As the end of fall inches closer and closer, the lovely mornings more frequently get replaced by a cold chill. When you go outside to start the car, now you have to wipe a bit of ice off the windshields. The little changes of your daily routine become more complicated by the additional variable of a less friendly working environment. Just as the weather changes, so does the business cycle. Over the course of the last week, we learned third quarter GDP growth came in at a meandering 1.5%, and personal consumption was .1% for September (below the .2% expected level). In case you were more concerned with making arrangements for tonight’s Halloween party or deciding what candy to put out for trick or treaters, let me remind you the third quarter is when summer takes place. It is when people generally, as they say in California, chill out. A lower GDP number should be expected, or to put it more formally, factored into your model. You could make a different argument about personal consumption as you would expect it to increase, but reality is often different than theory. Deal with it.
When the Federal Reserve Board released their monthly policy statement this past Wednesday, interest rates were not changed, and the same objectives of employment and inflation levels were reiterated. Market participants expectations about when lift off will take place is pretty much 50-50 for a rate hike in December or moved back to January. You can get some indication by looking at Fed Funds futures. At some point, in any endeavor, following through on your intentions is required for credibility. It does not matter whether it is warning a child, or preparing the markets, credibility is earned depending on action. The bottom line is, I suspect December is when rates rise, provided global markets don't fall out of bed in the meantime.
Based on what took place in October, the best month for equities in nearly four years, the fourth quarter is off to a fabulous start. Early in the week, Walgreen’s (O:WBA) announced its intention to purchase Rite Aid (N:RAD) for $17.2 billion. Later on, it was confirmed Pfizer (N:PFE) is communicating with Allergan (N:AGN_pa) about a combination of the two huge pharmaceutical companies. Big oil reported drastically reduced profits this week and the largest integrated oil groups all pretty much had the same kinds of results. A tough environment in upstream was balanced by strong refining and trading numbers in downstream. Nearly all said to expect the same for 2016 with oil prices gradually moving up throughout the year. The big concern is the sustainability of their big dividend payouts, but all are reducing capital expenditures based on their operating results. Chevron (N:CVX) announced a further cut of 7,000 jobs as well. Been through this before, thank you.
In technology, LinkedIn (N:LNKD) posted a blowout number, and Twitter (N:TWTR) as well, but disappointed on guidance and monthly active users. Mr. Dorsey is the founder and showed how motivated he is to change the perception of tweety bird. He is doling out $200 million of his own stock (1% of the company) to help incentivize the employees left at the company after announcing an 8% workforce reduction. Many in the market see an interesting comparison between Facebook (O:FB) and Twitter in terms of a potential comeback. Not out of the realm, but certainly not a layup either. Don't you just love the intrigue of markets?
A couple of other pastings in the market included GoPro (O:GPRO) and Buffalo Wild Wings (O:BWLD). Both have long been market darlings, as who doesn't love a good chicken wing and a self-video of skydiving or surfing (or gosh knows what else)? Apparently, not investors, as each got beat up this week. In fact, GoPro is now down over 50% for the year. Wall Street is not for the faint of heart, as you well know.
As for the little debate the other night, it was not nearly as watched as the first two, but what transpired may have been far more significant regarding the future. Republican National Committee chairman Royce Priebus described it as a 'crap sandwich', delivered by the CNBC moderators, regarding the tone and kind of questions asked during a wild affair. The RNC subsequently suspended an upcoming February debate on NBC. I suspect things will get worked out, but clearly, the recurring issue of the quality of the moderators and the substance and neutrality of the questions means the whole design and structure of these events has to be reconsidered.
In terms of the outcome, like the rolling in of a new season, we may have seen a changing of the guard regarding who the Republican establishment will back for it's leading candidate. After three very poor debate efforts, Jeb Bush, even with his $100 million war chest, is not gaining traction among voters. His fellow Floridian, Marco Rubio, undressed him pretty severely and has now received the support of Paul Singer, a billionaire, and major Republican rainmaker on many different levels, primarily fund raising. Ted Cruz and Chris Christie also had strong showings. Rubio downplayed his prospects after the debate, noting it is a long process. Agreed. Still, change is always healthy, especially when you go younger and positive, as Willie so eloquently illustrated.
Disclaimer: 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.