Hopes For Tax Cuts Revive Market, Fears Of Amazon Growth In All Areas

Matching your hat to your shoe to your bag, or your necklace to your earrings, has a tendency to look dated. Mixing up your accessories adds interest to an outfit, and can make you look much more modern and polished. Stacy London

Mixing and matching is famous in the garment industry for being useful, as Mrs. London so eloquently puts it. Matching is also an important part of nearly ever sport, especially the team sports like football, basketball, and baseball. For example, good coaches and managers often try to identify situations in football and basketball where a superior player is being defended by a player who cannot guard them because of quickness, skill, height, strength, or some physical attribute. If a wide receiver or running back cannot be stopped by their defender, it can lead to quick touchdowns in football, or a run of points in basketball. Coaches then have to change defenses or who is guarding the undefendable player, and so you have a series of adjustments between teams about matching up defenders to good offensive players in order to have an effective defense. In these team sports, what you discover is if a team cannot defend, especially at the end of a game, it will not win, especially against superior teams. Who cares, the observant reader might ask, how does this idea of matching apply to markets?

Well, I am glad you asked, and it the answer is quite simple. As an investor in any asset, what you are trying to do, in its most basic form, is to identify situations where the price of the asset being offered does not reflect the economic value. Conversely, short selling involves finding assets where the market price is well in excess of the economic value. Both strategies revolve around matching up market price and the fundamental value of the business, in the case of stocks. Investment firms employ different combinations of the two methods in order to achieve their specific goals for clients. One can apply the idea to all kinds of different assets, including startups, real estate, and fixed income. However, I should note one asset class where the idea probably is not going to apply is cryptocurrencies, which happen to have soared during 2017. Familiar names like Bitcoin, Ethereum, Ripple, Nearcoin, Peercoin, Monero, and gosh knows what else, have hit all time highs and show very little indication they will slow down. The reason why matching asset price to economic value will not work is because, ta da, cryptocurrencies, and currencies as well, do not produce cash, cashola, the green stuff, good old hard CASH. Currencies can be exchanged, as can cryptocurrencies, but as far as generating cash, nope. Consequently, those who are engaging in the buying and selling of these cryptocurrencies are engaging in what is so eloquently called, ‘The Greater Fool Theory.’ Yes, digital currencies have a place, and now, more than ever, it is for traders. As for investing in them, well, for myself they don’t quite match up.

In the markets this week, Janet Yellen and Mario Monti delivered nothing burgers yesterday at the plush confines of Jackson Hole, Wyoming. Self congratulations of those in power always make me a bit uneasy, especially coming from those who never saw the largest problems in nearly a century coming. Janet and Mario essentially said, things are much stronger now thanks to all the adjustments we implemented (actually, it was their predecessor, helicopter Ben Bernanke). On the earnings front, HP beat estimates as did Cree Inc (NASDAQ:CREE), while WPP (LON:WPP) met theirs but guided down and took a shellacking from investors. Suckers also forecast softer numbers for the rest of the year, which is kind of interesting, for me anyway, might have to see if that is a match. Amazon (NASDAQ:AMZN) made big news with the final approval and closing of the Whole Foods acquisition, and then the market subsequently sold off Costco (NASDAQ:COST), Kroger (NYSE:KR), Target Corporation (NYSE:TGT), and Wal-Mart Stores Inc (NYSE:WMT). It seems Bezos and the boys and girls who run the beast that is Amazon are going to immediately reduce the prices at Whole Foods. Whole Foods will no longer be ‘Whole Paycheck.’ What is the world coming to?

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.