12 Aug Consumer Confidence
Consumer confidence is probably the single most important factor keeping the U.S. economy growing. As you can see from the chart above confidence is near record highs. A significant decline in the stock market would surely shake the confidence of all investors, reduce future spending and intensify the current slowdown. In an effort to keep everyone happy the Federal Reserve lowered interest rates last week. That’s all good as long as the public believes this will have the desired stimulative effect. However, with rates already near record lows, unemployment at record lows and government deficits at record highs it’s getting tougher to keep the party going.
Portfolio company updates:
- Berkshire Hathaway – operating earnings were down slightly but with $122 billion in cash Warren Buffett is in a good position to aggressively repurchase shares under $190 or take advantage of future market sell-offs.
- Alphabet (Google) – business is great and they have $121 billion in cash to continue reinvesting in the business.
- Facebook – even with all the negative publicity business is terrific and they have $48 billion in cash to cushion all the fines.
- Wells Fargo – things are still sluggish and they haven’t found a new CEO but with a 4.30% yield and repurchasing nearly 10% of their shares I’m staying put.
- Schlumberger – Ugh, this has been a huge loser. A steady recovery in the international oil markets where they are significantly more profitable is encouraging. Also, the new CEO has a technology background which might help drive further innovation and streamlining. A commitment to the 5% dividend helps reduce the pain.
- FedEx – another loser, business is tough but next day shipping continues to grow and they are working hard to get their costs down and profits back up. Saying goodbye to their below market contracts with Amazon is a long term plus but this one could take a while.
- Exxon – oil and gas improved this quarter but chemicals and refining deteriorated. Their plan is to double earnings and cash flow in the next 5-7 years but prices aren’t helping. Time will tell.
- JPMorgan – firing on all cylinders.
- Apple – phone sales still negative but services growing rapidly. The rollout of 5G technology should boost phone sales when it becomes widely available.
- Nestle – business is going well and the stock is hitting all-time highs.
- Diageo – same as Nestle, hitting all-time highs. I guess everyone is having a drink with their snacks.
- Starbucks – Also making all-time highs. Just reported terrific results in the US and China. Seems everyone is enjoying a ‘Grande Latte’ in the morning.
- Citigroup – business is neutral but earnings are up nicely thanks to cost cutting and share repurchases.
- Whirlpool – sales are basically flat but a continued focus on reducing costs and gradual price hikes is helping. I’m getting impatient.
- Rolls Royce – you’re not going to believe it but business is improving. Costs for their new engine programs (which they sell at a loss) are coming down and aftermarket services (where they make all the money) is going up. If they can just get past the costs to fix a fan blade issue the stock could go much higher.
- Gold Miners Index – on a tear. The worse the news the higher it goes.
As we enter the third quarter of the year- a notoriously difficult period – there is a lot of noise regarding tariffs, interest rates, currency wars and politics. This will likely cause the markets to remain volatile and confusing. Our plan will be to remain calm and sensible. A portfolio of industry leading stocks, t-bills, gold and cash should help with that.
I want to thank you again for the trust you have placed in me. Your business and friendship are blessings that I am very grateful for. Please call me if you have any questions, concerns or life changes I should be aware of.