The current investment environment is challenging, to say the least. It seems every asset class or area of the world you look at, there are issues. China's industrial sector continues to struggle with the ramifications of a building binge, and these have a massive ripple effect, especially for emerging market economies heavily reliant on commodity exports. One only has to look at a country like Brazil to see how China's cold affects other countries. In what is always referred to as the next great country, it's currency, the Real, has dropped to a 15 year low this week and some economists believe the pain could get worse. Anything in the commodity space, especially the natural resource area like oil and metals, has been repeatedly walloped. This week, huge industrial giant Caterpillar (NYSE:CAT) lowered revenue and earnings guidance for the third year in a row. If it happens again in 2016, it will be the first time in 90 years the company's earnings dropped four consecutive years. Lovely, just lovely.
In the United States, given the growth challenges in the rest of the world, many believe the spillover has to eventually wash up on our shores. We learned that revised second quarter GDP came in at 3.9%, better than the 3.7 expected number. Consumer spending numbers also came in better than expected. Hooray, right? Wrong. Analysts have been chopping estimates for third quarter GDP down to 1.4% as there is no confidence our country can continue on it's current trajectory if the rest of the world is, shall we say this in the most pleasant way possible, stinking the joint up. Getting better all the time, huh? The Federal Reserve Board's decision last week to take a pass on raising interest rates did not help the matter, either. By backing off, an already skittish investor class became even more convinced the world may seriously end. Tomorrow. If not tomorrow, surely Monday, at the latest. CAT's big blowup did not help on the sentiment front either, and with John Bohner resigning yesterday, now we can add political uncertainty into the mix as well. Not that the big zero, President O, or our well tuned, finely functioning machine in Congress have ever added anything to give us confidence over the last 10 years. No wonder Charlie Munger says investing is not easy, and it is not supposed to be easy. Yogi Berra couldn't have said it any more eloquently- shame to see him pass away this week.
Still, unless you want to be in cash, which has outperformed all asset classes this year, you have to put money somewhere. It is not as if there is no good news from companies who reported earnings this week. In fact, there was all kinds of reason for optimism. Nike (NYSE:NKE) blew away numbers, led by futures orders, from, yup, China. General Mills (NYSE:GIS) also posted a good number because of cost cutting and easy comparisons. Lennar (NYSE:LEN) showed nice strength in the continuing joy which is housing. If you add on a nice number from cruise leader Carnival (LONDON:CCL) and car part retailer AutoZone Inc (NYSE:AZO), you might even think things are not half bad. In the event you got a good meal from a place like Olive Garden, which is owned by Darden Restaurants Inc (NYSE:DRI) and had a fine quarter as well, you might even think things could turn out OK. Of course, that is, until you read about Blackberry (TO:BB) missing it's estimate. The cherry on top would be the NASDAQ giving up it's gains on Friday as the bio tech index got hammered again. Mrs. Clinton put her two cents in on price gouging in the pharmaceutical industry, and investors said, hey forget about it! Of course, it is interesting shrill Hill did not take up the cause for students being hurt by student loans as her price point for universities, a cool 250k per lecture, ain't exactly a bargain. Don't worry, big, bad Bernie has that one covered Hill.
So, all in all, the investment world remains a place where making decisions about what to own has all kinds of cross currents to consider. As I mentioned earlier, the famed Yankee catcher Yogi Berra died this week. He had all a ton of great quotes and has now become almost a famed philosopher. In this light, his remark, 'When you get to the fork in the road, take it,' seems very much applicable. The key question is who is making the decision and why are they headed that way? Thanks 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.