MidSouth Week in Review:
February 13, 2018

Weekly Update from Fund Manager Buzz Heidtke, MidSouth Investment Fund

The stock market officially went into correction category this week (-10%), as the three major stock indexes dropped 10% from their recent highs.  The catalyst for the drop was possibly the recent rise in bond yields, causing monies to flow from stocks to bonds.  The stock markets previous corrections have been short-lived, lasting about 200 days, in the previous 35 corrections.  There will probably be a move from growth stocks to value as investors become more concerned about protection of their capital vs. appreciation.  Studies have shown that stocks carrying price-earning-ratios (PE) of over 50, underperform long term.  If so, high PE stocks such as Amazon (217), Netflix (198) and Google (57) and companies with negative earnings such as Tesla could become underperformers over the next 12 months.  Stocks that are good dividend-payers such as: IBM (4%), Altria (4.2%), Verizon (4.8%) and high yielding utilities could become outperformers for the remainder of the year as well as low PE stocks such as Goldman Sachs (11), Intel (12), Lear (10) and Southwest Air (10).  The Dow is up 57% over the past 24 months.

BuzzBits

The Bitcoin Prayer – Lord, if you can just get me out of this one, I promise I’ll never do it again!

Squeeze on State and Local Tax Deductions – Under the new tax law you can deduct any combination of residential property taxes and income or sales taxes up to a $10,000 cap – The Kiplinger Tax Letter ….. States with highest percentage of tax revenue coming from state income taxes:  OR (69.6%), VA (57.7%), NY (57.2%), MA (52.9%), CA (52.0%) – Bureau of the Census

Churchillian Quotes – The main vice of capitalism is the uneven distribution of prosperity  The main vice of socialism is the even distribution of misery.  A good speech would be like a woman’s skirt: long enough to cover the subject and short enough to create interest.

NFL Decline – The TV ratings declined 9.7% this year and 8% a year ago.  The Super Bowl had dismal ratings with its lowest viewership in years.  Just 51% of men ages 18 to 49 say they follow the league closely vs. 75% four years ago.  Parents are increasingly uncomfortable with the idea of their kids playing football.  53% of Mothers said they would discourage their kids from playing the sport vs. 40% in 2014.  Player protests during the National Anthem has also been a problem – Wall Street Journal

Older Kindergartners – In a recent study of investment managers, the ones that were the oldest in their class outperformed those in the youngest quarter.  The confidence levels of managers who started kindergarten later shows up in better, bolder decisions; they tend to hold fewer stocks while investing more in each of them.  Children who are older than their peers in kindergarten are more likely to perform better in school and have higher self-esteem – Journal of Finance

Men’s Earnings – went up by more than 6% when they had children, if they lived with them, and women’s decreased 4% for each child they had.  American women make 80 cents for every dollar men make – New York Times

L.L. Bean Puts Foot Down – No more refunds on grandpa’s 20-year-old boots.  The company will now only except returns for only one year after years of abuse by shoppers who bring back goods that are in unusable condition and many years old – USA TODAY  

Biggest Beneficiaries – of the corporate tax rate being reduced from 35% to 21%: builders, retailers, wholesalers, and service industries.  Groups that will be hurt include: private equity because interest expense deductions will be reduced; research firms because the expenses will be required to be spread out vs. expensed in one year; health insurers because the tax law ends the requirement for most people to have health insurance or pay a penalty; high-end housing because of lower limits on interest deductions on mortgages and caps on deducting state and local taxes – The Kiplinger Tax Letter

Psychopaths – A new study revealed that “functional psychopaths” make better investors, CEO’s, and lawyers than normal people because they lack normal human emotions – THE WEEK

Rising Meat Prices – Tyson Foods said rising freight and labor cost will mean higher meat prices for consumers.  Tyson projects a nationwide shortage of trucks and drivers will add $200 million to the meat company’s costs this year ….. After seeing their shipping costs rise from $11.5 billion in 2015 to $16.2 billion and $21.7 billion in 2016 and 2017, Amazon announced they were going to start their own shipping service to compete against UPS or FedEx – Market Watch …. Amazon’s 2017 $5.5 billion shipping cost increase was greater than the company’s earnings of $3 billion.  FedEx and UPS both declined 10% for the week on the Amazon news announcement - Buzz

Air Force One – Built in 1991, the 757 is estimated to have cost approximately $100 million.  It costs about $200,000 an hour to operate the aircraft.  New refrigerators were recently added to Air Force One at a cost of $23.7 million – Defense One

buzz@msifund.com

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