Yellowstone Partners Blog

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Sometimes work is tough. This isn’t one of those times. Each year we have the opportunity to attend the Raymond James Instiutional Investor Conference in Orlando, Florida. Each year, a number of company CEOs and CFOs provide information to anxious fund managers, analysts, and other interested parties.

This morning, we’ve already listened to presentations from a number of companies, in some cases confirming ideas and tailwinds we had already discovered, in other cases, introducing us to new ideas and opportunities. In a market that has finally begun to return to the core of investment valuatuion – corporate earnings, this is truly the meat of asset selection.

To pass along just a couple little bits, this morning, Allegiant Travel Co, (ALGT), a company that has been on our watchlist (and in a few satellite portfolio strategies), has announced that they are purchasing a number of 757 aircraft to begin offering service to Hawaii from the West Coast. While this is a departure from the model they have developed, it remains in keeping with their overall strategy and focus, and provides another avenue for significant revenue growth.

In a small breakout session with Cinemark Holdings (CNK), which we recently added to the Yellowstone All-Cap Global Strategy, there were some interesting details which materialized, which we anticipate will have a positive impact on profitability, and, in the long run, earnings. Cinemark anticipates that they will have close to 1,000 screens with 3D capability by the end of the year. Additionally, CNK has opted for equipping some key theatres with what they refer to as the “XD” experience, a larger, more sound-intense presenation, comparable to IMAX, but without the need to share revenue.

These are just a few early stories from the conference, and we anticipate that there will be many more.

As always, please remember that these statements should not be interpreted as a soliciation to buy or sell any security. Investing in securities entails risk which may not be suitable for all clients. Investments, while offering the potential for gain, may also lead to loss and no performance guarantee can or will be made.

CNK is owned in the Yellowstone Partners company 401(k), which is managed in the All-Cap Global Strategy. Neither CNK, nor ALGT is owned in personal accounts held by individuals at the firm.

I have seen government conjure some idiotic ideas – among them the concept of a “National Homeownership Strategy.” As a general rule, these ideas are cleverly disguised by tactically selected titles which make them sound intelligent. The most recent of these obtuse ideas is no different by its formal title: Consumer Assistance to Recycle and Save (CARS). Yet its informal title does little to hide its absurdity: Cash for Clunkers.

The stated objective and benefit of the program is to replace low fuel economy vehicles with more environmentally friendly, fuel-efficient vehicles. The positive byproducts mentioned include stimulating the beleaguered auto industry and employment impact of over 230 employees for a period of six months. Not bad for a billion dollars.

First, let us establish that although the government has become quite proficient at printing money, those funds come from the American taxpayer – present and future. The money that is being frivolously salted upon grinning new car buyers and even wider-grinning car dealers is not the government’s money. May I provide the ever-necessary reminder that government has no money of its own.

Because these car buyers already gobbled up one billion dollars in the first week of the program, lawmakers have declared it a success, and paused their back-scratching to do some back-patting – hurrying to pile on another two billion under the mistaken impression that it is a success because of its popularity.

While I can’t fault people for taking advantage of another of government’s follies to make the program as popular as it has been, I believe that it will ultimately fail on two key points: The auto industry stimulation will be tilted towards foreign carmakers and will flare and die in vacuum of pent-up demand, and the environmental impact will be so slight that it will be entirely irrelevant.

Statistics from the Department of Transportation show that five of the six vehicles bought by CARS participants are made by foreign companies.

I’ll grant that many of those cars are still manufactured in the US, but it doesn’t solve the problem that two of our three major domestic auto manufacturers are insolvent, owned by the US taxpayers, and run by an all-star management team of those that bankrupted them in the first place, the government, and the unions.

What the CARS program doesn’t create is long-term viability for domestic auto manufacturers – that is what allowing them to fail in the first place would have done. What the CARS program does create is artificial demand – the same kind of artificial demand that is the hallmark of government subsidy and the catalyst for the cataclysmic bubbles that have exacerbated economic cycles throughout history.

Then, if the program does little to stimulate a broken industry, at least we’ll have the benefit of fuel efficiency and the reduction of carbon emissions, right?

According to figures calculated by the Associated Press, if the better fuel economy for these new vehicles goes exactly according to plan, it will save the equivalent of a single hour of U.S. carbon dioxide emissions. Not bad for a billion dollars.

It would be superfluous to mention that the environmental impact of producing the new cars to replace those that are being scrapped nearly if not exceeds the resulting efficiency, and effectively nullifies the benefit but not the expense.

Ultimately, what we have in the cash for clunkers program is another in the long list of government subsidy spurred bubbles.

No different than the “a home for every American” mindset that tipped off the most recent economic peril, “a new fuel-efficient vehicle for every American” is sure to yield the same results – tragedy.

We recently released our quarterly newsletter. In this edition, we offer our market perspective, an economic outlook, a summary of a recent investment conference we attended, and some insight on a couple of metrics we look at in determining investment prospects and economic trends.

In an effort to more effectively and even instantaneously communicate with our clients, we are launching this webletter, which we hope you will find to be useful, insightful, and interesting.

The five areas we will touch on in various postings will be separated as follows:

Economic Outlook- In economic outlook postings, we’ll share the freshest economic data, insights from leading economists and economic reports, as well as our own take on each of these datapoints.

Market Perspective- In market perspective postings, we’ll address market trends, technical inflection levels, analysis by industry experts and market strategists, and offer Yellowstone’s insight on market trends.

Idea Log- As we investigate, examine and discover new and exciting investment ideas, we’ll share these ideas with you in periodic postings.

Resource- We find interesting articles, reports, opinion pieces, and charts from time to time. As we find things that may be of interest to you, we’ll post them for you to examine.

YP- YP postings will be specific to our company and our clients. We may post a notice for a conference call, company developments or other events.

We appreciate your trust and confidence and look forward to providing you with timely and meaningful information as we go about the important task of managing your investments.