By accepting life's limits and inevitabilities and working with them rather than fighting them, we become free.

Epictetus

You just know there are certain things in life which are going to happen.  For example, you know Donald Trump is going to offend people.  You know Hillary Clinton is going to lose elections there is no way she can lose.  You know when your kids are hungry and tired, they get cranky.  You know when it is winter in the Northeast or Canada, it is going to be freezing cold.  Conversely, in the middle of summer in the Southwest (or here in Las Vegas, NV) you know it is going to be very hot (115 degrees today in Sin City).  In sports, you know that given the chance, Tom Brady will beat you in the last second with a touchdown pass and Stephen Curry or Michael Jordan will sink the game winning shot at the buzzer.  So yes, there are certain things which are inevitable.  

As an investor, you just know there are going to be corrections in the stock market, and sometimes there will be periods where the market really has a touch stretch.  Just consider what we have been through in the last twenty years.  The internet boom and crash (draw down of 80% in the NASDAQ).  The housing insanity of 2005-2007 (remember no income, no documentation loans anyone) and the near devastation of the entire financial system in 2008 and 2009.  Of course, who can forget 150 dollar a barrel oil and then the 80% crash in 2015 when oil fell to below $30 dollar a barrel?  Personally, I cannot count how many times a position has suffered from a poor earnings announcement or difficult news and then watching the holding get whacked with a severe haircut.  For example, not that I own it, but Reilly Automotive opened this week at 218 smackers per share and closed Friday at $172 on poor results and news that Amazon is joining the auto parts fray.  So, to a certain extent, you get used to the inevitability of market volatility and develop methods for handling the ‘adversity.’  My prime method is knowing the 50-100 or so companies which I think are great businesses and want to own.  When they go on sale, guess what I do?  It is called anticipating the inevitable.

Like clockwork, the June jobs report showed nice job growth with a 222k number easily surpassing the estimate of 178 thousand.  Central Banks across the globe are now being led by Mrs. Yellen in the idea of reducing their bloated balance sheets.  Specifically, all the treasury and mortgage backed securities need to either run off or be retired and to manage this feat in a way which does not spook the bond market.  Naturally, bond investors are seeing through the dilemma and have jumped the shark, meaning the 10 year bond yield has now advanced to nearly 2.4%, and the corresponding German bond, once having a decidedly negative yield, has gone positive.  Mrs. Yellen and our always correct central banking crews around the world need a slow pace of rising bond yields, think maybe a half a percent or one percent a year, or as Jeff Gundlach, the manager of the largest bond fund in the world says, maybe one interest rate raise a quarter.  Maybe this is inevitable, maybe not, your guess is as good as mine.

Consistent with this week’s theme, it is a yearly rite of passage that Mr. Buffett and Mr. Malone use every opportunity to take advantage of market weakness.  The Oracle decided to place a bid for Oncor Energy, a bankrupt electricity transmission company located in Texas.  The asking price is about $18 billion, well within Berkshire’s cash hoard of nearly $100 billion.  After nearly two decades, Mr. Malone at long last got his chance to consolidate QVC and HSN and is buying the rest of the shopping network Liberty did not own (it had nearly 40%, buying the remaining 60% or so).  I would note the Liberty deal is done with all stock, and when combined with a prior deal earlier in the year, builds on the tax advantages which are typical of a Liberty company.  Malone and tax efficiency is certainly in the category of inevitable.  On the earnings front, International Speedway missed, although car racing in the south probably fits into this weeks theme.  Yum China performed well as chicken in China also is pretty much a sure thing.  Finally, next week brings the start of the earnings season and at the back half of the five days are the biggest banks.  You can bet all investors will be watching, as you know, some things are inevitable. 

  Thanks for reading the blog this week and if you have any questions or comments, please email me at information@y-hc.com

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.