Old School Value Nugget Fest (August 15th Edition)

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It’s been quite a week, and today (Wednesday) is quite a day in the markets.

I don’t usually like to do the market commentary thing, but here are the key facts that I’m looking at right now:

• China slowdown. Industrial output increased 4.8% (lowest growth since 2002) and retail sales increased 7.6% (lower than expectations of 8.6%, but April was lower).
• German GDP growth at -0.1% for the 2nd quarter.
• Treasury 2-10 yield curve inverted.
• Trade war: implementation of the latest tariffs with China delayed to Dec 15th.
• CPI was mostly above the Fed’s 2% target, though Core PCE was below 2%.
• Weekly initial unemployment claims are still extremely low.

My take-away from all that: I am not currently on recession watch in the US, but risks have increased.

China and Europe will be a drag on US growth, and inflation finally starting to tick up at a point where the Fed was beginning to ease is a bit of a conundrum. I don’t think it’ll be enough to pull the US into a recession, and the current selloff represents an opportunity. I took advantage of the rebound Thurs-Tues to sell some positions that had reached my targets. Today I’m happy that I’ll have some extra dry powder as valuations get more attractive.

Basically, don’t panic, and get excited about some good buying opportunities. But also stay data-dependent.

And thanks for the feedback on the design. Almost everyone who replied this time around said they preferred the new look, so we’ll stick with it for now.

Gurus

Joel Greenblatt: The Future of Value Investing, Valuation Technique and Markets (Investors Archive)

YouTube video of Greenblatt talking about the future of value investing. It’s pretty much a talking head video, so I’d just save it for offline listening like a podcast.

Buffett Stung as Kraft Heinz (KHC) Bet Drops to Record Low (Bloomberg)

“Kraft Heinz shares plunged to a record low after reporting that profit slipped 15% in the company’s home market. That leaves Berkshire’s 27% stake worth $8.5 billion, well below the $13.5 billion it has Kraft Heinz marked on its books.”

Markets & Investing

Interest Rates: Naturally Negative (PIMCO)

“Taken together, recent developments have increased the odds, in our view, that a ‘mid-cycle adjustment’ of the fed funds rate similar to the mid and late 1990s (when the Fed cut rates three times) may not suffice to stabilize growth, but that last Wednesday marked the beginning of the next major Fed easing cycle.”

When Money Dies (Of Dollars and Data)

“It’s not that Bitcoin won’t rise in price if the US dollar fails, but that its rise in price doesn’t imply a rise in value.”

Why Aren’t Investors Worried? Ask Howard Marks (WSJ)

“The more enthusiasm there is in the world, the harder it is to live up to people’s expectations and the easier it is to disappoint. When a stock goes from great optimism to the optimism sobering up, it’s very painful for investors. What you really want to know is how much optimism is in the price.”

Country Risks (Aswath Damodaran)

“When companies invest outside their domestic markets, the most immediate risk that they are exposed to is exchange rate risk, since revenues, profits and cash flows are affected by changing exchange rates. That risk, though, is but a piece of the puzzle…”

TL;DR: The Best Finance Books in One Sentence (A Wealth of Common Sense)

A fun, quick read. See if you agree with the summaries.

High-dividend stocks are starting to outperform as low rates become the new norm again​ (CNBC)

“High-dividend stocks are starting to stand out as winners as bond yields continue to collapse.”

Company & Strategy Analysis

Five big ideas from Nathan Myhrvold, the original ‘mad scientist’ from Microsoft (Geekwire)

It’s good to step back and think about the big-picture changes that could be coming.

How Software is Eating Care Delivery in Healthcare (a13z)

“In many ways, the incredibly stressful and operationally complex environment of healthcare truly is the holy grail of the application of technology.”

Podcast of the Week

What Makes a Quality Company? (Investor’s Field Guide)

The guest is Chris Bloomstran, the president and chief investment officer of Semper Augustus Investments Group. Hosted by Patrick O’Shaughnessy. I learned a lot listening to how Chris thinks about Ross, Costco, Disney, Cummins, Dollar General, etc.