Succinct Summation of Week’s Events for 4.6.18
Succinct Summations for the week ending April 6th, 2018
Positives:
1. All things considered, it could have been much worse.
2. Same store sales rose 4.4% y/o/y, above the previous 3.6% increase.
3. Factory orders rose 1.2% in February, up from -1.4% decline in January.
4. Bloomberg consumer comfort index rose to 57.2 w/o/w from prior 56.8.
5. ADP employment showed a gain of 241k private payrolls in March, well above the 175k expected.
Negatives:
1. Markets suffer repeated setbacks on ill advised trade war tweets
2. Nonfarm payrolls rise of 103k in March is well below the 175k expected
3. Jobless claims rose to 242k, higher than the expected 230k.
4.Mortgage applications fell 3.3%, down from the 4.8% rise from the prior week.
5. Trade deficit widened to $57.6 billion in February, more than expected $56.7 billion.
6. PMI Services index fell to 54 for final reading of March, down from February’s 55.9.
7. It is April and we still have snow in theforecast . . .
Why ‘Super Mario’ Gabelli Isn't Sweating the
Passive Trend
On the sidelines of a conference at The Breakers, the
stock-picking legend tells Institutional Investor that he has bigger things to worry
about.
To spend 30 minutes in conversation with
stock-picking icon Mario Gabelli is an intense experience. The 75-year-old
founder and CEO of Gamco Investors speaks with a rapid-fire delivery and dives
quickly into the weeds of subjects that he addresses. He initially meets
questions with a scowl or a frown, though he answers every one amiably.
We meet outside of a Deutsche Bank media
conference he is attending at The Breakers, the famed luxury hotel in Palm
Beach, Florida. Pointing to the ten-foot ocean swells outside a nearby window , he makes an interesting comparison. Just
as no one had seen waves that big in Palm Beach for a while, no one had seen a
10 percent drop in stocks and a spike in volatility for a while before
February. But both are normal events, Gabelli points out. The stock correction
was “long overdue,” he says.
When I first encounter him at The Breakers,
Gabelli is speaking with his long-time friend Leon Cooperman, legendary founder
of the hedge fund firm Omega Advisors. After a quick fist-bump with his old
buddy, Gabelli and I are off for our conversation. He looks more like a junior
analyst - with a rumpled suit, arms full of papers and a genial smile - than
the billionaire investor who earned the nickname “Super Mario,” after a 1980s
video game character.
Gabelli, who set up his first business at the
age of six, shining shoes at a New York City subway station, certainly
thinks long-term. He often takes years getting to know executives at a company
before he will invest in it.
Perhaps that's why Gabelli, who still spends
much of his time reading earnings-call transcripts, isn't too worried about the
trend toward passive investing that has robbed active-management firms like his
of assets.
“Passive investment makes sense if an investor
wants a long-term, efficient way to invest in the S&P 500 and they don't
have much knowledge,” he says.
And Gamco’s active management style has paid
off for investors, he notes, with a compound annualized return of 15.3 percent
for its institutional and private wealth management accounts since the firm's
founding nearly 40 years ago.
Gabelli calls himself a bottom-up stock picker,
and he mentioned several industries and companies that he finds attractive now.
One is the so-called companion-pet sector - marketspeak for household
pets.
He originally got interested in the sector 30
years ago when researching Hartz Mountain Corp., then a major pet products
company. Thirty years later, Gamco has invested in several pet-related
companies. That includes Blue Buffalo Co., which makes dog and cat food, and
veterinary-facility owner VCA (ticker: WOOF). Gamco has even trademarked the
name for a pet-focused exchange-traded managed fund: Gabelli Pet Parents Fund.
Another sector Gabelli likes is housing. “It
has a long runway - still three to five years,” he says. Supply is low, and
demand from millennials is starting to percolate. Gabelli recommends Lennar,
the nation's second largest homebuilder.
And what of the media sector - the focus of the
conference Gabelli attended at The Breakers? The main issues are delivering
content directly to consumers, a la carte pricing for that content, and
globalization, he says.
“The underlying background noise at the
conference was consolidation in media because of the tech giants: Amazon,
Facebook and Apple,” Gabelli says. The tech companies are trying to figure out how
to monetize their data in the media sector, he says. (This conversation took
place before the recent brouhaha over Facebook's use of data. But that simply
highlights the issue.)
He expressed an interesting thought about
Amazon founder Jeff Bezos, comparing him to a business legend of the early 20th
century. “The notion of Henry Ford when he introduced the assembly line is
clearly what Bezos is doing,” Gabelli says. “Your gross profit is my
appetizer.” Clearly Amazon has an assembly line of its own.
As you can guess from his earlier comments
about the waves outside The Breakers, Gabelli isn't too worried about rising interest rates , a possible increase in inflation,
and the potential of a trade war.
“The big issue is our $500 billion trade
deficit, the $1 trillion budget deficit, the $20 trillion national debt , an aging population, and not a lot
of companies starting up, says Gabelli, who is prone to rattling off relevant statistics on a wide variety of
topics.
So are those the issues that worry him?
“Everything worries me,” he immediately responds. “If I don't worry, I don't
get paid.”
But Gabelli likes to put things in perspective.
“We’ve studied the last 100 years, so we've seen it all,” he says. “The system
has survived two world wars, and I think it will survive another 100 years. The
problem is my clients don’t think in terms of 100 years.”
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