Last Week in Brief: March 7

March 7, 2014

The week began like a roller-coaster car hitting the apex of that first, signature hill. Slow and relaxed to really fast and bumpy in no time at all.
Ascribe much of that to Russia's Ukrainian adventure, which sent global stocks and the Russian Ruble plummeting. Yet pushed oil, gold and silver higher. Also sent the CBOE Volatility Index (the fear barometer), up more than 14% on Monday.
Stocks eventually recovered. And the S&P 500 hit another record high. On the week, indices were mixed.
Some analysts are beginning to tout the possible benefits of getting back into Russian stocks. Us? We view that idea as we might going mountain biking without a seat. Might be quite an adventure. But you'd better stay on your feet.
IPOy?
Recently, we've witnessed some outrageous valuations on IPOs, acquisitions and technology stocks. Feels like my hot tub time machine has teleported me back to 1999.
On the day of Twitter's IPO, shares rocketed from $26 to $45. Currently valued at over $30B, shares trade for more than 40 times sales. Twitter has yet to turn a profit. With a bit of luck, the company might reach $50 million in adjusted cash earnings this year. Which sets its P/E at 500. Warren Buffett's Berkshire Hathaway has a P/E of 19. What am I missing?
Facebook purchased messaging service WhatsApp for $19B. WhatsApp's 2013 revenue? $20 million. One helluva multiple.
Consider Tesla, the electric-car maker possessing a $31B market cap. Loses money every quarter. But trades at 15 times sales. Tesla IPO'd in 2011 at $17. Shares now sit at $250. Up 1,370% -- despite the fact that it's yet to turn a profit. And that much of its income is derived from government subsidies, carbon tax credits and Department of Energy Loans. More here.
Have we already forgotten the lessons of the late nineties when more emphasis was placed on business plans, and how a company might someday make money, than actual businesses performing real-world commerce? Companies whose revenues exceed expenses?
No wonder it's called Silicon Valley. Much of it is artificially enhanced.
Kim Jong Un-believable
Despite having been implicated in crimes against humanity by the U.N. Despite having contributed to the deaths of thousands of North Koreans. Despite having continued a policy of total isolation in a hyper-connected world. Despite all of that and more, North Korea's "supreme leader" Kim Jong Un was unanimously elected to his third term as North Korea's leader on Sunday. Receiving 100% of the vote. Proving that sometimes, despite a few faults, a great haircut and a sharp uniform can really elevate a guy. More here.
The Good
Happy to report that investors remain anxious. Accordingly, still plenty of cash on the sidelines. Now, with every other article portending a "market top" or an "imminent correction," investors are slow to act on the opportunity before them.
Yet, today is not 2007. Here is a good piece explaining why.
So long as stocks continue to climb the wall of worry, we'll continue to see opportunities around every corner.
The Bad
Healthcare Reform has been divisive. And with the role of Surgeon General up for grabs, I recently took an interest in whom the president nominated. Realizing the massive impact this individual might have on the future of the nation's healthcare system.
Unfortunately, after all of chaos and incredulity surrounding the ACA, the president's nominee appears to be another tire fire in the making.
Vivek Murthy is a 36-year old part-time doctor who has spent much of his time starting a clinical trials firm, getting an MBA, and campaigning for President Obama. In fact, he started an organization called "Doctors for Obama."
The role of overseeing America's 6,500 public-sector health professionals is huge. One that should be filled by a serious medical executive with experience in leading a large healthcare organization. Like a hospital system. Not a campaign organization. This requires a leader with an interest in public health, insurance reform, drug shortages and other weighty topics.
Murthy's passions? Business and gun control. Having a hard time assessing how either of those play into our tumultuous, gargantuan healthcare system. Add his youth and inexperience, and one wonders how this nomination was arrived at. See what a fellow physician has to say here.
The Ugly
The Pentagon has been spending $300,000 per year in an effort to study the body language of world leaders. Guys like Putin. Jong Un. Sarkozy. Al Assad. Money well spent, right?
When the cat got out of the bag, the Pentagon distanced itself from Defense Secretary Hagel. Explaining that the Secretary "has not read the reports..."
So, tax dollars spent on research that's not being used. And, although the research is not classified, it remains unavailable to the public.
NSA surveillance activities. Secret DOD studies. Get the feeling they're not telling us everything?
The Bottom Line
Indexes fell to start the year. Yet, Monetary policy, the economic recovery, inflation trends and earnings provided the support needed to achieve new highs.
While 2014 will bring volatility, especially following 2013's lack thereof, we remain cautiously optimistic on the opportunity for stocks following a 14-year consolidation period.
Weekly Results
Major markets finished higher last week. The DJIA rose 0.80%, the S&P 500 gained 1.00%, and the Nasdaq advanced 0.65%. Small cap stocks jumped 1.71%. And the 10-year Treasury bond yield rose 14 basis point to 2.79%. Gold climbed $13.98 per ounce, or 1.05%.

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