Sunday, November 27, 2016

Trump's Thesis on Jobs and Trade Restrictions

Trump says he will cancel trade agreements on his first day in office as his anti-trade approach to bring back jobs rhetoric is supported by his voters.

We live in interesting times as the Republican party has been pro trade and anti trade restriction since Ronald Reagan was President. We will see how this issue plays out as the interests of the business wing of the Republican party are at odds with Trump and his voters who believe he will bring back jobs through trade restrictions. His voters are likely to be disappointed.

In reading the research, I find no credible evidence that significant job growth will be created by trade restrictions and barriers. The research I am referring to leans Republican. I also looked at the evidence on this topic from multiple points of view. Trump's argument on this topic appears to be the least credible I can find.

For folks who lean right that are interested in learning more about free trade and jobs, I would recommend the most well known Republican leaning think tanks, The CATO Institute (CATO) and The Heritage Foundation (Heritage). These organizations extensively cover this topic and have published Republican leaning pro trade arguments and research for years.

It will be interesting to see how the battle plays out within the Republican party.

For folks who would like to go beyond CATO and Heritage on this topic, feel free to reach out to me.  

Thursday, May 26, 2016

Costco - Mr. Market Miscalculates

The book title "Mr. Market Miscalculates," written by James Grant came to mind as I witnessed the strong positive market reaction to Costco's recent earnings release.(1) This came after the pros sold off Costco in earnest during recent weeks in front of the earnings release due to challenges reported by several other well known traditional land based retailers and the assumption that Costco was suffering a similar fate. The market misjudged Costco as reported results were better than expected. Costco indicated that customer behavior was unchanged.

My local store visits prior to the earnings release revealed no significant changes in visible metrics like store traffic and parking lot occupancy. Gasoline lines were also present as they have been for months. In short, I observed no change in a business with ongoing robust traffic and significant customer loyalty. Customer loyalty is apparent as evidenced by the consistent significant check out lines in my local stores and the published 90% membership renewal rate. As a customer you clearly understand why you renew each year which may or may not be the case for the professional money management crowd. If you own a piece of this business via the equity market it pays to know something about its competitive position, in my humble opinion. Being a customer is helpful on this front. If you are a friend of mine you already know that I am a customer and exhibit an obnoxious pride in ownership as I acquired my equity stake at just under $30 per share more than a decade ago. You also know that I have been a buyer in this stock for years. My latest buy before the earnings release was in the low $140's which meant that the market was pricing the equity near estimates of the intrinsic value of the company based on forward assumptions I was willing to bet on. Costco remains my biggest position.

In September 2015 I disclosed many of my holdings. I continue to hold onto most of the names mentioned although the position sizes have changed. Recent buys include Costco (discussed here) as well as Disney and Apple acquired post the most recent company earnings releases that disappointed Wall Street.

(1) James Grant, Mr. Market Miscalculates, November 2008