Things Making Me Go Hmm

Loose reference to a segment on The Arsenio Hall Show, 1989-1994

A handful of areas caught my attention this past week, some of which captured my whimsical thinking so much that it occurred to me that our president may actually have a game plan. Before I roll that scenario, let me start with the Boeing saga.

The Max Issue

As it will be awhile before the dust settles and the corner is turned, shareholders are likely in for choppy ride. My guess is the Jim Cramer Chipotle advice is applicable to this situation, “It takes 18 months from the last incident to get the American people to forget“. As Boeing previously had a solid reputation (outside supplier negotiations), there’s little doubt, given time, they’ll recover. The nagging question in my mind is, “What about their subs?”, the three largest being Spirit AeroSystems (SPR – ~50%), Triumph Group (TGI – 31%) and Hexcel (HXL – 25%) with several others dependent on Boeing for about 10% of their sales.

While some have pulled guidance, looking at Spirit shows a ‘sweetheart’ arrangement with a guaranteed production take threshold. Even so, Wichita, Kansas is feeling a little pain as SPR has cut hours by 20% and eliminated most contractors. The possible hmm counterpoint: Trump’s recent efforts to prod the Fed to reduce rates to weaken the USD.

Ongoing Farm Woes

A couple of weeks ago I touched on the plight of Wisconsin dairy farmers. This week, farming issues – specifically lending – crossed the wires. A Reuters study concluded farm lending declined 17.5% by the thirty largest banks between December 2015 and March 2019. Perhaps they’ve identified a bubble or perhaps diversifying risk. While keeping an eye on developments, my portfolio of community banks isn’t overly concerned as most of their loans are USDA carrying a 95% government guarantee. I think the current largest downside would be depressed merger premiums in this space. The possible hmm counterpoint: The federal debt limit may be reached sooner than anticipated, perhaps in part, due to increased credits to farmers to counteract tariff retribution?

Game Plan?

Low interest rates essentially delays the day of reckoning for out of control federal deficits. A weaker USD benefits exporters to the detriment of importers, but has the potential to reduce the trade deficit. These two issues, coupled with the fairly robust economy have the ability to provide a tailwind to the incumbent’s reelection prospects. The possible hmm counterpoints: Possible implementation of a surcharge based on the USD strength in the Petrodollar world, additional tariff retaliation.

Just some random thoughts to start your week!

Insider Dealing?

The news cycle appears to be churning ever faster.  Whether as a reaction to events, an attempt to manage the narrative or obscure the message is a debate that will occur for some time with the real answer becoming apparent in the hindsight of history.  Not to minimize the Charlottesville tragedy or the headline grabbing Bannon ouster, but these stories are playing out in several flavors depending on the source.  As one who attempts to discern the impact of issues on my investments, two (possible) financial headlines crossed my desk amid the other events that intrigued me.

Continue reading

An Infrastructure Rebuttal

Subsequent to the US election, many have pondered the impact to the economy at-large or at a micro level.  Consider Cramer’s Trump stocks or the Trigger app as examples.  I too have not been immune as I bought into Europe, Canada, Mexico and Australia as presidential comments resulted in temporary pricing weakness.  The question remains what – if anything – can be accomplished on his agenda. With healthcare and tax reform fraught with partisan politics, it appears the best option of the remaining campaign promises is infrastructure as on the surface there still is the hope of bi-partisanship.  Yet aside from a vague “public-private” partnership, details have been lacking probably due to resources allocated to the aforementioned agenda items.

Continue reading