There are good and bad times, but our mood changes more often than our fortune.
Thomas Carlyle
Many people follow trends or adopt similar points of view as other well known individuals who they may admire. How many times do you go to a get together and hear someone make a point based on what they heard from so and so? In my little neck of the woods, it happens all the time. It would not be a shock if you had a similar experience. Humans have a tendency to flock to common thoughts or ideas. In like fashion, the general mood of the populace, or a smaller group of the broader population, does shift based on recent trends. In viewing the current status of the investment climate, what we saw this week was a shift in mood. We all know the investor class is a fickle fellow, and over the last few months a sour demeanor settled in as China was terrible and had no hope of getting better.
Of course, that is, until the Federal Reserve Board decided not to raise interest rates. We learned this week they were not close to doing the deed, and many believe lift off will not happen until 2016. Another friendly data point arrived on Monday as the U.S. Energy Administration revealed global oil demand would grow to 95.2 million barrels a day, with supply coming in at a shade under 96 million (bbl/d). Guess what country will have stronger than expected demand? Yup, the big C. The fact that China also is averaging about 20 million cars being sold per year, above the 18 million per year for the U.S., has to help the oil cause. Kinda proves the old saw the best cure for low oil prices, is, ta da, low oil prices. Still, it may take another six months or so to work off the overhang of supply.
With the weakness in the dollar, the entire commodity complex was dramatically helped as prices rose across the board. In Europe, the largest commodity trader Glencore (LONDON:GLEN) saw a lift when it announced it would cut production for a broad group of it's items, including zinc, copper, coal, platinum, and cobalt. Clearly, the pain in the commodity world is having an affect. One need only also look at the price of Anglo American (LONDON:AAL) and Freeport-McMoran Copper & Gold Inc (NYSE:FCX) for confirmation of that as well.
In the corporate world, merger and acquisition activity continued unabated. Skyworks Solutions Inc (NASDAQ:SWKS) announced it will buy PMC - Sierra Inc (NASDAQ:PMCS) for $2 billion smackers. Dell is reported to be looking at buying EMC (NYSE:EMC) in a private equity transaction worth nearly $50 billion. Much of the capital will be debt so this one is not a done deal. Across the pond, neither is a possible take out of SABMiller (LONDON:SAB) for over $100 billion. Clearly, investment bankers across the world are a little busy these days, so forgive them if they don't return your call. I know it makes you anxious when they forget.
In earnings news, both YUM brands and Domino's pizza gave their investors a little indigestion with results which were below previous expectations. For Yum! Brands Inc (NYSE:YUM), China was a huge problem as what was supposed to be 10% growth came in at 2% and the investor base was not pleased. Naturally, the stock got crushed the next day to the tune of 20%. Domino`s (NYSE:DPZ) was not nearly as bad but when results are light, stocks go down, and the pepperoni with cheese and onions was off about 5 bucks. Alcoa (NYSE:AA) also announced a tough quarter and ditto, the stock sells off slightly. See a similar a pattern? Next week, JP Morgan Chase (NYSE:JPM) kicks off the earnings parade on Tuesday and for the next month, results will roll in non stop. Wall Street is expecting a slight decline for most of the largest corporations, especially those with large exposure to emerging markets. Should be interesting.
In the political world, Tuesday's Democratic party debate will show us who can pander more to the base, feel the burn Bernie or shrill Hill. Mrs. Clinton revealed her long awaited plan to protect us all from another Wall Street mess with restrictions on high frequency trading, dark pools, and capital constraints at 3% of equity. Still, the demographics are favorable for the dem's so it is important to pay attention to the rhetoric from the still in charge party. Oh yes, we should also find out if the long awaited entrance of Joltin Joe Biden comes to fruition. Can't wait to hear Joe on the stump.
On the opposite side of the spectrum, Marco Rubio was here in Vegas, as was Donald Trump. Didn't run into either of them, but if I do, will make sure I said hello, especially after they ask you for a contribution, yet again. Apparently the Koch brothers are starting to narrow down who they might give their billion bucks of support to, and it looks like the choices are Carly, Jeb, and Marco. You never know how a mood shift might change where their big dough winds up. Thanks for reading the blog 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.