Recent news confirms Myth Buster insights for 2013! Gold hits the skids. The Fed is finally cutting back on its bond buying. Cruise lines enjoy skyrocketing profit as passengers demand quality. And the euro holds on.
The End of The Gold Rally
The gold rally is officially over, down 29% for the year, as the economy shows it is healing itself. Inflation sinks and the hedge factor that sustained gold is no more.
Under the banner “A Stitch in Time,” The Myth Buster looked at various situations where quality hung by a thread. Would a needed stitch prevent a tear and save a company’s image? Carnival Cruise Lines (CCL) is turning the corner. Under a new CEO, a $700 million investment in shipboard fire prevention and back-up power systems, a new marketing campaign and an effort to get Carnival’s 10 cruise lines to collaborate and become more efficient are bailing out (pun intended) the faltering line. The industry expands faster than a tourist’s waistline. Swept by this tide, Carnival edged up in December, turning a modest profit.
The real Myth Buster message relates to quality – that critical factor that companies must make keen. While Carnival is holding its own, Norwegian eats their lunch – the special all-you-can-eat luxury cruise variety. Following a successful public offering and spurred by their focus on higher-end cruises, Norwegian is expanding services, revenue and profit. As the industry matures, quality propels the better companies.
The Euro Holds Its Own
The Myth Buster took on the Euro doomsayers. Recent evidence shows that they will not give up. A recent op-ed piece in the Times was titled, “Prisoners of the Euro.” However, despite a long recession that has ended and various economic strains across the continent, the euro zone holds its own. The German equity index, the DAX30, rose nearly 20 per cent for the year. Overall, they have weathered the storm of Greece and other weaker economies reasonably well. The predicted mass exodus back to pre-euro currencies did not happen. As the Myth Buster predicted, too much was at stake for the alliance to crumble. So, the euro prisoners must be getting cable TV and high protein meals – in that mythical federal (or, in this case, euro zone) prison!
Timing is Everything
Money has been flowing steadily out of bonds into equity for two reasons. Corporations in the US are posting strong earnings. Second, bond yields are in Rodney Dangerfieldland – the basement. Even junk has cooled off. More evidence that the euro zone is rebounding is seen in the slumping yields of the troubled economies. Greece ends the year at 8.8%, quite high for a strong economy but down more than 3% from a year ago. Portugal’s recent 6.1% follows a similar falling-yield pattern.
The best investments demand a sense of timing as discussed in the piece “Hickory, Dickery Dock.” Recently Warren Buffett and Berkshire Hathaway ($BRK.A) bought a sizeable stake in Exxon Mobil (XOM) . Compressed natural gas is starting to make a move with a number of major organizations such as Procter & Gamble (PG) and Federal Express shifting part of their fleets to this inexpensive, readily available fuel. Municipalities are ordering garbage trucks that use this fuel. One would do well to invest in the fuel source (Exxon Mobil is one), in the vehicles that are starting to use the source (they are expensive right now) or in the growing array of fueling stations. All have possibilities, but Buffett, who is already doing well with “clean coal” and rail shipments (shipping coal, of course), is taking the smartest alternative: compressed natural gas. Twenty percent of all gasoline in the US is consumed by trucks. Expect that to rise and expect Buffett to profit. Buffett knows when to buy.
The Myth Buster also looked at national debt and dependency on government. The flawed rollout of the Affordable Healthcare Act shows that the government may hold taxing power but it is not the master of planning. In a piece on Fast Track by Dan Schawbel, he lists the biggest mistakes managers make. Number 4 is Making Promises You Can’t Keep. Indeed.
Low interest rates also hide the cost of the Federal Reserve’s bond buying actions over the last few years. When interest rates rise, the tax burden will balloon, providing a future Myth Buster topic.
Do Clothes Make the Man?
The Myth Buster also took on the notion that clothes make the man and found the myth resonates. An October opinion piece in the New York Times is titled, “When Clothes No Longer Make The Man.” The focus is literature, a topic on which the Myth Buster wrote a book. Wondering if things had changed, the Myth Buster looked at recent pictures of Wall Streeters. A recent New York Times photo shows Lloyd Blankfein and other money men leaving the White House. With all due respect the author of the Times piece, let’s just say that clothes still make the man -- or at least they make the executive.
There are many more myths out there, just waiting to be busted. The next issue will pick apart another troubling business myth.
Michael McTague, Ph.D. is Executive Vice President at Able Global Partners in New York, a private equity firm.
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