Every quarter we provide our clients with an extensive letter detailing our thoughts on the economy in general and our short and long-term outlook for equities. We also like to include excerpts with our commentary on recent newspaper articles that we feel might be of interest to our clients. At the end of this section is a link to our latest quarterly letter for the first quarter of 2013, as well as a link to the area of our website that contains previous letters that we have authored.Since it has been over a month since we published our last quarterly letter, below is a brief market update as an addendum to our 1st quarter 2013 letter.
Unlike in May of last year when the old Wall Street adage “sell in May and go away” worked like a charm, with the S&P 500 falling by 6.3%, this May proved quite different with that index demonstrating a positive 2.1 % return.
However, towards the end of May the market began to show signs of weakness. This trend continued throughout the early part of June. In our opinion, there were two primary factors contributing to the markets downward bias, as well as the recent spike in volatility.
(1) Interest rates began to rise. The yield on the ten year Treasury spiked to 2.2% from 1.5%, as investors became concerned that the Fed was going to begin to reverse course and taper its $85 billion monthly purchase of U.S. Treasuries. The fear being that with the Fed as a less aggressive buyer rates will increase materially. This of course is a possibility, but it is highly unlikely that the Fed is going to abruptly end its monthly purchase of Treasury’s. The more likely scenario is that a lesser amount of bonds will be purchased each month. Furthermore, in all likelihood this will occur only if the Fed is convinced that the economy is self- sustaining.
We believe investors should be more concerned about their bond portfolios going forward. Just look what happened to the value of Apple bonds in the last couple of weeks as interest rates began to rise. Less than six weeks ago the technology giant tapped the white-hot bond market for a record breaking $17 billion offering. The debt sale was one of the most frenzied on Wall Street in many years, with three times as many orders as there were bonds available.
Apple sold $3 billion of bonds maturing in 2043, which initially sold as high as $101.97 in the secondary market. On June 10th, the bonds fell to $90.36, a loss of roughly 9% from the offering price.
(2) Hedge funds and other large investors piled into the Japanese stock market, currency market and bond market as their government announced an aggressive quantitative easing program. All of these markets soared. The Nikkei advanced over 40% in a very short period of time, and the yen also increased dramatically. A good many of these investors leveraged their bets, and financed their investments with cheap money. As these markets abruptly reversed direction, margin calls were sent out to the “carry trade” participants. In an effort to meet these calls investors in all likelihood sold their most liquid holdings such as U.S. equities. In our opinion, this created the volatility and the numerous triple digit down days in the U.S. stock markets over the past couple of weeks.
One significant event that occurred in May that is relevant to the Boyar Value Group is there has been market speculation that the iconic upscale department store Saks may be up for sale, and that the company has hired Goldman Sachs to explore “strategic alternatives.” This is a significant development for our firm in that Saks is a position in many of our client accounts that have been with us since at least 2008 when the company was in our opinion being valued at less than the value of the real estate the company owned. To read the last full report that Asset Analysis Focus produced on Saks please click here.
Another significant event that occurred in June was David Murdock who is Chairman & CEO and the largest shareholder in Dole Foods made an offer to purchase the remaining shares of Dole that he does not already own for $12 per share. Boyar Asset Management owns approximately 183K shares on behalf of our clients, and we have written extensively about the company in our institutional research service Asset Analysis Focus. Please click here for our latest report on Dole Foods. We believe Mr. Murdock’s offer is wholly inadequate and significantly undervalues Dole shares. We are currently evaluating all of our options to protect our clients interests. Stay tuned.
To view our latest quarterly letter for the first quarter of 2013, please click here.
To view previous letters that we have authored, please click here.
Boyar Asset Management Inc. prepared this posting as a matter of general information. We do not intend it to be a complete description of any security or company. All facts and statistics referenced herein are from sources we believe to be reliable, but we do not guarantee their accuracy and it may be incomplete or condensed. Boyar Asset Management Inc. makes no commitment to update this posting and it may remove it at anytime from its website. This posting represents the views of Boyar Asset Management as of June 19, 2013 and may change without notice.
This posting is made available free of charge for all persons that may legally view this posting regardless of whether you have a relationship with Boyar Asset Management or its affiliates. This posting does not constitute an offer or solicitation to purchase or sell a security nor is it a solicitation of a proxy or a vote. The posting is not a research report. Boyar Asset Management clients and employees currently own shares in both Saks and Dole.