Sunday Afternoon Musings

Sunday Afternoon Musings

Long weekend with MLK holiday tomorrow.  I was think, I am up 3.6% already this year.  If you look to see what the "experts" expected for 2018, it was 7 to 10% generally.  So I may already be 1/2 done.

One of my favorite things to do at the start of the year is read the Barron's roundtable (

Bright Outlook for the Economy and Stocks - Barron's

). While the stock picks from the experts are interesting (we generally have to wait until next week for part 2), I find the banter and trading of thoughts and challenging of thoughts fascinating.

Here are some key points that caught my attention:

• "There are signs of sustainable growth everywhere; the momentum will continue for a while. U.S. gross domestic product is likely to be lifted somewhat this year because of the tax cut"
• "I worry that this tax cut is happening at a time when the U.S. economy doesn’t need fiscal stimulus. And longer term, what will tax cuts do to the federal deficit? "
• "Abby has touched on one of the most important points—the sustainability of economic growth. We can’t find a recession anywhere. You never get a recession without the Index of Leading Economic Indicators falling below zero. In the U.S., it is up 5%-plus, year over year, and the trends look to be persistent"
• Gundlach: "I expect the Fed to hike twice in 2018. Long rates in the U.S.—yields on the 10-year and 30-year Treasury—are near extraordinarily critical junctions. The 10-year yield has already broken above its long-term downtrend line, at around 2.5% to 2.6%, but not terribly convincingly. The 30-year hasn’t broken above its downtrend line, at about 3%, although it is close."
• "The two-year Treasury yield is higher today than the dividend yield on the S&P 500. Eighteen months ago, one argument for stocks was that they yielded more than the 10-year Treasury. Well, now they yield less than the two-year Treasury."
• "This year, we are going to have synchronized global growth. We haven’t had such a low standard deviation of GDP growth among this many countries since the Eisenhower years. It is amazing. Growth is everywhere."
• "Amazon’s purchase of Whole Foods Market in 2017 will reorder local commerce. From food to food delivery to car purchases to local commercial real estate, everything is being affected by global platforms with deflationary power."
• "By moving toward a territorial system of taxation and bringing our corporate tax rate in line with the rest of the world’s, we can get back to having managers focus on productive investments, greater efficiency, and value creation. This will unlock the strength of America and drive GDP growth. Simply, the absence of a major negative is a positive. This is a generational change. While inflation potentially is a fear for the stock market, you have to be positive on the S&P 500"

Wow, I hope everyone is reading these closely.  Gundlach only expects 2 Fed hikes in 2018 (and he also thinks fewer in 2019). 

Stage is set for best global growth everywhere since Eisenhower administration.

The Amazon effect will continue to press down on inflation.

The change in corporate tax laws will have many more benefits than just $.  Will increase efficiency.

So just a quick reading shows that this roundtable does not seem as concerned about inflation as I am. They are bullish on tax cuts.  But they are also very bullish on global growth/reflation - so I do like my shipping focus.

Let's look at a few more quotes.

• "The effective tax rate for most companies has been between 26% and 28%. With the new 21% rate, FDI [foreign direct investment] will rise in the U.S. Wages might be pushed up some, but the deflationary impact of technology is unbelievably powerful."
• "The largest tech companies are growing about 20% a year. That is amazing, because megacaps normally don’t grow faster than the S&P 500. They usually grow substantially slower. "
• "But unless inflation is embedded in wages, it isn’t sticky enough.Gundlach: You are starting to see it. Some wage gauges show inflation up 3.5%. Also, if a reduction in corporate taxes leads companies to move business activity back to the U.S., won’t that cause a bit of a bump in inflation?"
• "Having covered the auto-parts industry for 50 years, I am seeing more companies announce that they are going to relocate to the U.S. And the U.S. is a magnet not only for American, but also for foreign companies locating here because the U.S. is a big market"
• "Just looking at S&P 500 earnings underestimates what this tax bill means. As soon as the private companies we see get to $100 million in revenue or prepare for going public, they spend time creating headquarters in Luxemburg or Ireland. I am not going to name them here, but they are recipients of the advice typically given at this stage of development. There is no reason for a 300-person intellectual-property company based in Silicon Valley or Boston or Seattle to open a five-person office in Ireland. "

Read those last two points.  I know the tax reform came with a lot of hair on it and certainly some pretty blatant self-dealing.  But you can see top minds agreeing that both companies are moving back to the US AND mew companies instead of incorporating in Ireland or Luxemburg are more likely to incorporate in the US.

I agree with these points 100%. Before I retired, I sat in a lot of board meetings, M&A meetings and regulatory meetings - I promise that tax efficiency was always near the top of agendas.

Ok.  Enough of that.  I will close with a listing of my 25 largest holdings.  I used to try to have this in the widgets of my blog, but Yahoo seems to have stopped support.

Stock	Avg Cost	Current Price	Dividends	Gain per Share	Pct Gain	Pct of Portfolio
GILD	73.31	79.02	0.63	6.34	8.6%	2.7%
TK	6.20	10.54	0.08	4.42	71.4%	2.7%
EXXI	7.16	7.53	-	0.37	5.2%	2.7%
OMC	76.79	75.82	0.60	(0.37)	-0.5%	2.5%
KCLI	48.89	45.05	0.33	(3.50)	-7.2%	2.5%
KNOP	21.30	21.90	-	0.60	2.8%	2.3%
CPLP	3.54	3.57	0.08	0.11	3.2%	2.2%
GCAP	8.50	8.39	-	(0.11)	-1.3%	2.2%
GME	19.46	17.76	0.30	(1.41)	-7.2%	2.2%
OMER	20.88	19.60	-	(1.28)	-6.1%	2.2%
MTG	11.65	15.11	-	3.46	29.7%	2.1%
TGP	17.89	21.30	-	3.41	19.0%	2.1%
NS	37.98	34.21	0.82	(2.95)	-7.8%	2.0%
SYNT	16.50	23.50	-	7.00	42.4%	2.0%
JQC	8.18	8.18	0.67	0.67	8.2%	2.0%
PSXP	47.39	55.36	1.03	9.00	19.0%	2.0%
FDEU	18.40	19.70	0.94	2.24	12.2%	1.9%
ISBC	13.25	14.36	0.15	1.27	9.6%	1.9%
EVG	14.46	14.30	0.41	0.25	1.7%	1.9%
LADR	13.01	13.60	0.62	1.20	9.3%	1.8%
YY	41.08	135.23	-	94.15	229.2%	1.8%
MSGN	18.79	21.58	-	2.78	14.8%	1.8%
CSCO	32.39	40.87	0.88	9.35	28.9%	1.8%
SIMO	45.28	50.70	0.13	5.54	12.2%	1.8%
RILY	15.58	18.95	0.21	3.59	23.0%	1.7%

These are just stocks and exclude mutual funds like OIBAX.