“We’ve moved from digital products and infrastructure to digital distribution and Web strategy to now into more holistic transformations that clearly are based on mobile, social media, digitization and the power of analytics and we think it’s really a new era requiring new strategies.”

- Saul Berman, IBM

In today’s digital world, very few are not in possession of a digital device, be it a smart phone, tablet, laptop, or desktop computer.  Candidly, my wife, ever the obstinate Luddite, prefers her flip phone, but my daughter adores her Ipad for YouTube videos.  I enjoy the Ipad as well, especially the larger version, which seems to gravitate more to my child’s use than my own.   You can see who wears the pants in our family.  Anyway, with artificial intelligence, neural networks, cloud computing, machine learning and the ever, all knowing algorithms being worshiped by investors all over the globe, I thought it might be useful to look at how the digital age could be viewed within the context of evaluating securities, and specifically, stocks.  Just a quick add on in that light, more and more I am reading how security analysts are incorporating artificial intelligence and machine learning as a way to help them become more efficient, and naturally, pick stocks.  I say, bring it on ladies and gentlemen, bring it on.

From my point of view, digital tools, no matter how much data can be analyzed, sorted, and looked through for patterns, are instruments for a business to apply in order to get more customers, improve their margins, market products, and make their operations increasingly efficient, through the cloud, all over the supply chain, or maybe at the back office.  These tools have been available for a long time now, and companies like Amazon, Google, Apple,and Facebook (along with a few others) have clearly been able to attract customers from competitors, and in doing so, created massive businesses with scale advantages.  No news here, I know, tell me something I don’t know.  Looking into the future, the pertinent question with respect to investing is are these businesses more than fully valued with the existing market price, and maybe just as important, are competitors able to use their competitive strengths, including their own locations and digital assets, to attract customers back to them?  Specifically, how enduring are the competitive and strategic positions of the digital giants and will they grow, or recede?  Remember, looking at an industry like retail, only 10 percent or so of all retail sales are on line.  You can look at that as a massive opportunity for those specializing in this area because of the lack of penetration, which is how the investment community looks at it now. Or you can view it as a situation where large retailers with storefronts need to improve their digital offerings, like Wal Mart has recently done, to make investors hold them in a different light.  Each industry is different, but the question about the importance of digitization and the transformation it is causing will continue to evolve and be a focus for all markets.

I have to mention the pandemonium being caused by Bitcoin as it’s price sets records every day.  Now surpassing 10,000 smackers a coin, institutions will be able to trade futures on it in a few weeks, so hedging an existing position, or betting against it, will become an option.  Here is an interesting article about the usage rates of Bitcoin being, shall we say, less inspiring than the rapid price increase.

In the markets this week, OPEC decided to extend production cuts though 2018, although Mr. Putin made some noises about not necessarily being on the same page.  On the earnings front, RV manufacturer Thor trounced expectations, as did Apple supplier Nuance Communications.  Canadian banking giant RBC produced a big number, and the blue box from Tiffany showed diamonds sell really well in a good global environment.  Last week, we learned that the highly reputable financial institution that is Wells Fargo engaged in more nefarious activity in its foreign exchange department.  Apparently, overcharging customers was not confined to it’s retail and auto loan divisions, imagine that.  You know Mrs. Warren is up in arms about it, and I cannot say I blame her, although it certainly does not take a genius to figure out Wells ain’t exactly customer friendly.  Are you listening, Warren?  Here is an interesting article detailing more about the foreign exchange issue at Wells-

On the political front, investors got excited when it became apparent the Trump Administration's tax proposal would pass in Senate (it did this morning), but until a reconciled bill can get done and passed in both bodies, nobody knows what will be in the final product.  It certainly was not good optically for Republicans that they were scratching out final versions on napkins the day before, but hey, even on their worst day, from an economic standpoint, in my opinion, the R is still ten times better than the D.  In fact, you can make a strong argument that the current situation of complete partisanship is in response to how the Obama administration treated Republicans with the way Obamacare was jammed down their throat.  Still, neither group, inspires confidence, to say the least, especially with the involvement of both sides in, shall we say, questionable conduct.  Naturally, Democrats are inspired and optimistic delightful Donald will be impeached as General Flynn agreed to cooperate with Director Mueller (best buddy of the suddenly biblical Mr. Comey).  I would only caution the Dems to remember, and we are a long way from this, that they will need the House of  Representatives to pass a motion, and a 2/3  majority vote in the Senate, and then the judge of the trial will be the head of the Supreme Court.  In the unlikely event we get that far, although one never knows, the end result is the country would get President Pence.  Either way, smartphones, tablets, and Bitcoin rule the day as the age of digitization rumbles on.

   Thank you for reading the blog this week, and if you have any questions about investing, please email me atinformation@y-hc.com 

 Yale Bock, Y H & C Investments, its clients, and the family of Yale Bock have positions in the securities mentioned in the blog,  Investing in securities involves risk and the potential loss of ones principal.  Past performance is no guarantee of future results.  All investment decisions should be considered with respect to ones risk tolerance, return objectives, liquidity needs, tax considerations, and one's overall financial situation.  The fact that Yale Bock has earned the right to use the Chartered Financial Analyst in no way means or guarantees financial returns which exceed those of a market index.