Saturday, May 27, 2017

TLH Market Review - 5/27/17

"The willingness of America's veterans to sacrifice for our country  has earned them our lasting gratitude." - Jeff Miller

Let's not forget the real reasons why Memorial Day marks the unofficial start of summer in the USA.  It takes a lot of courage, will, and fearlessness to fight for what you truly believe. That common belief runs through all of us. The belief that we are free individuals to pursue our dreams, and a life full of happiness. It doesn't matter what country you hail from.  Ultimately that's what we all want in life.  So as you sit back unwind on a long scenic road trip, and BBQ in the back yard with family and friends give a thought of gratitude to those whom gave the ultimate sacrifice so we could pursue our dreams.


This week was full of news.  We received the Fed Minutes which shined some light on the Fed's interest rate intentions, and balance sheet issues.
The Fed is still intent on raising rates, and in a nutshell has gone from being "data dependent" to now thinking data will come in stronger so they have room to raise rates. What!?!?

There are plenty of people worried about the Fed's absolutely gigantic $4.5 trillion balance sheet since they are most affected by rising rates, which they set!!! The Fed basically plans to eventually stop re-investing proceeds into new securities, and slowly raise a the cap amount of proceeds not re-invested.  This will be contractionary as it will withdraw cash from the economy.

Another are that caught people off guard was an 11.4% plunge in new home sales to a seasonally adjusted rate of 569k. Within the report we saw a drop of over 26% for home sales in the west.  It didn't help that existing home sales also dropped 2.3% to get the beginning of selling season started. It was cited within existing home sales there was a lack of affordable homes for sale.


  The jobs market continues to stay strong, albeit that's on a relative scale as initial claims for unemployment came in at another low 234k.  Then we saw U of M Consumer Sentiment stay near highs at 97.1, and we got a nice revision in Q1 GDP from 0.7% to 1.2%.  Again not all gangbuster, but still in the right direction.

Portfolio

We received earnings reports from Universal Corp(UVV) and Costco(COST) this week.  One went higher, and one went lower.  Tis the investing struggle.

Overall I was satisfied with both reports. Universal Corp showed an overall YoY decline in revenues from $2.12 billion to $2.07 billion.  Plus due to preferred to common share conversion the company had to knock $2.90 off it's EPS which means for the year EPS would have came in at $3.78 compared to 2016's $3.92.  Considering the shares advance in the last year I'm not happy to see a decline in overall EPS and sales.  I think we can expect the stock meander sideways for a bit as a result.

Costco(COST) on the other hand continues to be a shining star in the retail space, which I guess isn't all that hard nowadays if you're not Amazon(AMZN).  EPS came in at $1.59 on revenues up 8% from last year to $28.22 billion.  Remember that during the quarter the company announced a special $7 per share dividend that was paid to shareholders. I have to say if you haven't shopped at a Costco you are doing yourself a real disservice.  I personally love shopping there, and the customer service is spectacular.  Biased because I own shares?  Maybe, but a good company is a good company.

There will not be a Market Review next week due to the short week as I take a weekend off to work on some other projects. Meanwhile enjoy this long weekend.

The Long Haul Investor

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