Campaign Rhetoric
William Smead
Chief Executive Officer
Chief Investment Officer
Chief Executive Officer
Chief Investment Officer
Dear Clients and Prospective Clients:
As we explained on Monday, this is the reverse of 1980 when Ronald Reagan got elected. The day after the 1980 election the stock market had a buying orgy on the companies which investors felt would most benefit from the rhetoric and promises of the campaign. Defense stocks were the favorite and topped themselves out for years. Investors got punished for piling on at the wrong time.
Yesterday and today’s trading is the exact opposite of 1980. Obama railed at greedy Wall Street and painted big drug companies as evil in his campaign speeches. Yesterday, investors punished financial and drug stocks (just as the rhetoric had) and in the process are testing the fortitude of those of us who think that the lowest stock prices of October 10th, 16th and 27th could be the low in this cycle. Forget the noise around you and realize what matters. The low in price comes at the low in confidence. Consumer confidence is at multi-year low. Federal government fiscal and monetary stimulus is at its highest. Insider buying is at records. Billionaires like Buffett are buying. Gas is at $2.39 per gallon at my local station. Three-month LIBOR interest rates (the rate which many mortgages are tied) fell from 4.8% to 2.7% in the last month.
The number one destroyer of long-term profitability is competition. Is the competition getting stronger or weaker for Disney, Nordstrom, WalMart, JP Morgan, Bank of New York/Mellon, Merck, Pfizer, Abbott Labs, etc., etc., etc. All our companies have to do is stay in business. Their financial strength, powerful and magnetic brands will absorb the business of those who don’t make the cut in the next six months. Only 7% of the net present value of our companies is represented by their profit in 2009 and 2010. The rest is what they will earn over the following years and today’s circumstances are probably increasing those numbers. WE BELIEVE NOW IS THE TIME TO PILE ON!
Therefore, we want to buy the best companies from among those that have been battered by the populist rhetoric of the last 12 months. Please join us on that campaign.
Best Wishes,
William Smead
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Tags: Barack Obama, Consumer Confidence, Consumer Discretionary, Financials, Gas, LIBOR, Pharmaceuticals, Ronald Reagan, Warren Buffett
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