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Market Pauses As Trump’s Agenda Faces First Setback!

Published 03/26/2017, 02:08 AM
Updated 07/09/2023, 06:31 AM

Leadership is solving problems. The day soldiers stop bringing you their problems is the day you have stopped leading them. They have either lost confidence that you can help or concluded you do not care. Either case is a failure of leadership. —Colin Powell

In nearly every profession or activity a person will participate in, there will be problems. In sports, teams rarely have undefeated seasons. In business, there will be years when plans do not work and the company may lose money, or have lower cash flow and profits. In politics, a candidate may lose an election, or a piece of legislation may not get passed (hint, hint). Over a long period of time, the entities which wind up achieving far more than the many which fail are organizations which learn from their problems, analyze what went wrong, and find solutions. If you are in business, especially in the investment world, you are trying to find leaders who specialize in solving difficult issues in the toughest of conditions.

Not every business cycle is going to be good, often there are plenty of economic headwinds. Turnaround situations are based on these kind of environments. In the current economic environment, with digital technologies affecting nearly every industry, I look for people who are cool under fire, who don’t get rattled, who have poise. I also want people who are quiet and who stick to their strategies. When you have an organization that is confident in the underlying philosophy and strategy, it ain’t going to change. Solving problems remains as important a competency as there is for any leader in competitive areas.

In the markets this week, Ford (NYSE:F) announced it was reducing earnings estimates for the rest of the year. Many are concerned about a slowdown in new and used car sales, an early indication we may be on the downward slope of the auto cycle. In the housing sector, both KB Home (NYSE:KBH) and Lennar (NYSE:LEN) exceeded expectations as the industry continues to grapple with a high base of millenials more interested in renting than buying. Cintas (NASDAQ:CTAS) and Five Below (NASDAQ:FIVE) also performed nicely as uniforms and cheap wares remain recession proof industries. Conversely, The Finish Line Inc (NASDAQ:FINL) demonstrated retail remains extremely challenged. I know, you've heard it before, one too many times. Probably a very good opportunity for a problem solving management team, right?

In the financing arena, a few weeks ago I read about the trend for large corporations like Apple (NASDAQ:AAPL), Pfizer (NYSE:PFE), and Verizon to issue debt in Taiwan. The bonds are called Formosa issues, with a length generally of 30 years, and the key feature, from an issuer standpoint, is the terms are in non-Taiwanese currency, and are for greater than five years. The reason why companies are issuing this paper is because with potential tax law changes looming (more in a second on that one) it is better to lock in the favorable terms now, 4.3-4.9% borrowing rates, in dollars. Better to minimize the risk of an unpredictable government event than watch the politicians screw up for the umpteenth time in a row.

Speaking of the government, Mr. Trump signed the approval of the Keystone Pipeline, which is a big win for the country in terms of providing much needed transport infrastructure to move oil south from Canada to our various refining hubs. Mr. Trump also heralded the job in sourcing of our friends from Charter Communications (NASDAQ:CHTR), which will spend $25 billion over the next five years to help fortify their network. Maybe Mr. Trump found more in common with Charter because of their use of tax loss carry forwards, which dwarf what Donald was able to use a few years ago. Great minds think alike, eh?

Regarding the failure of the Republicans to even get a bill through the House which could repeal and replace the Affordable Care Act, the rift between moderate and hard right segments of the party remains an ongoing concern. When you get zero members from the other group participating, the mountain is much harder to climb if you have a complicated piece of legislation. The same situation exists with tax reform, as expect no help from Democrats on anything. One has to expect the Freedom Caucus will hem and haw over adding anything to our debt obligations, and the health care failure means Republican leadership is now under increased pressure. The obvious beneficiaries of the results are the hospital and big pharmaceutical industries, which will now face no changes for the foreseeable future. One guy who will see ongoing heat is Paul Ryan, as will Reince Priebus, best buddy of Ryan and Chief of Staff. It could be Steve Bannon could find increased importance in the administration as the tax battle begins.

Finally, this week was the last annual meeting for outgoing Starbucks (NASDAQ:SBUX) CEO Howard Schultz. He faced criticism for his support of immigrants and the inclusive philosophy which permeates the Starbucks organization. His answer is to point out the 180X return on SBUX stock over the 25 year life of the public company (1K turns into 180K). A fine example of leadership, but I am biased as a long time owner. I suspect the stock won’t duplicate those results over the next twenty five years, but I’ll take my chances.

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.

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