A look at developments in the financial markets over the last week or so.

The problem with the world is that the intelligent people are full of doubts, while the stupid ones are full of confidence.
– Charles Bukowski

Featured Article

With the Benefit of Hindsight …
Sure, things could have turned out differently. But when I look back at the last five years or so, I can’t help but notice …

Companies

Lumber Liquidators Linked to Health and Safety Violations
60 Minutes found that Lumber Liquidators’ Chinese-made laminate flooring contains amounts of toxic formaldehyde that may not meet health and safety standards.” The stock has dropped from $69 to $33 over the past two weeks. The company has hit back, saying that the tests were inaccurate and that the investigation was backed by short-sellers. If the reports turn out to be wrong and the company can contain the media fallout, this could be a buying opportunity. However, even if it is cleared of any wrongdoing, the reputational damage already done might be too much to come back from. Adding to the uncertainty are the current and future law suits and criminal charges. Here’s the bottom line.

Costco Profits Surge on Lower Gas Costs
The company reported an impressive 29% rise in quarterly earnings, and is now one of the largest fuel retailers in America. There are a number of things to take from these numbers: 1) the company has a fantastic business model, 2) a very loyal customer base (90% membership renewal), and 2) “…cheaper gas prices at the pump also leave consumers with more disposable income…

The Apple Watch Is Time, Saved
Apple will launch the Apple Watch on Monday, and will disclose pricing and styling details (some rumours include: $350 entry-level, $1,000 standard, $10,000 luxury model with ~200 styling variants). There are a lot of strong opinions on Apple’s latest product, with some expecting it to flop while others see it as the company’s next big thing. This article discusses the possible primary use case for the Watch, and why it could offer something completely different to existing competitors.
This, for some reason, is the thing that Apple has had a hard time articulating. This is the primary use case of the Watch. It’s not just that it’s a “notification center”; it’s that it allows you to act without any additional distraction.

Banc of California Reports Fourth Quarter and Full Year 2014 Financial Results
An interesting little regional bank based in California. It has growth through acquisitions over the last few years, and is producing some numbers worth looking at, including a nice dividend yield. Check out the presentation for more info.

Markets

Full Unemployment, Understated Wage Growth, and the Pace of Normalization
More positive signs for the US economy. There have been many commentators pointing at stagnant wages as a sign that US government policy hasn’t worked. While the long-term effects of QE are debatable and uncertain, employment and wage changes are lag indicators – they come after the economy turns.
…teenaged employment growth is surging at rates unseen in decades. Not only does this signal a desperation on the part of employers, but it also serves to depress aggregate measures of wage growth. There’s a reason Walmart and TJ Maxx raised their minimum wage.

Related:

Big Firms Finally Start to Ramp Up Spending
Increased capital investment follows long stretch of lackluster business expenditures.

Why the Grandpa Portfolio will Crush the Millennial Portfolio
A look at how younger people are investing, and at how they may not be doing it correctly.
“...there seems to be something similar happening with the portfolios of young and old investors. Stocks with the youngest median owners are very expensive (but so exciting!), but stocks with the oldest median owners are much more fairly valued.

Russia can’t afford to pay state employees
Russia is reducing government salaries by 10% from May, and cutting the number of government employees by 5-20% as part of the government’s plan to address the negative impacts of low oil prices and continued sanctions.

‘Star Trek’ fans told to stop ‘Spocking’ Canadian $5 bill
Unusual “monetary policy”.

Investing

With the Benefit of Hindsight …
Sure, things could have turned out differently. But when I look back at the last five years or so, I can’t help but notice …

Bridgewater’s Ray Dalio Explains the Power of Not Knowing
To make money in the markets, you have to think independently and be humble. You have to be an independent thinker because you can’t make money agreeing with the consensus view, which is already embedded in the price. Yet whenever you’re betting against the consensus, there’s a significant probability you’re going to be wrong, so you have to be humble.

RECM chair defends deep value in the face of underperformance
The school of value investing – beloved of asset managers such as Warren Buffett – has not done well by its clients over the past couple of years.

Job creation/job destruction
It’s easy to defend the status quo, except when the very foundation you’ve built everything on disappears. Incrementalism ceases to be a good strategy when there’s a cliff on the route.

Long Reads

How Crazy Am I to Think I Actually Know Where That Malaysia Airlines Plane Is?
Malaysia Airlines flight MH370 vanished without a trace one year ago. Here’s one man’s theory about what happened and who was behind the disappearance.

Archaeologists find two lost cities deep in Honduras jungle
Archaeological team say they have set foot in a place untouched by humans for at least 600 years in a site that may be the ‘lost city of the monkey god’.

Graph of the Week

Global R&D in a Nutshell

B_cBLI1XAAERGWy.jpg-large

Source: Ian Bremmer

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