As we finish out another week, the US capital markets are essentially flat for the year with the S&P 500 now within a single point of where it started the year. The Canadian markets have out-performed the US markets in 2014, however we remain invested in both the US and Canada and have begun to take advantage of this lull in the US markets to increase our ownership of that economy.
The evidence suggests the US market has seen a loss of momentum, but we view this as temporary considering there has been no change in our fundamental core thesis. Consolidation and correction periods are considered “natural, normal and healthy” until they actual happen, at which point it feels like something different. We therefore have to review our thesis by asking some key questions given the current trend in the data:
- Has the trend in core inflation changed? No.
- Is the Fed going to raise rates over the next year? No.
- Has the yield curve inverted signaling a recession is coming 15 months from now? No.
- Is there a shutdown in money availability or tightness of credit? No.
- Are EPS turning lower? No.
The chart shown below also highlights the current strength of US corporate profits, and as such we feel that continued ownership of corporate America is appropriate.
Berkshire Hathaway Inc. is a diversified conglomerate holding company headquartered in Omaha, Nebraska. With a market cap north of $300 billion, notable public company ownership includes IBM, Coca-Cola, American Express, Exxon Mobile, and Wells Fargo amongst others. Private company ownership includes GEICO, Benjamin Moore Paints, and Burlington Northern Santa Fe Railroad amongst others.
The diversified base of holdings includes four principal areas:
- Regulated, Capital intensive Businesses
- Manufacturing, Service, and Retail Operations
- Finance and Financial Products
In Berkshire Hathaway’s most recent letter to shareholders, Buffet states he will increase shareholder value by “(1) constantly improving the basic earning power of our many subsidiaries; (2) further increasing their earnings through bolt-on acquisitions; (3) benefitting from the growth of our investees; (4) repurchasing Berkshire shares when they are available at a meaningful discount from intrinsic value; and (5) making an occasional large acquisition.”
It is our recommendation that the addition of Berkshire Hathaway is an attractive way to own the US economy and benefit from the guidance of Warren Buffett and his team. Berkshire continues to seek profitable new opportunities and has typically provided stronger long term growth vs the S&P500.
We will be speaking with many of you on how to adjust our ownership of the equity asset class within your portfolio in the very near term.
Last week we closed out the weekly market comments talking about one of the greatest sporting tournaments around, the annual NCAA College Basketball tournament. For those of you, like myself, who are in the pools the first couple of days of the tournament did not disappoint when it came to last second buzzer beaters and crazy upsets.
As we hit the midway point in the tournament with the Sweet Sixteen games, the excitement continues, however my pool has already hit the recycling bin. The end came quickly for me this year. To all those who are still in it best of luck and enjoy the games.
Have a great weekend.
Thank you for your trust.
As always, we welcome any feedback.
The Dekker Hewett Group