MidSouth Week in Review:
January 22, 2018

Weekly Update from Fund Manager Buzz Heidtke, MidSouth Investment Fund

Hope everyone stayed warm during the recent cold snap.  Smart me, anticipating the bad weather, headed to the “Red Neck Rivera” to enjoy the sunshine.  Wrong!  It was below freezing just about every night before I returned Tuesday night to 5 degree weather in Nashville.  One wise A_ _ in Florida wanted to know if my tennis racket was a snow shoe.  Oh well, I survived.

The first two weeks of the year the S & P 500 rose 4%, its best two-week jump since 1987.  Ouch!  This week the S & P rose 0.75%.  The 10-year Treasuries hit a 4-year high to close at 2.64%.  30-year mortgage rates are up 0.25% y-t-d to 4.25%.  Unemployment figures are approaching a 50-year low while the S & P price-to-sales ratio nears the all-time record set in 2000.  Crude hit a 3-year high at $65 a barrel.

In November, I bought Kohl’s Corp. (KSS - $67.54) at $41.73 and yielding 5.2% on the announcement they were forming a partnership with Amazon.  Today the stock was up $2.69 on a Jefferies buy recommendation with a $100 price target.

During the last half of the year I held my nose and bought four retailers as the whole group was getting killed over worries that Amazon would put everyone out of business.  The four I bought:  Dollar General, Big Lots, Tuesday Morning and Stein Mart had one thing in common, they all sold close-outs.  With 35+ retailers filing bankruptcy last year, I figured there would be an abundance of close-outs for sale and at very attractive prices, which should flow to the bottom line of my four retailers.  So far all have done well except for Stein Mart however one of their store managers told me that their Christmas sales were very good.  I was also helped because industry wide retail store traffic was better than expected.

BuzzBits

2018 Stock Market – The stock market has never had a down year when the first five trading days were up more than 2%.  The S & P 500 was up 2.8% over the first five trading days of 2018 – Federated Investors

Tightwad Affluent Shoppers – 42% of the group frequently patronize discount retailers. 42% go to Amazon first to check to see how much an item costs.  61% said they wouldn’t pay extra for two-day shipping.  Once in an actual store, 39% click on their tablets or smartphones to figure out where they can get the best price vs. 26% of shoppers overall – USA TODAY ….. Online shopping rose 15% last year with a third of the purchases made on smartphones or tablets – Adobe Analytics

A Market Correction – would be healthy.  The longer we go without one, the greater the risk this will end badly – James Stack, market historian

Student Debt – has risen 11.2% annually over the past 12 years in rising from $380 billion to $1.36 trillion – Federal Reserve Bank of New York

Berkshire Hathaway – Attorney Jack May called me around 1987 to purchase one share of Berkshire Hathaway stock (BRK’A - $320,238) at around $4800 a share so that he could begin receiving the company’s annual report.  On Wednesday the stock had a one-day $8369 move - Buzz

Rich New York City School Principals – The median salary for heads of NYC’s private schools is $493,478, among 44 city schools in the survey.  That compares with $275,000 nationwide.  At least nine heads yearly packages topped $800,000, with the Trinity School head earning $1.1 million.  The head of the NYC school system earns $235,000 annually – Wall Street Journal

Food Stamps – Of the 47 million who collected food stamps last year, some 4 million were not low net worth Americans.  A family with a seven-figure net worth can collect food stamps.  Why?  To collect, one must have wage income ranging from 130% to 200% of the poverty line.  Net worth is not figured in the calculation.  A Detroit $1 million lottery winner collects food stamps – Wall Street Journal

Smart911 – Smart911 allows citizens to provide the additional details that 9-1-1 call takers may need in order to assist them during an emergency.  When you dial 9-1-1 today the information received by the 9-1-1 call center can be limited based on the type of phone you are calling on.  With Smart911, anytime you make an emergency call from a phone registered with your Safety Profile, the 9-1-1 systems recognizes your phone number and automatically displays your profile on the screen of the call taker who receives your call.  At a time when you may be panicked, or unable to communicate, or it could be unsafe to communicate, Smart911 ensures that the details you would need to tell 9-1-1 are immediately available in the event you cannot verbally provide them.  Smart911 is free, private and secure - www.smart911.com …. I contacted my local police department and they highly recommend Smart911 – Buzz

Medical Marijuana – Health Canada found that medical users spend around $121 per month on the drug, which was 61% more than recreational users, who reported spending close to $75 a month – Canaccord/Genuity

Car Insurance Rates – have been rising, even for people with spotless driving records, and they’re likely to continue to go up in 2018 because insurers are paying out more money in claims.  The biggest reason for the increase is the rising cost of repairing new safety features, such as sensors, cameras and computers.  Other factors include distracted drivers, legalized marijuana in some states and a robust economy, which has led to an increase in drivers on the road – Kiplinger’s Personal Finance

Death of the Landline – In 2004, 92.7% of homes had a landline vs. only 5.0% having a cell phone.  Today only 48.3% of families have a landline vs. 52.5% who have only a cell phone – CDC Survey

The Great Bubble

From the early 1980’s to 1989 the Nikkei stock Index rose from 8,000 to 39,000.  During the eighties all the worlds five largest banks were in Japan as well as 18 of the top 31 vs. only one U.S. bank.  By 1990, the value of Japan’s property was 4x that of the entire U.S.  During the 1956-1986 period, land prices rose 5,000% .  The stock market rose 3x’s faster than corporate profits.  Over 20 golf clubs cost more than $1 million to join and $2.7 million for the best one in Tokyo.  The stock market sold at 90x earnings.  From 1991 to 2005, residential real estate prices declined 65%.  The Nikkei declined from 39,000 to 15,000 from 1990 to 1992 before falling below 10,000.  Today the Nikkei stands at 23,740, 39% below its 1989 bubble top – Ben Carlson, Jesse Colombo

buzz@msifund.com

This material was prepared by MidSouth Investment Management LLC, and does not necessarily represent the views of the presenting party, nor their affiliates.  This information has been derived from sources believed to be accurate.  Please note – investing involves risk, and past performance is no guarantee of future results.  The publisher is not engaged in rendering legal, accounting or other professional services.  If assistance is needed, the reader is advised to engage the services of a competent professional.  This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty.  This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such.  This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results.  Investments will fluctuate and when redeemed may be worth more or less than when originally invested.  All economic and performance data is historical and not indicative of future results.  Market indices discussed are unmanaged.  Investors cannot invest in unmanaged indices. 

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