MidSouth Week in Review:
November 09, 2018

Weekly Update from Fund Manager Buzz Heidtke, MidSouth Investment Fund

We had a wild week as the S & P surged 2.5% the day after the election before declining 1.4% over the past two days and closing up 2.2% for the week.  Healthcare stocks rallied on the news of the Democrats gaining control of the House based on the reduced likelihood of legislative action to cut medical costs.  Oil prices are down 23% from the October highs, placing the commodity in bear market territory.  U.S. inventories rose for a seventh straight week and production soared to a record high.  Investors are worried that fuel demand will slow.  On July 7, the spread in Nashville between the wholesale price of gas vs. the average retail price was 59 cents.  Today its $1.08.  Strange!  The U.S. is now producing more oil than either the Saudi’s or Russia.  Mortgage rates hit a 7-year high.  GE declined 10% today to $8.15 after J.P. Morgan reduced their price target to $6.  Canadian pot stock Tilray (TLRY) surged to $142 on Wednesday from Tuesday’s low of $98 before declining to $105 today.  Wild!

BuzzBits

Wall Street – got its name when in 1644 the Dutch constructed a barrier of fallen trees and brush across Manhattan just north of present-day Wall Street.  The Wall was designed to keep cattle and pigs in and Indians out.  Captain Kidd’s house was the first dwelling built north of the wall.  It served as his base for slave trading and pirating prior to his hanging in 1701.  Kidd was the first of many pirates to operate on Wall Street.  Later, after the Civil War, robber barons such as Daniel Drew, Jay Gould and Jim Fisk conducted raids on railroad treasuries.

National Jealousy Day - is on November 1 in Finland, when every citizen’s tax return is revealed and becomes public record.  The tax data has been available for online searches since 2001 – New York Times

Ouch! – Seattle home prices have declined $80,000 to $750,000 from the peak set in the spring.  County-wide inventory jumped 85% among single-family homes and 188% among condos in October – Seattle Times ….. Shares of home improvement stocks have suffered sharp losses over the past month as the housing market continues to slump, pressured by rising interest rates and higher material costs.  Rising rates are likely squeezing first-time home buyers, particularly among Millennials, said Stifel economist Lindsey Piegza, in some cases leaving them with smaller budgets for renovations – Wall Street Journal

Daily Fluctuations – in the prices of stocks, bonds, currencies and commodities, like gold and copper, are at the most extreme levels since 2008 when the last financial crisis began – German bank Berenberg

The Most Overpaid Sports Professionals – John Gruden got a 10-year, $100 million contract to coach the Oakland Raiders, who are 1-7 and the lowest rated NFL team who lost 34 to 3 last week to the lowly 2-7 San Francisco 49ers.  Bobby Petrino gets $3.98 million a year to coach Louisville’s football team that is 2-7, who squeaked by his previously coached 1-7 Western Kentucky team 20 to 13, and lost last week to Clemson 77 to 16.  And yes Petrino’s the same guy that was dismissed from Arkansas “with cause”.  If the school fires him this year they will owe him about $14 million.  Chris Davis batted .168 this year for the Baltimore Orioles as the worst hitter in the majors and received a salary of $21.1 million as part of his 7-year, $161 million contract vs. the league’s top hitter, Boston’s Mookie Betts, who batted .346 and received a mere $10.5 million salary – Buzz

Voting – Nearly 6.2 million cannot vote because they have felony records.  Iowa and Kentucky made life-time voting bans of those with a felony record.  Nearly one in ten adults in Kentucky have felony records and one in four African Americans – New York Times

The Unemployment Rate – fell to a 49-year low of 3.7% and would have fallen to 3.4% if it hadn’t been for an increase in the labor force.  Restaurants, hotels and retailers are about to have their already-thin margins pinched further.  Even if the economy slows, as most economists think it will, an unemployment rate closer to 3% than 4% seems reasonable – Wall Street Journal

30-Year-Olds – In 1970, over 90% of 30-year-olds earned more than their parents did at similar ages.  In 2014 only half did.  Those in the 29-31 age group with student loans have a loan debt to income ratio of 45% - Wall Street Journal

McDonalds – During their first six years of operations their stores grossed around $75 million and netted only $159,000.  Looking at the long term and not quarterly earnings, the firm created what no other chain could duplicate: Nationwide standardization.  McDonald’s Behind the Arches, John F. Love …..  McDonalds stock is up 68% from its November 2016 low.

The Nifty Fifty

The Nifty Fifty was an informal designation for fifty popular large-cap stocks on the New York Stock Exchange in the 1960s and 1970s that were widely regarded as solid buy and hold growth stocks, or “Blue-chip” stocks.  The stocks were often described as “one-decision”, as they were viewed as extremely stable, even over long periods of time.  The most common characteristic by the constituents were solid earnings growth for which these stocks were assigned extraordinary high price earnings ratios.  Fifty times earnings, far above the long-term market average, was common. These fifty stocks are credited by historians with propelling the bull market of the early 1970s, while their subsequent crash and underperformance through the early 1980s are an example of what may occur following a period during which many investors, influenced by a positive market sentiment, ignore fundamental stock valuation metrics.  Most have since recovered and are solid performers, although a few such as Sears, Eastman Kodak, Polaroid and Xerox are now defunct or otherwise nearly worthless. 

The long bear market of the 1970s which began with the 1973-74 stock market crash and lasted until 1982 caused valuations of the Nifty Fifty to fall to low levels along with the rest of the market, with most of these stocks under-performing the broader market averages.  A notable exception was Wal-Mart, the best performing stock on the list, with a 29.65% compounded annualized return over a 29-year period.  Because of the under-performance of most of the Nifty Fifty list, it is often cited, as an example of unrealistic investor expectations for growth stocks. – Wikipedia

buzz@msifund.com

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