Question and Answers
In this week’s update I highlight a few questions I've received over the course of the last several weeks. I hope you find our thoughts helpful.
1. I see that the 10-year treasury has fallen in terms of yield. I thought inflation was picking up. I don't understand.
It just goes to show you that if you hear something in the press, you shouldn’t necessarily believe that it is the gospel truth. There is no doubt inflation is picking up, but the bond market is clearly communicating that it believes that this is transitory in nature. We shall see. Certainly energy, food, real estate and wage inflation is real. Whether this lasts remains to be seen. The proposed taxation bill will likely create a headwind for economic growth so this could be a dampening factor in terms of inflation.
2. I see that China is cracking down on technology companies. What does that mean for investing in the technology sector?
China has decided that they are no longer going to let technology companies have free reign over the economy. They are exercising regulatory and authoritarian control over these companies. Technology companies like Alibaba and Tencent are certainly in the crosshairs of Chinese regulators. This will likely not impact United States companies, but it will impact potential returns for Chinese technology companies. As we conduct research, we are factoring this into our profit and discounted cash flow models for these companies.
3. What would you suggest is the best website to read to be informed about what's happening in the market and the economy?
Reading Common Sense every week is a good start! Also, the Wall Street Journal and Barron’s provide generally solid reporting of the financial news of the day and they tend to avoid sensationalistic headlines. CNBC.com also is a great provider of information as long as you recognize that every opinion you read or hear has its own vested interest and value system that may clash with yours. What might be a great investment for one person might not be a good investment for the next. It's important to keep that in mind.
4. I see the oil prices have gone up. Is this a sign of things to come?
We don't think so. While oil demand is higher as economies around the world begin to open up, we do believe that the world will continue to move towards non-fossil fuel energy sources. This is inevitable. We do invest somewhat in energy companies, but in general it remains an underweight position as we believe the long-term outlook for fossil fuel is not as bullish as alternative energy assets.
Disclosures: Inflation is the rate at which the value of a currency is falling and, consequently, the general level of prices for goods and services is rising. Treasury bond yields (or rates) are paid by the U.S. government as interest for borrowing money via selling the bond.