It is starting to get a whole lot more interesting in the capital markets. You see, the talk of a great migration out of bonds and into stocks is starting to get institutions and some retail investors a bit nervous, or excited, depending on your positions. One of the web sites I started reading is thereformedbroker.com, written by ex-broker Josh Brown. In one of his daily links, a trader came up with the acronym which I think is very appropriate TINA. What does TINA refer to? TINA speaks to the asset allocation decision many investors have to now grapple with of staying in cash, bonds, or cd's and getting potentially beat up by inflation or rising interest rates, or moving a greater percentage of capital to stocks? As the 10-year treasury bond yield hovers above or close to 2%, more and more investors are starting to believe in the TINA answer: There Is No Alternative! With the global and U.S. economy potentially starting to accelerate, the question will become more and more important, especially if the expansion has arrived.
I don't think there has ever been a time for investors when technology is potentially so disrupting to established companies, and even entire industries. If you look at specific industries which might be vulnerable, certainly retail is one because of the fixed costs of rent, inventory, overhead, etc. My own opinion is a couple of others which are just as exposed would be education and government. Can you think of two other industries which operate so inefficiently and are ripe for a more effective approach? If you look at startup companies, many are focused on education, but very few related to government.
The Federal Government decided to sue Standard and Poor's for its role in rating mortgage and asset backed securities during the housing boom and bust. It is very possible they will also go after Moody's as well. The first investor who mentioned these issues was David Einhorn, of Greenlight Capital, a few years ago. Both of these stocks have fallen hard over the last week. What many people don't understand about the stock market is often times, it takes a long time for events to play out. It does not mean they will never unfold, just it takes time.
Bringing up the topic of time and the U.S. government, if the ratings agencies are fair game, what about CEO's like Jimmy Cayne of Bear Stearn's, Dick Fuld of Lehman Brothers, and Stan O' Neal of Merrill Lynch? Even five years later, These guys nearly brought down the entire financial system but not one charge has been brought against them? Justice and the sands of time....
Speaking of David Einhorn, he spoke out yesterday about the capital allocation policies of Apple by suing them because they wanted to eliminate the threat of issuing preferred stock. Capital allocation is a massive issue for companies as it gets to the heart of how they balance shareholder value and the pursuit of profitable growth. Using debt, internally generated cash, or issuing equity are all possibilities, but the art of knowing when to use the appropriate tool(s) is critical for the management of any public company.
A nice article by LinkedIn Founder Reid Hoffman about the threat to retail-
Google has been implementing changes to its advertising program-http://bits.blogs.nytimes.com/2013/02/08/google-changes-its-ad-program-to-try-to-solve-the-mobile-ad-riddle/?ref=business
Warren Buffett's son Howard says he is ready to take the job as if anybody could fill the man's shoes-http://www.bloomberg.com/news/2013-02-08/buffett-s-son-says-he-s-prepared-whole-life-for-berkshire-role.html
If you really don't like bankers-http://www.marketwatch.com/story/so-god-made-a-banker-2013-02-06
Thank you for reading, and I hope you have a great weekend and are happy and healthy.
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 BRK.B.