Yellen Signals Go As Markets Loves Trump

"Managers and investors alike must understand that accounting numbers are the beginning, not the end, of business valuation." Warren Buffett

Accounting is the language of business and for many people, it is the equivalent of getting a root canal. If you are one of the many millions of people who has spent multiple hours trying to figure out why the accounting software won’t take your debit or credit entry, don’t worry, you have plenty of company (yours truly included). Now, for those of you who are not aware, there are different categories of accounting, basically managerial and financial. Financial accounting deals with financial statements and the different aspects of a company’s operations. The quote by our friend Mr. B is significant because it is important to remember the business is reflected by the numbers, and not vice versa. Still, accounting is like the plumbing in a house or the foundation of a building, the nuts and bolts of understanding what is going on in a business. If you want to know how a business is performing, the three financial statements are a good place to start. The reason why I bring this up is because in the click click world of investing, business analysis is often forgotten or never used, instead replaced by charting or algorithms. I would venture you are better off sharpening up your accounting skills, and thinking about competitive positioning instead.

Speaking of competition, in the market this week there were a few major stories which stood out. Mr. Trump gave his speech before Congress and the investment community loved it, sending markets skyrocketing on Wednesday. The day before, Target laid a stink bomb of a financial report and declared they will need three years to turn things around. When they said three years, investors said forget this, SELL!!!! Target is probably the poster child for a company who is just that, a target, for Amazon (NASDAQ:AMZN). The big A continues to wreak havoc all over the corporate landscape, but especially in retail. Still, Target reminds me of a similar situation as Wal Mart, which was in the same predicament a few years ago. It would not surprise me if it rebounds quite nicely, but full disclosure, my wife is a big fan. The long awaited Wall Street debut of a popular company for the younger generation, Snap Inc (NYSE:SNAP), came to fruition with it’s IPO. With 150 million users, it has a large customer base and many believe is a viable contender to Facebook (NASDAQ:FB). With Google (NASDAQ:GOOGL), Facebook, and Twitter as competitors, not an easy area to figure out. Still, it could be a situation where a merger could help solve some problems. Evan (Evan Spiegel, founder and CEO of Snap) meet Jack, Jack say hello to Evan.

Speaking of accounting, Caterpillar (NYSE:CAT) was served up an investigation by different parts of the government (FDIC, IRS, Department of Commerce). Apparently, CAT is being looked at for tax related issues and its foreign subsidiaries. Let’s look at the books, as always. Late Friday, Janet Yellen made a speech where she indicated it was pretty much a done deal that at the Federal Reserve Board meeting later this week, interest rates are headed higher. Other Fed head’s tipped Jane’s hand earlier in the week. Some analysts think this is really more of a response to the market’s strong performance over the last few months and is a way to cool the temperature down.

Finally, with respect to the State of the Union speech, the picture of the entire Democratic side of the aisle failing to politely clap when Mr. Trump mentioned the companies which are now prepared to invest capital in the United States is representative of the absolute refusal of either side to acknowledge the other could do something positive. Essentially, out and out war. It is a byproduct of the rhetoric during the campaign and entirely predictable. Trump has shown no inclination to reach out to the other side of the isle, instead preferring to give as good as he gets. Don’t expect it to change any time soon, instead, maybe take an accounting course.

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.