Each generation imagines itself to be more intelligent than the one that went before it, and wiser than the one that comes after it. George Orwell
One of the observations I have about children, especially being the father of a enthusiastic daughter, is they are often concerned primarily with themselves. You can make a similar argument the same holds true of most people, although there are plenty who are quite selfless in all sorts of ways, especially in giving time, energy, money, and leadership. In the investment world, a primary focus is to be concerned with your clients and what they are trying to accomplish. There are many individuals in the profession, like other fields, who are highly accomplished both academically and in their specific area of expertise, but in the financial world, this can mean a great deal of financial wealth.
As such, sometimes those who are so fortunate seem to gain a belief that their importance to humanity might be excessive, and maybe even, you guessed it, superior to others. Often times, these individuals start to say things which are, shall we be kind, idiotic. One such individual this week was the author of the famous Gloom, Boom, and Doom report, a one Marc Faber. He has been a great investor for a long time. Unfortunately, he suffered from foot in the mouth disease, and made some terrible remarks about leadership in the United States. The major business networks have subsequently rethought their policy of inviting him on their shows, and he has resigned from the five boards of directors which he belonged to. Interestingly, despite these setbacks, Mr. Faber maintains he stands by his remarks. Based on Mr. Faber, one would think other people would learn from his mistake, but oh, contraire, and I will turn to that issue a little later. In the meantime, let’s take a look at the markets.
It was a week where the Dow broke through the 23,000 level for the first time as components like Johnson & Johnson (NYSE:JNJ), Goldman Sachs (NYSE:GS), and IBM (NYSE:IBM) all reported earnings. JNJ and Big Blue, formerly known as big poo with twenty consecutive quarters of declining revenues, impressed investors and provided strong support for stocks. Goldman Sachs continues to grapple with weak fixed income and currency markets and competitors with larger balance sheets. In the tech world, Adobe blew out the numbers and was rewarded in a big way. Lately, one of the areas which has been changing a bit is the declining influence of large activist shareholders. For example, Nelson Pelz was turned down in his efforts to get on the board of Procter & Gamble Company (NYSE:PG), but did succeed in doing so with General Electric (NYSE:GE). GE traded down to a 10 year low with results on Friday, and many believe it is only a matter of time until they cut their dividend. Consistent with the same idea on reduced activist influence, Bill Ackman has been trying to get on the board at ADP, and he owns nearly 10% of the company. No dice says the powers that be at Automatic Data Processing Inc (NASDAQ:ADP), long a stellar performer. It seems that billions of dollars of ownership doesn’t carry the sway it used to, at least in the large and mega cap arena. In the small cap world, activism has more impact because shareholders get tired of having their stock for a pet rock and want to see some returns, in some cases after five and ten years of nothing. You see all kinds of interesting situations in the small company universe which revolve around replacing management. Very few are worth pursuing, but once in a while, you never know. We should also mention the effort of tax reform may be gaining traction as there was enough votes to pass an annual budget resolution, which is the foundation for a possible change in tax structure. We will see, won’t we?
On the topic of exaggerated self importance, I know it is hard to believe but it clearly has infected the worlds of politics and sports, imagine that. I don’t know of an industry more than the self serving solons where people constantly open their mouths and not only say nothing of substance, but opine on things where they have little or no knowledge or area of expertise. Just watch a congressional hearing where someone like Janet Yellen or a corporate CEO get dressed down by one of the people’s representatives, especially in the Senate, who is always outraged about something that happened. The athletic world has it’s share of inflated opinions, among whom is the head coach of the San Antonio Spurs, who feels competent enough to give his ongoing opinion on the competence of our political leaders, one in particular. He may even be accurate in his assessment. However, just consider the case of what has taken place with ISIS over the last week. You may recall they were driven out of the capital of Syria, which was not the case over the preceeding ten years. Speaking of our fearless leader, he has been interviewing candidates to potentially take over from Janet Yellen, including existing Fed Governor Jerome Powell and Stanford Economist John Taylor. I’ll take odds on Mr. Taylor, so email me if you want to lay the 5-1, OK?
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