Bern Factor. Weekly Letters

By Mark Bern, CFA First of all we can expect continued volatility for at least another month and possibly into the early stage of quarter three.   Why?   It’s simple really.   The full impact of tax reform won’t show up in corporate financial reports across the board until the Q2 earnings season.   There were a lot of mixed messages coming out of Q1 reports as corporate leaders tended to provide conservative guidance.   I think that is primarily driven by the questions surrounding trade talks and the possibility of a trade war with China.   What to expect from the Trade Tirades As I have stated before I realy don’t think it will come to that.   Both sides need to avoid an all out trade war and both want to announce a victory to their respective audiences.   That cannot happen as a result of a trade war and both side understand it.   The desired result only comes from a negotiated settlement.   Trump needs to be able to announce a win before the mid-term elections and a be

By Mark Bern, CFA M&A activity is off to a heady start in the first quarter of this year; up 60% over the same period last year.   Last year many companies held off combining waiting to see what the highly anticipated tax reform legislation would bring.   This year there is nothing to hold them back.   Globally, there were $1.2 trillion in M&A announcement in Q1 2018 already.   A full 40% of that activity involves companies in North America (U.S. & Canada).   The full year forecast is for 2018 to be the second best year for M&A activity in history, just off the record set in 2007 of $4.6 trillion. That probably means that some of the best run companies (and some of the worst with underutilized assets) will be gobbled up by larger companies or combined with equals.   What is driving the frenzied activity?   Glad you asked.   There are several factors but the big ones are: 1.       Interest rates are still low but rising, so those executives considering usin

Dear Subscribers, Here we go again!   Another tweet and another big drop in the market.   Somebody take that man’s phone away!   The President is giving investors heartburn but his tactics, if I read him correctly, are aimed at giving his negotiators some leverage in dealing with China.   The trade deficit with China alone in 2017 was $375 billion.   In the first two months of 2018 the trade deficit with China has increased by 10% over the same period as last year.   Looking back at 2007 (before the financial crisis) the deficit between the two countries as a mere $258.5 billion, meaning it has grown by 45% in that time span.   Much of that increase is due to the theft of IP (intellectual property).   Some IP has been legally coerced from multinational companies from the U.S., Europe and elsewhere.   If you don’t hand it over you can’t do business here.   China also cornered the market in most rare earth elements a few years back by using its position at the time as the swi