Markets finished higher last week on mixed economic data and positive corporate earnings. Stocks elevated around the world, with the S&P 500 reaching a new record high.
Stocks are overbought. Yet, many of the S&P 500's largest components have been roughed up and remain below one-year highs. Boeing, Goldman Sachs, Bank of America. Each has another 3% to 5% before they post new highs. If they get going, they could help propel indices even higher.
Sincerely, Warren Buffett
Mr. Buffett recently published his annual letter to shareholders. Must-read document for any investor. Under Mr. Buffett's leadership, Berkshire Hathaway has provided investors a 19.7% annualized return since 1965. That's more than double the S&P 500 at 9.8%. Read his letter here.
Putin on the Ritz
Vladimir Putin's troops stormed into Ukraine with the Duma's blessing following the expulsion of his puppet president, Viktor Yanukovych.
While Putin appears a James Bond villain, the implications of his decisions will reverberate across the global community for some time. And he's not to be underestimated.
Ukraine is being torn asunder. Russia occupies Crimea, the southern peninsula on the Black Sea where Russia has a naval base, and eastern Ukraine, where Russia has natural gas pipelines and a lot of Russian-speaking sympathizers.
These small wars are old hat for Russia. But headline-reading investors are disturbed. Remember, this narrative has occurred before. In August of 1968, Soviet troops entered Czechoslovakia and the S&P 500 dropped like a rock. Yet, was up 2.7% a month later.
Russia's economy represents 3% of world GDP. Ukraine's accounts for 0.05%. These nations do not represent a major facet of global economic output. Further, the last thing Putin needs is a hot war. Which is why we've seen the tension dissipate these last few days.
We're not pretending to grasp all the complexities. Still, we'll likely see a negotiated "autonomy" for Ukraine's Russian-speaking regions. Not outright secession. Russia keeps their military bases and pipelines. The crisis is not likely to evolve into a civil war or regional disaster.
Finally, events in Ukraine certainly underscore the weakening U.S. position in global affairs.
Play Ball!
The national pastime is back. True, the NFL has surpassed the MLB in national popularity, but you cannot deny baseball's MLB's place in the American cultural fabric.
PlaceIQ created an excellent graphic which puts this year's season in context. Enjoy it here.
Oscar Redux
Gravity (not great). Twelve Years a Slave (have yet to see it). That's all one need know about this year's Academy Awards. They dominated. Yet, in retrospect, some of our most enduring films were not Best Picture winners. Check them out here.
The Good
Underscoring the idea that this market has room to run, flight-to-safety investments like gold, equity index puts and Treasurys have fallen sharply. Investors pour into these when scared, and jump out when emboldened. This capital is finding its way back to stocks.
Moreover, five years into a bull market, people still hate stocks. And that's a positive. More here.
The Bad
Mt. Gox, the largest Bitcoin exchange, filed for bankruptcy. While this sheds new light on the fragility of this radical, fledgling currency, it doesn't portend the end of Bitcoin. Similarly, just because MF Global failed, and John Corzine lost his clients' gold did not mean that gold as a commodity was worthless.
The Bitcoin system has been described as "antifragile." Gaining from disorder. And reports are surfacing that there are newer, stronger exchanges that will improve upon the faults of Mt. Gox.
The Ugly
The Hill recently reported that The White House may allow people to keep existing health plans. Other media outlets have confirmed the story. The administration is yet to comment.
Analysts believe that the Obama administration hopes to avoid the kind of backlash experienced last fall when millions had healthcare policies cancelled.
But, this reduces the likelihood that the exchanges will succeed. If the young and healthy are allowed to remain in existing plans, and the exchanges continue to offer subsidies, then they'll become disproportionately filled with older, poorer and less healthy people.
All of this contributes to the exchanges serving fewer than the CBO's projected 24-million people by 2017. Creating a more modest-sized risk pool. Which may bring voters to perceive the ACA as a failure. Further impacting its tenuous political standing and, possibly, rendering it unsustainable.
Finally, this would also unwind many of the positive tailwinds experienced by many healthcare and insurance companies. Caveat emptor.
The Bottom Line
Stock markets continue to show resilience. Wars. Terror. Geopolitical instability. And the kitchen sink. Still, markets climb a wall of worry on the wings of investor pessimism and decent earnings.
The Russian/Ukrainian situation is messy. But, Russian oligarchs, those running Russia's oilfields, mines and factories, can hardly allow Putin to enter a hot war that worsens their struggling economy. So, it's unlikely.
As tension dissipates, U.S. equities will have the chance to push even higher.
Weekly Results
Major markets finished higher last week. The DJIA rose 1.36%, the S&P 500 gained 1.26%, and the Nasdaq advanced 1.05%. Small cap stocks jumped 1.58%. And the 10-year Treasury bond yield fell 8 basis points to 2.65%. Gold climbed $5.41 per ounce, or 0.41%.
