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The Weekly Track extensions

- The Weekly Track – Extensions by Bob Savage
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Buying more time may not change the outcome but it always reduces stress and fear that a deadline leads to sloppy work and missed opportunities. Buying more of a trend has the opposite effect as a linear move becomes parabolic. The contrast what more time means dominates the week ahead. The extension of US/China trade talks and the removal of any magic around March 1 maybe seen as a benefit to investors given the laser focus on the US/China talks and the building hopes that a deal is near. Sequencing events suggest, more talks now mean a mid-March meeting with Trump/Xi and a April 1 deal. That drives risk-on. Against this you have the US markets underperforming last week as EM and Asia shine with hopes that global trade and growth return. The annual investment letter from Buffet and the Berkshire Hathaway results may be a counter to this given his America investment theme and $25bn 4Q loss. Some of the blame for this was leveled on Kraft Heinz (KHC) given its SEC invest
igation. In the week ahead, the focus is likely to remain on trade, Brexit, FOMC policy and the heavy economic data releases from US 4Q GDP to ISM, to German jobs and China PMI. The theme of US growth and policy divergence versus the rest of the world was 2018’s story and yet many continue to see this holding using the USD and S&P500 as the barometers. US shares are up 11% year-to-date and the broad Russell 2000 index has had its best weekly winning streak since 1996. But so too has emerging markets with the focus on China recovery and value driving.

Buffets letter is taken as a guide map for value investors into 2019. He wrote that investors should continue betting on the American economy because Berkshire has prospered by doing so, but that they shouldn't forget about the rest of the world. "There are also many other countries around the world that have bright futures. About that, we should rejoice: Americans will be both more prosperous and safer if all nations thrive," Buffett wrote. "At Berkshire, we hope to invest significant sums across borders." Berkshire continues to hold roughly $130 billion in cash and short-term investments because he hasn't found any reasonably-priced acquisitions in recent years, so he'll likely continue investing more in stocks. "Prices are sky-high for businesses possessing decent long-term prospects," he wrote.

The profit margin focus in US shares is significant and contradictory as FactSet highlights in its weekly insight report. “For the first quarter, the S&P 500 is projected to report a year-over-year decline in earnings of 2.7%, but year-over-year growth in revenues of 5.2%. Given the dichotomy in growth between earnings and revenues, there are concerns in the market about net profit margins for S&P 500 companies in the first quarter. The estimated net profit margin for the S&P 500 for Q1 2019 is 10.8%. If 10.8% is the actual net profit margin for the quarter, it will mark the first year-over-year decline in the net profit margin for the index since Q4 2016. It will also mark the lowest net profit margin reported by the index since Q4 2017.”