'It is not the critic who counts: not the man who points out how the strong man stumbles or where the doer of deeds could have done better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly, who errs and comes up short again and again, because there is no effort without error or shortcoming, but who knows the great enthusiasms, the great devotions, who spends himself for a worthy cause; who, at the best, knows, in the end, the triumph of high achievement, and who, at the worst, if he fails, at least he fails while daring greatly, so that his place shall never be with those cold and timid souls who knew neither victory nor defeat.'
Teddy Roosevelt (1858-1919)
When you go on an eating binge, especially food which might be a bit rich in calories (like sweets), the body finds a way of correcting your overindulgence. In the same spirit, but a different context, the world continues to grapple with the aftermath of a ten year feast of infrastructure spending in emerging markets. Consequently, commodity and currencies in these markets hit an eleven year low this week. Countries like Canada and Brazil have been taking it on the chin because of their exposure to oil, along with other self inflicted wounds (Brazil's political turmoil). In the United States, the July Retail Sales number of .6% came in better than expected, a good indication the economy remains in decent shape. Later this month we will get the revised second quarter GDP number, and it appears an upward revision will be in order. Relying on economic forecasts for accuracy can be hazardous to your health, so take my information in the pleasant spirit with which it is intended.
Adding to the complexity this week was a sudden change in policy by the Chinese government, which declared they will slightly modify how the yuan is priced. The alteration ultimately weakened it against the dollar by about 2-3% (depending on the day in question). It also dropped against regional competitors. Investors in the United States freaked out a little bit, as has been the case for the last year. Any questionable news is viewed as a definite negative, versus a more level headed approach. In Europe, Greece got it's $29 billion aid package and hopefully the country will figure out a Greecian 'formula' for a less sensational setting (like 5 years).
In the capital markets, the implications of the commodity crash are still being felt. A KKR & Co LP (NYSE:KKR) backed oil firm, Samson Oil & Gas Ltd (NYSE:SSN), filed for bankruptcy late Friday. You have to believe other areas of the oil complex are starting to feel some serious pain as well. Oil production remains at lofty levels because of the advances in technology. Extraction costs continue to get dramatically cheaper, although much depends on how attractive the geology of the field is. Still, with the bulk of output in the first few years of drilling, especially in shale related territories, the dramatic reduction of rig counts should start to impact production levels, probably beginning in 2016. I continue to believe consolidation is going to happen in the oil patch, especially with cheap capital available. It is not a matter of if, but when, and with whom.
A couple of companies we have previously written about, Shake Shack (NYSE:SHAK) and El Pollo Loco Holdings Inc (NASDAQ:LOCO), saw their shares get beat up this week after posting results which left investors, well, empty.
A familiar theme in the equity markets has been IPO's of restaurant chains at valuations which have been like an expensive meal (Wingstop Inc (NASDAQ:WING) as another example). If you are hungry for these kinds of situations, keep your eyes open as there is no lack of supply.
As part of the IPO market, private equity entities have been investing heavily in venture capital based companies as a way to capitalize on cheap money and be ahead of the crowd in the event of a public exit. Not all of these situations work out with a home run, nor do they all struggle. Each company has a unique business which has to be evaluated on it's own merit. Still, Uber at $50 billion is going to be a hard place to make money in, regardless of what kind of investor you are. People have to learn that lesson for themselves, shock of shocks.
In my little garden, a few of our little holdings had results which make me feel optimistic about their businesses. On the other end of the spectrum, one position has been torched all summer long. Some of it is certainly the company's own doing, and it will take time to get the issues worked out. Nobody said investing was easy, and it is not supposed to be. Mr. Roosevelt's famous quote is very much applicable even today.
In the political arena, it appears shrill Hill faces more 'challenges' about her candidacy, and you can only imagine the big zero has to be thinking about helping his friend Joe salvage the situation. We will know more, probably by Labor Day. In the other party, the Republican candidates race to build organizations which will support their ambitions. All politics is local, so those who are creating the infrastructure for a national election are in the middle of trying to make this happen. It is a time consuming and tedious process, along with requiring lots of money. What a surprise. Thank you for reading the column 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.