Paper Chase: Cutting The Cord
The drop in the market over the past month was due to concerns about valuation of momentum stocks. Recently released FOMC (Federal Open Market Committee) notes state there will be no short term rate hike until 2015, the 6.5% unemployment target rate is outdated, and the fed will have an unscheduled meeting to establish new rate.
It’s perfectly normal to have some sort of a correction at this point. We are still in a great bull market with a lot of upside. Currently, stocks are reasonably valued and are beginning to get undervalued. There is still great earnings potential coming out of a recession that we haven’t fully recovered from. Multiples look reasonable.
Only The Beginning
The economic recovery is just getting started. We are in the 3rd or 4th inning of a full 9 inning game. Earnings will be higher than people anticipate, and the power of those earnings will make current valuations look reasonable. The problems in the bond market, reflected in the 10 year treasury rate, are short-term. Companies have indicated that the weather seemed to have affected operations; nevertheless, the economy continues to recover. I am confident of growth this year between 3 and 3.5%. Companies seem to be optimistic, and economic recovery is still in it’s initial stages.
There is still some conservatism by investors anchored in the last crisis. People have been slow to adjust their expectations upwards because of how tough things were. Both retail and institutional investors are gun shy on long only positions. Corporate pension funds and major endowments are overly diversified, often pouring money into hedge funds as they go about derisking, even in a market that’s up. I think this is a mistake. I am very much a believer in being greedy when others are fearful. It is never too late to get into the market and you don’t need to wait for a correction.
What I’m Doing
JP Morgan missing earnings estimates seems to be a specific issue for a global bank and not indicative of any kind of broader economic trend in the domestic economy. Financial services are undervalued. Names to look at are KKR, Lazard, CB Richard Ellis, Jones Lang LaSalle.
Trust In Leadership
Americans have the most confidence in the military and the least confidence in Congress.
While there has been a slight uptick in CEO credibility, clearly there has been a decline in trust in government.
This is not the case for BRIC (Brazil, Russia, India, China) who, unlike their western counterparts, do not trust corporations more than government.
We trust academics the most and government officials the least.
Globally, the technology industry is the most trusted while banks are the least trusted. Regular employees are gaining trust.
In 2014, Toyota has recalled 6.4 million vehicles, GM has recalled 6 million, Nissan has recalled 1 million, Honda has recalled 900,000, Ford has recovered 434,000, VW has recalled 160,351, and BMW has recalled 232,000. GM and CEO Mary Barra have been the face of the trust issues with automotives. Barra has been accountable and apologetic testifying in front of the House and a very hostile Senate.
Equal Pay and Fairness
President Obama signed an executive order prohibiting federal workers from being punished for talking about their compensation. We are seeing slow improvement in women’s representation, but we haven’t seen a closing of the pay gap. Some will argue the reasons why include women opting out who were on a certain career trajectory or schedule opt out for social reasons (family), and whether the comparison between jobs and duties between the two sexes are truly equitable. Still, there is no doubt that a pay gap exists. The option for transparency in compensation seems like a good thing.
Cutting The Cord
Set Top boxes take an internet signal and puts it on your tv. These boxes are used to stream from laptops, tablets, and smartphones directly to your television set.
The units come priced at $50 and under and $100. The Google Chrome Cast costs $35 and streams Google and Netflix services from smartphones and tablets. Some smart tv sets already have these features built into them. They may not have all of the features, and those interfaces can be clumsy and hard to find.
The Roku Streaming Stick costs $49.99 and offers access to streaming apps a little more sluggish. Due to faster processors, menus are faster and more seamless.
The Roku 3 costs 99.99, is everybody’s favorite, and offers Netflix, Hulu Plus, Amazon Prime, HBO Go. It’s platform is agnostic, and it offers tons of independent channels.
Apple TV costs $99 and can stream content from an Itunes library. Whatever ecosystem you have bought into (Google, Amazon, Apple) will help you decide which boxs works for you. Most importantly, these boxes are only as effective as your internet connection.
The End of Cable?
Most young people have already cut the cord and never even sign up for cable nowadays. If real time, 24 hour news and sports is your interest, set top boxes will not necessarily replace cable, but augment it. Smart tv, blu ray players and game consoles have a lot of these features already built in.
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