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Yale Bock is the President of Y H & C Investments, a Registered Investment Adviser based in Las Vegas, NV. My educational background is a B.A. in Economics from UC-Irvine, a MBA from UC-Irvine, and have earned the right to use the Chartered Financial Analyst designation. I have been managing... More
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Y H & C Investments
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  • Dealing With Reality

    Dealing With Reality

    There are some people who live in a dream world, and there are some who face reality; and then there are those who turn one into the other.

    Desiderius Erasmus

    In the investment world, a macroeconomic and globally based strategy has become the flavor of the month. The more a fund's style is based on finding mispricing in global currencies, sovereign state growth rates, interest rate discrepancies, central banking policy, or a combination of these, the more that entity might be apt to call attention to itself. Imagine the possibilities if they could generate above market returns to boot? They really might have something going then. Interestingly enough, with so few investment managers outperforming their benchmarks in either debt or equity, the public has decided forget active investing, and just own the whole darn market, as Vanguard's Jack Bogle has long advocated. A big part of the problem for any investor is the futility of basing investment decisions on macro based themes. You see, as Desiderius so eloquently states, facing reality versus living in a dream might be a good place to begin.

    Let's cut to the chase. The U.S. economy is currently in slow growth mode. It has been this way for quite some time, probably for the last five years. Other than low energy prices, robust corporate profits and incredibly attractive interest rates, the business community does not believe end market demand justifies a great deal of capital investment. As a result, companies are looking for growth through merger and acquisition activity, or improving shareholder returns by engaging in massive stock buybacks. Investors have been scared to death of a change in the direction of interest rate policy for the last few months. The last thirty days have been particularly interesting in this regard. Bond yields in Germany and the United States have started to actually rise, imagine that. It is causing pain for anyone who bought overpriced fixed income assets in these countries during the last few years.

    Global exchange rates for currencies have been volatile as well, as can be seen with recent dollar weakness. The one sided nature of going long the dollar has been in place for about the last six months. In sum, the constantly changing dynamics of the various different and important variables in macroeconomics makes forecasting these areas nearly impossible. From my point of view, the best approach is to concentrate on the microeconomics of investing in specific companies at prices which you believe make sense.

    When you focus on owning equities from the long side, you are going to be vulnerable to short term market swings. You know this before you spend one dollar. In fact, you want to use other investor's psychological weakness to your advantage, which is not always easy. One particular area where this is exacerbated is in the small company arena. When you own little entities, like any business, they are constantly changing. Investors often give up on them when results are not what they should be. Which is why there is opportunity for the analytical and the observant, or as Erasmus advises, for those of us who want to turn reality into a dream, if you know what I mean.

    It was a relatively quiet week in the financial markets as not many large companies reported their earnings. Of note was Cisco, which continues to perform pretty well. John Chambers announced his retirement and successor. A long time ago in the height of the internet bubble, Chambers was considered the best CEO on the planet, and Cisco was the most valuable company on the planet. The market has since humbled him, the company, and the stock. Looking back on it, the idea Cisco was worth half a trillion was lunacy. Valuation matters, it always matters.

    Trying to teach this same idea to Silicon Valley venture capitalists is a whole different issue all together. Currently, a record number of private companies are considered 'Unicorns', or enterprises worth over one billion smackers. Using this as some of his evidence, a financial blogger gave other examples as proof financial bubbles are everywhere (click here for the article). The culprit is easy central banking policy, which critics contend has been the case for quite some time. Markets have a way of deciding these things, so stay tuned.

    Elsewhere, a couple of newly minted IPO's announced their results, GoDaddy and El Pollo Loco. Daddy was a kind father and had a good result. The chicken chain, which I used to call the 'slaughterhouse' during my time in southern California, slaughtered investors as it's results did not taste so good. In the pharmaceutical world, Mylan, Perrigo, and Teva continue jostling for the right to buy one another. The same phenomenon is transpiring in plenty of other areas of the corporate sector, aided by flush activist investors who are itching to put their fresh capital to use.

    In the political arena, President Obama continued to bring up the divisive topic of executive compensation, comparing top hedge fund pay versus all the teachers of the country. His partner in crime, the New York Times, ran an article today mentioning the rewards of the leadership at Liberty Media. As a fellow shareholder of all of these companies, I find it interesting both the President and the Grey Lady did not bring up the lavishness of Al Gore's Apple and Google options or Bill Clinton's $125 million worth of speeches in their analysis. I am sure you are surprised as well. By the way, the guys for Liberty earn the majority of their compensation through restricted stock and options, which is all based on company and stock performance. Mr. Malone owns the majority of these companies, so regardless of what anyone thinks, it ain't going to change. Based on Liberty's long term track record for shareholders, the New York Times could certainly use Malone's advice on how to incentivize management. Perhaps they might give him a call. Oh yes, that is right, I must be dreaming.

    Thanks for reading the blog this week, and if you have any comments, questions, or thoughts about investing, please email me at

    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.

    May 16 3:35 PM | Link | Comment!
  • Dealing With The Markets- Go With The Flow
    Dealing With the Markets- Go With The Flow

    Everything flows and nothing abides, everything gives way and nothing stays fixed. Heraclitus

    'Go with the flow.' 'Deal with it.' 'It is what it is.' These kinds of vague philosophical exhortations merely simplify the long held idea to try and handle, as best as one can, the various issues which seem to spring up in every day life. As an investor in capital markets, and specifically, the equity area, it seems there are always situations which somehow will affect your portfolio. At the very least, they cause fluctuations in the price of your holdings. Even worse, sometimes they can potentially cause the market value of specific assets to drop vastly under the price which might even closely resemble fair, or intrinsic value. Of course, these events could conclude one to believe they represent a tremendous opportunity.

    Within the context of an environment which continually brings us new information, the past week was no different. The most prominent change affecting asset prices was the wild fluctuations in global bond markets. Off of a low set maybe two weeks ago, bond yields in Europe, specifically Germany, jumped dramatically higher. Joining the parade were U.S. treasuries, which saw their 10 year yield hit 2.30% at one point. Understand, asset prices are supposed to fluctuate, and we all know that is constant. However, the large spike in Germany, from .07 in yield to nearly .80 at the high (ending at .54 for the week), represent large losses for those who are long the credit. Reversing the position, interestingly enough, and you get a nice sized gain. Thank you very much says Mr. Gross, who if you remember, commented on the attractiveness of this situation a few moments ago.

    Still, for equity owners, all week long you were managing the byproduct of those who used negative yielding European bonds as their funding vehicle in a carry trade, and then watching them unwind it when they went sour. Lovely. Particularly affected were small cap stocks as nearly everything we owned in that area was hit, and pretty hard. Which is why we get back to our topic of the week, the very complex idea of 'dealing with it.'

    You see, when you invest in equities, you have to be able to ignore these kinds of currents, or background noise if you will, to focus on what counts. In this light, when you look at company earnings reports, you have to compare results with what you expect. Specifically, one company which we have held for three years now came out and pushed back their cash flow projections for yet another year. Bond yields had nothing to do with this, and now I am forced to make a critical decision. Keep owning it? Sell? Do nothing? I don't want to keep you up late at night worrying about what I did, it might affect your sleep patterns, so let's just say the correct answer rhymes with 'Oh, Hell.' Just a little more color, though, it wasn't a big position, so you won't have to take any melatonin.

    In all seriousness, it does highlight what I consider a very important part of investing. It is evaluating the capital allocation decisions of your holdings to see if performance is matching your expectations. All companies go through different stages in their life cycles. Larger entities find it much more difficult to grow at higher rates, but because of their size, if capital allocation decisions don't show immediate results, they can handle the repercussions more easily. With smaller entities, the spending decisions are far more critical. Last year a holding of ours saw a net cash position of nearly 100 million dollars get obliterated because of terrible decisions by the newly hired CEO. In the case of our three year holding, there also was nearly 50 million of cash on the balance sheet, with no debt. Yet, I was not willing to wait another year for better performance. We are no different than anyone else as there are always constraints on time and money available. With plenty of other holdings and possibilities that offer opportunity, we went with the flow.

    Last week was also interesting because there were lots of profile investment gatherings. Here in Las Vegas at the SALT Conference, Dan Loeb made news by essentially calling Warren Buffett a hypocrite. His audience agreed and applauded wildly. Mr. Loeb, what a charmer, making friends everywhere he goes. In New York, at the Ira Sohn Conference (which actually donates the proceeds to research for pediatric cancer), David Einhorn ingeniously gave a new nickname to the shale industry, 'Motherfrackers.' He also proceeded to name one of the industries most high profile and successful companies as a top short, Pioneer Natural Resources. Bill Ackman presented as well, and he compared Valeant Pharmaceuticals to Berkshire Hathaway. Something about the Buffett guy which keeps people thinking about him, wouldn't you say?

    Janet Yellen also got in on the act by showing off her stock evaluation prowess. She mentioned equities as a potentially problematic area because of their high valuations, and wouldn't you know it, the market sold off that day. Thanks so much, Mrs. Yellen. Alibaba reported strong results and its stock got off the deck a bit, as did it's biggest cheerleader, Yahoo. Nvidia had a decent earnings report but announced it is selling its wireless base division and investors were not happy. Liberty Media also reported on Friday and showed pretty much what everyone knew, great businesses and leadership, but like everyone else, they are dealing with a strong dollar and various headwinds in their different holdings.

    In politics, David Cameron and conservatives got a big victory in the UK. President Obama visited Nike to muster up support for unilateral free trade authority in Congress. Interestingly enough, Democrats can be forgiven for assuming he already had it, based upon how the big zero handled the Bowe Bergdahl prisoner swap last year. On the Republican side, Jeb Bush, Marco Rubio, and Scott Walker continue the early battle for positioning to see who will face shrill Hill in 2016. I watched an interview with Carly Fiorina as she brought up Mrs. Clinton's issue of trustworthiness and lack of accomplishment. Supporters will probably advise Hillary, to, oh yes, go with the flow. Thanks for reading the blog this week, and if you have any comments, questions, or thoughts about investing, please email me at

    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.

    May 09 3:54 PM | Link | Comment!
  • Is The Market Rigged?, $75 Oil, And Bank Lending-

    The Sixty Minutes program on Sunday night about High Frequency Trading, based on the book "Flash Boys: A Wall Street Revolt" by Michael Lewis, has become the central focus of the investment community. Today, Attorney General Eric Holder announced an investigation into the improprieties involved with HFT market makers. Accompanied with the Justice Department query is an additional look by the Securities and Exchange Commission. Several CEO's of large companies like Charles Schwab and Toronto Dominion Bank have jumped into the fray by stating they believe high frequency trading should be banned.

    There are many issues involved with high frequency trading, but much of it centers around broker dealers using technological advantages of high speed fiber lines, superior software design and coding, and the implementation of routing techniques to either front run trades, create dummy transactions and use the information to arbitrage price differences between dark pools and the the open market, or a combination of the two schemes. Mr. Lewis's book and the 60 minutes piece, while attracting a lot of attention and selling quite a few books, ignore the past five to ten years as this has been taking place for quite some time. Wall Street brokers have always benefited by scalping more than their fair share from investors, the difference here is the spreads are narrow because of decimalization and computer trading. History has shown for a hundred years the investment banks, exchanges, and broker dealers control the mechanics of buying and selling securities. If you have read Warren Buffett's and Charlie Munger's opinion's on trading and why investors should minimize it, as well as the fact they have long thought high frequency trading was front running, none of these issues are surprising. What is surprising, though not shocking, is how long the regulators have not been paying attention, or have been just chose to do nothing about it.

    Even further, using the term "the market is rigged" is also in many ways quite irresponsible. At no point during the television segment was any kind of attempt made to break down what the capital raising process is, what ownership of a stock is, how many people own stocks, and then tie trading costs into any of these basic principles. Also, never was anything mentioned about what the alternative to the "rigged market" might be. If you are advocating the market is rigged, the logical conclusion for a viewer would be to stay away from that entity. If you stay away, where else might you go? How might staying away from the nefarious activity affect life goals in the future? At a time where the general public has very little faith in stocks, irrespective of the massive gains for shareholders over the last five years, the media's sensationalism make any kind of a rational and fact based discussion difficult. During the week, Mr. Lewis and the protagonist of his book, who set up a competing exchange free of conflict and one which neutralizes HFT advantages, and the CEO of a competing trading company lined up on CNBC to have a discussion about the matter. Naturally, the result was a vigorous argument about the merits of HFT trading by those involved. The bottom line is high frequency trading is indeed not good for market participants as it raises the costs of buying and selling assets, and allows some to benefit at the expense of others in what can be viewed at as a zero sum game. However, I might also point out the guys who are the sharpest and wealthiest investors, Buffett and Munger, made their money investing capital in equities. Speaks for itself, I'd say.

    The jobs report today was not the greatest, and the market continues to sell off hard, especially in momentum, technology, and biotechnology related names. The lack of any kind of accelerated strength for job creation continues to lend fuel to the fire that the current policies being employed are at best inefficient and not well thought out. The only real job creation which took place was from the private sector, what a shock, huh? The misguided notion of an enlarged role for government is the underpinning of the Affordable Care Act, which has recently made headlines about meeting the seven million enrollment number. One notices nobody mentioning the number of those who have made their premium payments. I suspect the chicken has yet to come home to roost on the public's verdict of the Affordable Care Act.

    In the oil market, the continued movement to rationalize portfolios and asset ownership by the large integrated oil companies is occurring all over the globe. Whether it is in North America, Europe, Africa, Australia, or Asia, the largest oil enterprises are starting to make the hard decisions about what assets they want to own and where they want to own them. Whether it is Shell selling in Nigeria, BP closing down a refinery in Australia, or Exxon scaling back projects in North America, big oil knows their capital investment programs and returns on capital are going to evaluated very closely every earnings report and year, and it will probably not change for quite some time. As a shareholder, these are good things as capital allocation decisions are always crucial for the future, no matter how large the entity is.

    Barron's had a cover article last week on the increased possibility of $75 oil because of technological improvements in a variety of different ways to potentially increase the supply of oil in the future. Some of us who majored in or studied economics also know there is another part of the equation, which is demand. I would argue the Barron's piece missed the demand side of the equation and where the growth of demand will go, especially in Asia. The largest oil companies all predict the majority, if not all of the expansion of demand will take place in Asia. If you look at the projections of both supply and demand, it is hard to see how oil goes to $75, unless supply absolutely explodes. In addition, there is the additional variable which has to be considered, and that is how oil gets moved. Given the fact that we in the United States currently have been waiting six years to find out whether the Keystone pipeline will be approved, a point recently made by Boone Pickens, lets just say our ability to streamline the process for different ways to move oil and gas ain't exactly perfect. Some in Europe want the U.S. to just start shipping liquid natural gas to help relieve Europe's dependence on Russia's Gazprom. Seems like a good idea, right? You would think Mr. Obama would endorse it and go with it. Even if he did, it takes five years to start making the terminals and planning the logistics to build the facilities. The private sector is itching to get it done and has been for years. The problem is the leadership and it's loyalty to a constituency which does not understand the strategic importance of energy. Yes, the environment matters, and the future of the planet is important. No one denies it, and the oil companies work in nearly every kind of environment there is. In fact, the engineers and scientists from the largest energy companies probably care as much or more about the planet then those who continually criticize and complain about them, including the pandering politicians. The political positions in the United States and Europe regarding energy continue to leave our citizens in a far weaker situation than we ought to be.

    Elsewhere in the market, it seems some believe bank lending might be turning a corner. Mortgage lending is still a problem and is showing contraction, but business lending is expanding. Any expansion of interest rates would improve banks net interest margins, and the large money center banks would benefit immensely if it were to materialize. Last week the regulators gave the red flag to Citi's capital plan and turned down a potential dividend increase. The fact Citi let $400 million dollars of loans go misplaced in Mexico I am sure did not help their cause. Prudent lending is not an easy job, and don't the boys at Citi know it. Having gone through four CEO's in six years do not inspire confidence, let alone having an equity lose ninety percent of it's market value. Still, Bob Rubin and Sandy Weill get no heat, so I guess, as they say, timing is everything.

    Thank you for reading the blog this week, and I am sorry it took so long to post. Any comments, thoughts, or questions on the material are most welcome and please share them!

    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.

    Disclosure: I am long BP, RDS.A, RDS.B.

    Apr 04 5:13 PM | Link | Comment!
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