Archive for ND&S Updates

Cash is King (In so many ways)

July 27, 2015 

You have no doubt heard the saying “cash is king” many times, usually referring to having some available when markets are weak.

In recent months and years it has also been clear that cash is quite valuable for conducting corporate activities: cash is useful for developing new products and innovative business techniques; cash is valuable when acquiring companies that fit corporate strategic expansion; cash is needed for paying dividends and buying back stock.  Cash augments corporate balance sheet strength.

A good example of a company with a large cash position is Apple (AAPL). Their cash level is mountainous with over $35B on hand at the end of the 2nd quarter.  The result: cash is now enhancing Apple’s ability to develop new products, make improvements to their current lineup of products, increase dividends (AAPL started paying dividends in 2012), make stock buybacks, borrow at attractive interest rates, and even make acquisitions.  Apple is a great example of the value of cash from both a corporate and investor perspective.

“Number one, cash is king … number two, communicate … number three, buy or bury the competition.” – Jack Welch

Dog Days of Summer

July 20, 2015 

Stocks finished higher as news of a Greek debt pact, Iran nuclear agreement, and strong earnings reports headlined the week.  The German Parliament reconvened Friday to approve a mandate for negotiations with Greece on a third bailout deal.  This set the stage for Greece to receive short-term financing to help Athens make due on payments to The European Central Bank and International Monetary Fund.  After the P5+1(China, Germany, France, U.S., Russia, and the U.K.) and Iran announced a “historic” accord last week, attention promptly turned to Iran’s oil supply and other potential fallouts (geo-political concerns notwithstanding).  With the fourth largest reserves in the world, Iran has the potential to drastically increase the world’s oil supply which could put pressure on the world energy markets down the road … good news, the consumer and businesses should continue to see low oil and gas prices.

For the week, the Dow Jones Industrial Average finished at 18,086 to close up 1.88%.  The broader-based S&P 500 closed at 2,127 for a gain of 2.42% for the week.  The Nasdaq Composite closed the week at 5,210 for a 4.25% weekly gain and record close.  This was helped by strong earnings announcements from Google Inc. and Netflix Inc.  International markets also fared well as the MSCI EAFE moved ahead 2.04% for the week while the MSCI EM was up 1.15%.  The 10-year U.S. Treasury closed the week at a yield of 2.34% (down from 2.42% the prior week).

As we continue through the dog days of summer, volatility should remain high as investors sift through earnings reports and nervousness around an upcoming Fed rate hike.  Be on the lookout for our 2nd Quarter Newsletter Curb Your Enthusiasm(?).  Enjoy the Summer!

“What you do today can improve all your tomorrows.” – Ralph Marston

[Hopefully] Doing the right thing after first trying all other [bad] Alternatives

July 14, 2015 

The markets ended a tumultuous week virtually unchanged: the Russell 2000 advanced 0.3% while the S&P 500 was flat and the Nasdaq fell 0.2%. Volatility, however, increased to 20.03 on the VIX, the highest level since last January.

The “no” Greek Referendum started the week on a pessimistic note, with the German DAX falling 1.5% Monday. Tuesday saw the Shanghai Comp falling 1.3% [and an additional 5.9% Wed] in spite of Chinese government emergency measures [liquidity injection, trading halts etc.], while US selling abated once the European markets closed. Markets advanced further on Thursday and Friday as Greece Europhiles supported Tsipras’ decision to stay in the Union and accept even-more stringent terms.

It is possible that Greece is on a path to solvency, but the Chinese markets are another matter. The Shenzhen Exchange [the Chinese version of our Nasdaq] still trades at 45x earnings [down from 69x in June]. So, although markets are down by a third in the past month, ordering fund managers to purchase stocks and providing more liquidity for margin purchases is not the path to a genuine stock exchange. Loose margin regulations just encourages further speculation in still-overpriced stocks, and artificial restrictions on trading effectively traps capital rather than letting it be reallocated to a higher use.

“Capitalism succeeds not because it is based on greed, but because the freedom to trade and do business with others is in harmony with our God-given nature.”Arthur Brooks


July 6, 2015 

Last week, equity markets declined as uncertainty over Greece and a mixed U.S. jobs report rattled markets.  For the week, the S&P 500 declined -1.16%, small caps were off -2.67%, international stocks as measured by the MSCI EAFE index were down -2.76% while bonds were flat.  However, for the first half of 2015, the S&P 500 rose 1.23% while international equities fared better.  In fixed income, the US Barclays Aggregate is slightly negative year-to-date as interest rates have risen since the first of the year.  The difference in returns so far this year reminds us again of the importance of diversification.

Last Thursday’s jobs report continued the recent string of strong increases in job growth while it was somewhat disappointing that wage growth was stagnant and labor participation declined.  This continued underlying weakness in wage growth could keep the Federal Reserve to only one small interest-rate increase later this year.

The “no” vote in Greece this weekend only adds to the uncertainty of whether or not Greece will remain in the Eurozone.  We expect continued volatility in markets for the near term as investors evaluate the ramifications of a possible Greek exit.  Despite the short-term noise, we are still constructive on global equities moving forward. Enjoy the summer!

“Blessed are those who give without remembering and take without forgetting.” – Elizabeth Bibesco