audience because parents are not going to leave a theme park after dropping a lot of money for a once a year event. Still, having to wait 30 minutes to an hour for a ride is indicative of design and operational weakness. All in all, I will only say the company which recently went public is not on my buy list, while the European group most definitely is one which I am eagerly awaiting for an IPO.

Regarding recent events in the market, investors are discovering that macroeconomic predictions are a fools errand. The most recent economic numbers out of Europe have been encouraging, in addition to better growth figures from China. Today, the July retail numbers in the U.S were also a bit better than many predicted. Investing in stocks does require one to pay attention to the global economy, but I think investors are far better off reading trade journals and specific 10-Q's, annual reports, and 8-K's than placing too much emphasis on specific macroeconomic or country reports.

As part of the recent information the market has received, it now appears oil demand in the United States is increasing, and not on the decline as it has been for a number of years. Some in the media are making it a priority to highlight the stock market performance of the independent oil producers, especially in the shale area, versus the lack of success over the last five years by the major integrated companies. I would not be so quick to discount the majors, as whenever they want, they can buy these smaller enterprises. With size, comes strength, especially in the the very capital intensive oil business. Here is a nice link to a recent Financial Times story illustrating this very issue-http://www.ft.com/intl/cms/s/0/843f1b9c-fea1-11e2-b9b0-00144feabdc0.html#axzz2bsMl5xTl

Another positive for the large integrated oil companies is the fact that Mexico is now looking at opening up it's energy sector for foreign investment. As always, the devil is in the details, but certainly, having another possible area to produce oil could be a very good thing for the large oil companies. Here is a link to that story-www.ft.com/intl/cms/s/0/edb0ed38-0263-11e3-a9e2-00144feab7de.html#axzz2bsMl5xTlhttp://www.ft.com/intl/cms/s/0/843f1b9c-fea1-11e2-b9b0-00144feabdc0.html#axzz2bsMl5xTl

The horse race between Google and Apple is an interesting one because there are a few different dimensions involved. Most developers currently make the Apple system a priority, but because Google has nearly double the number of users on Android based devices, there are some who believe Google has a definitive advantage in the future. There are reports Apple will release a low cost I-phone in September to help address the low end area of their product line. Other areas where the two will probably go head to had would be in televisions, wearable devices, and connected devices for all sorts of appliances like cars, washers and dryers, sprinklers, locks, security systems, microwaves, and who knows what else.

Politically speaking, the summer is almost over and the next travesty the public has to endure will be the battle over how to extend the debt limit. The deadline is October 1, so we get to see a lot of the politicians in September. I am sure you cannot wait.

I hope the last few weeks of summer are great and I appreciate you reading the blog. If you have any comments or thoughts regarding this or any other post, please share them. Thanks for taking the time to hear my voice and have a great week!!

Y H &C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder.

Big Oil, More on Lawyers, Media Mergers, and Vacation Time-

2013-08-04T12:52:00.000-07:00

Last week the major integrated oil companies reported earnings for the second quarter of 2013, and all in all, the investment world was not pleased with their performances. First, people should understand that the largest oil companies in the world, Exxon, Shell, BP, and Chevron are dominant companies which generate large amounts of revenues, cash flow, and in absolute dollars, net profits. However, the costs for large integrated majors have been going up and are enormous. In order to explore for oil, both in the sea and on land, they have to pay millions for the licenses and the acreage to develop. Once they have the land or rights to sea areas, they have to lay out hundreds of millions of dollars to drill for the oil with rigs or sea platforms. Projects take years to develop, so the payback time can be extended. The chances of discovering oil are typically about one in every four wells that are drilled. One final potential problem is the volatility of oil prices. In this quarter, as oil prices retreated a bit, their profits were hurt some. Obviously, the way technology has developed the capabilities of seismic imaging and the use of sensors and nanotechnology, more precision in locating oil is constantly improving. Still, the largest problem for investors in the oil sector is the amount of capital expenditure which constantly needs to be made.

Another problem for big oil is much of the new possible discovery is located in areas which are very dangerous, either weather wise or in politically unstable regions. Making things even more difficult for the majors is the high volume of oil that they deal with, and the expectations of Wall Street. The investment world is constantly concerned with growth. The big oil majors produce an average of anywhere from 2-5 millions of barrels of oil per day. In order to move the needle on those production numbers, the oil majors have to invest not hundreds of millions of dollars in new projects, but billions of dollars. Big oil is a high stakes game with major financial and political consequences as many countries depend on their oil revenue for nearly all of their budget revenues for a fiscal year. I would expect you will see a much sharper focus placed on developing existing acreage versus looking for new territories, especially if those areas are dangerous, in tough to access regions, or under the control of governments which might be considered questionable to deal with.

In looking at the major's results, Exxon, BP, Shell, and Chevron all had results which were below what the market expected. Speaking specifically to BP and Shell, the former was hurt by a high tax rate and some tax lag on their investment in Rosneft and how Russian duties are calculated. Certainly, the fact they had to set aside a bit more money for the ongoing legal situation from the Macondo oil spill did not help either. Operationally, things went pretty much as expected as their upstream division performed well and their downstream (refining) was solid.

Shell was disappointing because their investments in non conventional avenues for oil development, meaning shale and tight oil, proved very disappointing. Shell also withdrew their guidance for cash flow growth in the future. Shell is the second largest oil company in the world, and their announcement shows that regardless of how promising an area is, if you pay too much for land or access to development, there certainly is no guarantee you can recover the resources to make the return on investment worthwhile. This is the fundamental issue with the big oil companies right now, which is how much return will be realized based on the amount of capital spent. Shock of shock to anyone investing capital, but this is the same question one has to consider for any opportunity you might evaluate. I would expect Shell will return to the fundamentals of upstream exploration and refining to get those operational areas straightened out. Once they do so, they will then revisit the unconventional resource question, but probably with a heightened focus on return on investment. One final note on the big oil companies is they remain dominant in an industry which will be with us for quite a long time. In that light, Wall Street ignoring them, or even worse punishing them, might not be the wisest action. In fact, a few of the major are buying back their own shares. Hmm, what does that tell you?

Regarding my own thoughts on lawyers, certainly what BP is having to deal with regarding the settlement with the Macondo Oil Spill has an affect on how I see things. It appears BP is now taking the step of either having a favorable ruling from the district court on how claims are processed, or they will opt out of the settlement. The trail lawyer profession is one where for many years, they have targeted any industry they can think of to extract massive damages. I am not saying enterprises are not responsible for industries when they make errors, and many families deserve compensation for injuries, illnesses, or even worse, loss of life of family members. What is at issue is the conduct of the trial lawyer profession in their various efforts in many different situations. One of the largest trial firms was Millberg-Weiss, which was investigated for all kinds of illegal activities and eventually had to be broken up. They are not the only class action law firm which has engaged in, what I will call, questionable ethical behavior.

In the situation with BP, the company agreed to a class action settlement, has payed out $20 billion of claims, and when the claims administrator was switched, all of sudden law firms and other businesses have been getting paid out on claims which BP say have no merit because a different interpretation of revenues and expenses is being applied. Can you say, bait and switch? In fact, BP says over 50% of all the claims amounts have been going to law firms. The judge in the case is an ex head of a class action lawyers law firm. Can you believe he has always sided with the class action lawyers- what a shock. Now, BP will take a different tact and we will see what happens. (Full disclosure- I own BP, the firm Y H & C Investments owns BP and Shell for clients).

The media space is really starting to heat up as far as possible merger and acquisition talk. If you read the cover story of Barron's this week (http://goo.gl/tkYWhG), the possibilities are literally endless. The companies who could be involved are the biggest providers of content and access in the world- Google, Amazon, Comcast, Apple, Netflix, Time Warner, Time Warner Cable, Yahoo, Facebook, etc.

It has been a long summer, and it is time to vacation. You know I will be watching what goes on in the investment world, but now is a time for me to recharge the battery. If you have any comments, or thoughts on the blog, or any questions, please post them! I hope you enjoy your week.

Y H &C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder.

Thoughts on Earnings, Loyalty, and Lovely Lawyers!

2013-07-29T13:51:00.000-07:00

The earnings reports are came in hot and heavy last week, with more of the same this week as media and energy companies will share their financial results with the investment world. It was certainly, shall we say, interesting, as definitive differences were revealed among high profile reports. Watching McDonald's slump and Starbucks soar based on different results brought a little pleasure to this observer as I have long noted where my loyalty (and investment dollars) are placed. Certainly, no victory laps are being taken as the market is a marathon and not a sprint. Looking at the results from Sirius, Amazon, Sandisk, Logitech, Build A Bear, and others makes me feel comfortable that placing high priority on a company's digital strategy will continue to be of primary importance in how I evaluate long term strategy in the capital allocation process.

One of the noteworthy aspects of last week was how Amazon.com reported a down quarter, yet the stock did not sell off. In the business press, Amazon.com is always viewed as a different kind of company because it has such a premium valuation and yet many believe it's financial disclosure and transparency leave much to be desired. What many investors and the business press do not realize is that institutional investors are inclined to stick with companies which they have done well with. If you were an institution who bought Amazon.com 15 years ago when its valuation was anywhere from 500 million to a billion dollars, and it is now worth $140 billion, you are probably going to give Mr. Bezos and his management group plenty of latitude. One quarter of mediocre results is not going to cause their investor base to give up on them.

This week we will hear from Exxon-Mobile, BP, and others about how the large integrated oil companies have been executing. One tangential aspect of the large oil companies I want to comment on is how the legal profession, if that is what you want to call it, sees fit to sue anything which they view as being fair game. Really, if a company is generating a large amount of cash, in any field, not just oil, lawyers believe it is fair game to go after (extract money from). As an investor, I have found ways to try and profit from the shall we say, aggressive practices of the different kinds of lawyers. Still, I think the legal system in the United States has become a travesty in terms of "justice" or "fairness." You will hear more from me on our legal system during the next blog post. Let's just say I am not a big fan of lawyers though I do have several who are friends.

Mergers continue to heat up as the very low interest rate environment makes the risk reward ratio for aggressive expansion or consolidation far less costly. I continue to believe the smart money is borrowing and acquiring, and certainly not paying down debt. I am not saying take on an unmanageable amount of debt to buy an questionable asset or merge with a company where the growth and synergy opportunities are not clear. Still, I suspect nearly every industry is full of potential combinations where scale and getting rid of duplication can potentially make a great deal of sense.

The U.S. medical system is the best in the world in all kinds of areas (drug discovery, biotechnology, genetic and genomic testing, just to name a few), but the costs of our medical care are still very high relative to GDP. Here is one example, and I am sure this does not include all factors so it is not a judgement, but it is an interesting (and eye opening) comparison of heart surgery cost-http://www.bloomberg.com/news/2013-07-28/heart-surgery-in-india-for-1-583-costs-106-385-in-u-s-.html

I keep reading these kinds of articles about cash being king and wonder what Buffett would say. I do agree you need some just in case the market has a hiccup-http://www.bloomberg.com/news/2013-07-26/cash-is-trash-not-to-these-value-fund-managers.html

These two guys have been great investors for a long time and now they are trying to produce more great stock pickers. Who says capitalism is not full of generous people? http://www.bloomberg.com/news/2013-07-29/gabelli-samberg-pledge-40-million-to-columbia-business-school.html

Thank you for reading the blog this week. I hope you are having a good summer and if you have any comments, questions, or thoughts about the post, please share them!!!

Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder.

Earnings Week, and People Eat With Their Eyes!

2013-07-22T14:56:00.000-07:00

Earnings season started last week as Google, Microsoft, Chipolte, and IBM, among others, reported their financial results for the most recently ended quarter. In looking at the most high profile companies, the one theme which is becoming more prominent is companies are not going to be rewarded for minimal growth. In most instances, profits are being looked at very closely to see if each enterprise is positioned to take advantage of long term trends, or not. The best example would be the divergence of how investors see Google versus how they perceive Microsoft.

Google is seen as perfectly placed to take advantage of the long term trends of mobility, video, search, and innovation in high tech areas. Microsoft is viewed as being far too exposed to the slowly declining PC market. Google's results were impacted by a lower revenue per search figure because of the growth in mobile queries. Microsoft had to take a $900 million dollar charge against earnings because of the lack of sales in the tablet market with their first entrant, the Surface. Investor's gave Google the benefit of the doubt because of their market share with Android, and the strength of YouTube and search advertising. Microsoft still generates enormous profits, nearly $6 billion worth in 3 months, but their weakness in mobile and tablets is their Achilles heel until they prove otherwise.

Today, McDonald's posted numbers which were weaker than the market expected. They also reported the rest of the year would be a struggle as well. I have long believed McDonald's, and the same can be said for Microsoft, are not innovative companies. Looking at the competitive environment and seeing how others create new products and then applying those concepts to your product portfolio is a very lazy approach to innovation. I believe that for many years, both Microsoft and McDonald's have employed this strategy, and now they have to live with the results. There are many other businesses who actually try to create new ideas, products, and services, and have them fail. In fact, in happens quite often. Still, let's not confuse genuine innovation with being attentive to your opposition's new product lines.

Yahoo is a company which also reported earnings last week and the results were not highly thought of. Marissa Meyer is trying to overhaul the long sleeping internet content giant and has made quite a few moves which shows how a forward thinking management can try and reposition a business. The larger the enterprise, the longer it takes to transform all of the different aspects of an organization. Yahoo's stock has performed very well over the last year, and last week it jumped because of reports that Alibaba would get taken public relatively soon. Yahoo has a large position in Alibaba, which could come to the public markets at a $100 billion valuation. The efforts taken by management to change the marketing of their content, become a stronger player in mobile by acquiring Tumblr, and look for stronger relationships across the internet are reasons why investors are giving Yahoo the benefit of the doubt. In many cases, if people see the change in a company, they will buy in if they agree with the direction it is headed.

Another aspect of business which I have been paying quite a bit of attention to is merchandising, or how a company displays its wares. Creating and developing great products is obviously crucial for any business, but how something appears to a buyer is in many cases the difference between generating revenue and having unsold inventory. My wife is a very good cook, but she really does a great job in showcasing her food. She has a saying, "People eat with their eyes." The same holds true with nearly any product. On the internet or on a mobile device, if something looks attractive, neat, clean, unique, fun, and interesting, chances are there is an opportunity for a sale. On the other hand, anything which is seen as yesterday's idea, old, tired, not relevant, or not pertinent, gets discarded instantly. Maybe, like, uh, PC's?

The rest of the week will be interesting as Apple, Starbucks, and a whole host of other companies report their earnings. You can bet Wall Street, myself, and millions of other investors will be watching.

If ever there was an elegant woman, the Duchess of Cambridge (Kate Middleton) has to be considered as graceful as anybody the public has ever come across. She gave birth today and I am sure that the UK is thrilled! http://www.bloomberg.com/news/2013-07-22/kate-gives-birth-to-boy-who-ll-be-third-in-line-to-u-k-throne.html

Making animated films is not easy, although Disney certainly makes it look pretty simple. Dreamworks had disappointing results with their most recent effort-http://www.bloomberg.com/news/2013-07-22/dreamworks-declines-on-forecast-of-turbo-writedown.html

Netflix is a company I certainly missed on and boy was it a big miss. I still believe they are going to run into trouble unless their efforts to develop original content probe successful. Here is a look at their most recent quarter and other efforts-http://techcrunch.com/2013/07/22/netflixs-original-content-plans-go-beyond-tv-shows-to-include-stand-up-comedy-and-documentaries/

http://finance.yahoo.com/news/netflix-gains-630k-subscribers-2q-202338088.html

Thank you for reading the most recent blog post! If you have any comments, thoughts, or questions about it, please share them!! Have a relaxing and enjoyable summer week!

Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder.

Patience, Patience, Patience, and More Patience!

2013-07-15T12:05:00.000-07:00

If ever there was a well used phrase which is understated in its importance, "Patience is a virtue," would be the one which at the top of my list. As it relates to the topic of investing capital to achieve asymmetric returns, there might not be a more important subject than patience. What is patience then, exactly? Patience (or forbearing) is the state of endurance under difficult circumstances, which can mean persevering in the face of delay or provocation without acting on annoyance/anger in a negative way; or exhibiting forbearance when under strain, especially when faced with longer-term difficulties. Patience is the level of endurance one can take before negativity. It is also used to refer to the character trait of being steadfast.

Ah, yes, remaining steadfast under negative circumstances. In today's digital world, financial markets operate at lightening fast speeds. You can buy and sell stocks, bonds, options, currencies, swaps, private investments, businesses, bank loans, bankruptcy loans, and almost anything else, with a click of a mouse, or the touch of a phone. Given this backdrop, technology has helped to create tools which work completely in the opposite direction of what a primary ingredient for potential investment success might require. If you buy an asset, and it drops 20% very quickly, it is easy to click the mouse, touch the phone, and be done with the asset, and not have to even think about "having patience." Why does this matter to someone interested in investing capital?

The reason why it matters is because in many, many investment situations, especially with regard to stocks (i.e. businesses), patience is exactly what is going to be required in order to see the allocation of capital reach its potentially rewarding conclusion. For example, many businesses give you a time frame on their plan for changing a company, growing a company, implementing store closures, or executing potential acquisitions. The larger the business, usually the longer it takes to execute these plans. If the stated plans currently say that it will be in 2014 when shareholders should start to see results, to expect a different outcome would be unrealistic. As Warren Buffett so aptly states, " Some thing just require patience. You can't make nine babies in one month- it takes nine months to make one baby." Investing capital requires the same characteristic- yes, the p word. That Buffett guy, funny fellow, eh?

This week will bring an avalanche of corporate earnings as the profitability of the corporate world will be on full display. Citigroup started it off this morning, and others will follow suit- Coke, JNJ, Google, Microsoft, and plenty of others. The investment world has bid up the stock market to an extent where any kind of shortfall could bring a very swift and harsh impact. Still, plenty of stocks remain in the stratosphere and have been there for quite a long time.

More evidence of our dysfunctional government- sorry I bring it up-http://www.bloomberg.com/news/2013-07-15/reid-mcconnell-nomination-clash-risks-senate-gridlock.html

The oil companies continue to be attacked- http://www.bloomberg.com/news/2013-07-15/u-k-regulator-reviewing-criminal-probe-of-oil-benchmarks.html

I have been reading about BskyB, Uber, and other companies which are transforming how people use their own assets, many of which are completely underutilized-here, Uber takes it to a new level-http://techcrunch.com/2013/07/15/uber-fare-splitting/

Thanks for reading the blog and I hope you are having a great summer! If you have thoughts, comments, or questions about the blog, please share them!

Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder.

Big Oil, Earnings Season, and Applying Digital Technologies-

2013-07-07T14:51:00.000-07:00

At a time when Elan Musk and Tesla is all the rage on Wall Street, very little respect is being given to 'Big Oil', the major integrated oil companies. If ever there was an industry which is completely and unfairly deemed a public enemy, the oil industry is it. Oil is a vital resource and involves national security at the highest levels. Without oil, cars, planes, trucks, trains, and every major transportation avenue cannot operate. 99.9% or more of all the potential methods of transportation involve the use of oil. In order to be employed in the oil industry, typically you need to be highly educated, trained by experts, and completely reliable. Oil is a substance which is dangerous to work with, and the people who work with it are constantly exposed to danger. If you pay attention to the energy industry, all over the world, there have been accidents involving oil- Shell in the Arctic, BP in the Gulf of Mexico a few years ago, yesterday a railroad in Quebec, Exxon with a pipeline in Arkansas, Chevron in Australia. The reality of working with oil is it is not easy, not to find, not to drill, not to move, not to store, not to refine, and realistically, not to replace.

The world recognizes the importance of oil, especially those countries whose whole governments depend on oil revenue to fund their entire budgets. All of the OPEC countries, Russia, Venezuela, Nigeria, Qatar, the United Arab Erimates are all pretty much dependent on oil sales. A major reason the future now looks bright in the U.S. is because of increased energy production due to fracking, shale oil, and increased oil and energy production. States like North Dakota and Texas are leading the way, and there are other states which have the resources available, but the politics in the state won't let exploration to begin. President Obama dare not get in the way, because if he does, the engine which is leading the American economy back will get stalled.

Yet, no matter what you read and by whom you read it from, oil companies get criticized. If there is an accident, it will is their fault. The big oil companies are huge targets for lawyers because they have lots of money and can pay. Customers complain about the high gas prices- gas is a derivative of oil and oil needs to be refined to create the gas. Politicians criticize the oil companies for their record profits. A problem with that is most of big oil are public companies, and the shareholders take risks for those profits they earn. No politician will say a word when an oil company goes bankrupt, or the stock price suffers because of bad news. Without the oil companies and their valuable workers, the world would stop. In many ways, oil workers all over the world are unsung heroes. One other thing to keep in mind- at some point in the next five years, 'Big Oil' will be seen in a different light, not by the public, or the politicians, but by Wall Street and the investment world.

Earnings season is upon the market and the parade begins this week. Next week, it will swing into full force. The market is pricing in a great deal of earnings growth with many companies, and if the revenues and profits disappoint, you could see lots of pain for those who fall short.

Here is some more information on the accident in Canada-http://www.bloomberg.com/news/2013-07-06/train-derails-in-quebec-town-setting-off-explosions-one-dies.html

President Obama plays more politics by moving the target on Obamacare. Not a surprise as the private sector has been screaming bloody murder for months-http://www.bloomberg.com/news/2013-07-03/health-law-rule-delay-aids-democrats-as-coverage-deadline-looms.html

Here is an interesting new approach to funding college loans for education-http://techcrunch.com/2013/07/07/move-over-peter-thiel-oregon-proposes-investment-model-for-student-loans/

A nice interview about succeeding in business with Ken Lombard-http://www.nytimes.com/2013/07/07/business/ken-lombard-on-staying-a-student-of-business.html?ref=business&_r=0

Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder.

Leadership- One Decision At A Time!

2013-06-23T13:30:00.000-07:00

Leadership is analyzed, discussed, argued about, and increasingly dissected in any number of methods. The reason why leadership is so important is because over time, the decisions a head of an organization makes directly affects the outcomes which ultimately become the end result. My area of interest is obviously business and the capital markets, but certainly in politics, sports, government organizations, non profits, and personal relationships, the same idea is applicable. Especially in business and financial markets, you have to think in 3, 5, or 10 year periods. One year in the business world is really too short of a time to evaluate any leader. So over a long periods, excellent leadership slowly but surely displays good decision making one transaction at a time, and these build up to enormous results which at any single point might not seem so significant.

I think in the corporate world, the ability to execute small deals, medium sized deals, and large blockbusters is something which is learned over time as experience is accumulated. Deal making matters in the corporate world because it can change the direction of a company, potentially positively and negatively. In addition, how a deal gets structured speaks to efficiency as far as what assets are acquired, the price which is paid, how they are financed, and the tax consequences for both the acquiring and selling company and their respective shareholders. In many situations, deals are done where if they were structured very differently, more flexibility for both parties would be the end result. Also, the tax benefits might be completely different with a different deal concept.

A few weeks ago, I wrote about the success of John Malone. A key feature about Malone is his track record of corporate transactions of every size imaginable, using a variety of different methods to be as tax efficient as possible. One of his major arguments with AT&T was how they structured their deals when they acquired large cable companies after they bought Malone's TCI Cable. The term I can recall is 'Killing the pig without using the blood and the guts.' I am seeing this a great deal in the most recent deals in the business world, especially with high tech companies.

For example, we have seen Yahoo buy Tumblr and pay for it using cash. I think Marissa Meyer is really trying to change that company, and this deal is a good example of it. However, I think she could have changed how the deal is structured and it would have been far superior from an efficiency point of view. Ultimately, how Yahoo integrates, grows, and builds Tumblr from a revenue and profit point of view is what is most important.

Malone is bidding for the one of the largest cable companies in Germany, and Vodaphone is considering a all cash offer for it as well. Malone will not offer cash, instead offering cash, debt, and stock in some combination. Cash is a very valuable asset, and with today's cheap interest rates, from my perspective it does not make a great deal of sense to use your cash when you could easily use some cash, and finance the rest with cheap debt.

The series of decisions Malone has made over the last 10 years have been made patiently and each one has led to the next result. When he hired Greg Maffei from Oracle, people in the investment world noticed, but to most it did not mean a great deal. For Liberty shareholders, it helped completely change the direction of the company. Maffei has been a driving force in focusing the Liberty portfolio into situations where Liberty has a greater influence. For example, the bridge financing Liberty used to help extend Sirius Satellite liquidity during the height of the 2009 crisis enabled Sirius to avoid bankruptcy, and Liberty is now in control of that company. Other individual transactions would be selling out of the IAC stake, swapping News Corp stock for DirectTV (with tremendous tax benefits), and the most recent Charter Communications investment.

If looked at one deal at a time, an investor might minimize their importance. As time passes and the results accumulate, the leadership and good decision making become very clear. The same holds true with Mr. Buffett. Leaders like Marissa Meyer are starting to try and make their footprint in the same way. Deal experience takes time, and the skills are acquired with practice, as is almost anything valuable and worthwhile.

The whole trend of digitization becomes more and more pertinent as technology evolves. Here is a great story in the NY Times about 'Big Data' and how it applies to the biggest industries-
http://bits.blogs.nytimes.com/2013/06/19/sizing-up-big-data-broadening-beyond-the-internet/?ref=business&_r=0

There are many investors who believe that Google is in much better position than Apple. Here is an article which might make them reconsider- http://allthingsd.com/20130623/is-ios-fragmenting-not-nearly-as-much-as-android/?mod=atd_homepage_carousel

Need evidence how digitization can affect a business?
http://seattletimes.com/html/businesstechnology/2020862483_starbuckssocialxml.html

Thank you for reading the blog post, and I hope you are having a great and cool summer!

Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder.