Pure Randomness

Every now and again events are thrown our direction which necessitate a change.  Being one who abhors change, I tend to procrastinate until the absolute last minute.  I knew the drive in my laptop was on its’ last legs a year ago when I bought a new one.  Last week it bit the dust.  I did perform regular backups so data loss was minimal.  What loss exists is not due to Wanna Cry but their evil twin, Micosoft (MSFT).  Though I have an Office license, my use (legally) of an upgraded version resulted in the inability to perform a backward migration.  It appears my best recourse is to purchase an upgrade.  My frugal nature has an issue with this solution (being held hostage?).  Meanwhile, seeing if Google fills the void.  I did add a sheet to my Dividends spreadsheet (Div Dates) which – assuming I get the hang of conditional formatting – has the potential of automating my watch list.

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Money Found Under the Couch Cushion

With apologies to Lanny (Dividend Diplomats), I figured since it’s relatively appropriate I’d play on the title to his recent post.  Couch money generally refers to the spare change lurking in the cushions of your sofa and  is commonly used to describe assets you own that have been long forgotten until found while scrounging in the crevices.  I encountered such an animal this past month and figured I’d share my experience to (at least) give my readers a little food for thought. 

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Shifting Sentiments

Generally I put together a watch list quarterly based first on overall portfolio goals.  As an example, the first quarter typically is used to readjust weightings where they’ve gone a little awry – particularly in my anchor and core positions.  This next quarter has historically been goosing returns as its’ priority.  Meaning, adding to out of favor positions (depending on the reason) which carry the highest current yield.  You could say it’s a personalized Dogs Of The Dow approach.  As always, market valuations have the final vote on my actions.

In preparing the list for next quarter, I’m finding more compelling reasons to avoid sectors as opposed to buying:

  • Example 1 – The first legislative test facing the Trump team is today’s vote on health care.  Even putting campaign rhetoric aside which placed a spotlight on the likes of CVS, the actual bill aims directly at Medicaid and indirectly at Medicare recipients.  Assuming the bill passes in its current form (unlikely), estimates are roughly 20 million people will become uninsured.  The indirect impact to health care REITs could blindside some investors.  Using CCP for one, some providers to which they lease could face reimbursement issues.   Simultaneously, the DOJ is pursuing a case alleging Medicare fraud against AET, CI, CNC and HUM.  Then there’s fraud in diagnostics resulting in one bankruptcy.  I think I’ll let the dust settle in this segment before treading any deeper.
  • Example 2 – My expansion into Hong Kong encountered some headwinds.  Swire announced a dividend which was effectively a cut (still figuring the magnitude, but about 38%) primarily on the heels of their 45% ownership stake in Cathay Pacific (CPCAY).  At least the poor fuel hedge (that my analysis missed) expires next year.  And, no, my efforts to increase my diversification outside the US are still intact.  If only the Yen would weaken …

Perhaps a correction is on the horizon as UBS suggests. perhaps not.  But the one certainty is there is plenty of uncertainty – especially with earnings season set to begin again.  I guess I need to finish my taxes to see what the budget for purchases looks like.

Some Cracks Begin To Form?

Naysayers of this market (of which I include myself to a degree) have been voicing a concern regarding market valuations.  When reviewing my February results I noticed the average size of  dividend increases was lagging last years’ pace (12.3% in 2016 vs. 7.96% YTD 2017).  One could say it’s too early to make an assessment and that could be true.  But it could also be said that companies are being cautious due to uncertainty in regulations, taxes, inflation and economic growth.  If this were a one-off issue, that would be one thing.  On the other hand I’m starting to see some parallels to times when bubbles existed.

Exhibit #1 – SNAP

When was the last time an IPO was launched successfully with an increased price, profitability uncertain, a twelve month lockup for outside investors and founder retention of roughly 88% of the voting rights?  If so inclined, the safest play is through Comcast (CMCSA)’s roughly 5% ownership of Class A shares.  Can we say dot-com revisited?

Exhibit 2 – Target

Target (TGT – #19) whiffed on earnings and guidance last week.  On one of Lanny’s posts, my comment How many were blindsided by TGT’s report yesterday, how many updated their forward estimates and how many incorporated the fact (illustrated by mgmt) that a turn around was (minimally) two years out and would incur additional costs in store conversions and IT expense?  raised the question Did you, by any chance, seize the opportunity, by the way, at TGT? Or waiting for some dust to settle?. 

The short answer is no and not likely near term.  All retailers are struggling against Amazon (AMZN).  I have exposure to Wal-mart (WMT) through a trust I manage.  WMT is about a year ahead of TGT via their Jet acquisition but still significantly lag AMZN.  The good news is TGT now recognizes a problem.  My question surrounds their execution (and time required).  Yet several bloggers bought this dip.  They may be correct but this one currently carries more risk than reward in my book.

Exhibit 3 – Caterpillar

It’s always disconcerting to have Federal agents raiding corporate offices.  To have it broadcast live on television raises the stakes.  Caterpillar (CAT – #32) experienced this treatment last week.  Not overly surprising as CAT has been embroiled in a dispute with the IRS regarding alleged shifting of profits offshore to a Swiss subsidiary.  What I found interesting was that FDIC regulators participated … which perhaps raises a new question of money laundering?

Exhibit 4 – Costco

Sliding back to the retail space, we have another DGI darling illustrating how customer loyalty should be rewarded.  Costco (COST- #156) reported Y/Y revenue growth due only to new stores and membership fees.  Their response?  Let’s boost revenue growth by raising membership fees further!  Talk about a counter-intuitive response.

These are but a few reasons I believe this market warrants an abundance of caution.

Long: CMCSA, WMT (trust).  Ranking based on DGI popularity list.

Why I’m Like Trump (and …

 you could be too)

After an election season, inauguration, semi-messy transition and a weird first month it appears the dust is beginning to settle and a state of normalcy is beginning to take hold.  There remain plenty of pitfalls and Team Trump seems determined to find them all.  Uncertainty and chaos have traditionally been bad for stocks yet the markets have soldiered on powered by promises and hope although the expectation timeline begins to be extended.  Through all this, I’ve remained steadfast in my belief that at its core there is a logic that investors can incorporate into their strategy.  I believe this nugget has been identified and it’s called diversification.

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It Already Seems Like Forever

Presidents come and go, but the Supreme Court goes on forever.

– William Howard Taft

I haven’t done a general musing type of post recently so I figure one is in order especially in light of recent events.  My political views generally run fiscally conservative but liberal on social issues.  Kind of a mix between Blue Dog Democrats and Libertarians.  With that said, the first two weeks of the presidency has taken on an interesting tone where the business side is trying to hit its stride.  Unfortunately, the diplomatic side (Mexico, Australia) is lacking and the social issues (visas) agenda has gotten the presidency off to a rocky start.

There is a silver lining to this mess – especially for a contrarian view.  Since the election, I’ve been casting about for a 2017 investing strategy.  First I tracked the tweets related to companies – like Ford, Carrier, et.al.  The results were mixed and were more akin to a market timing exercise.  NPR highlights thisTrigger has released an app to providing notification of his market impacting tweets.  Their competition includes Dataminr, StockTwits and Motif Investing.

Since I’m not a fan of market timing – probably because it’s not my strength – the second part of this equation is more to my liking.  The day following the Australian phone call, My Australian holdings were up in a down market.  The same was true with my Mexican stocks the day following their dust up.  I can’t wait to see the impact on my Chinese and Hong Kong holdings following their meeting.  Then again there’s always Canada and Europe.  Perhaps a viable strategy is emerging …

On an unrelated note, I’m honored to be included in Frugal Student‘s Top 100 blogs.  The Finance Master expresses many of my feelings so I but hope my somewhat irreverent style continues to entertain and educate.  I did go through all 100 and found a couple to include in my directory.

On the M&A front, bank mergers have slowed drastically for three reasons:

  1. Their participation in the ‘Trump Rally’ has reset valuations
  2. Potential Dodd-Frank revisions
  3. Tax Law reform

I suspect as the future becomes less hazy, activity will pick up 3rd or 4th quarter.  Until then I’ll collect the dividends – or if Dodd-Frank is repealed rather than modified I may have to reassess my banking exposure.