Alphabet's earnings; Pitch for Buzzi Unicem cement; Krugman and Ackman on inflation; I climbed Mount Shasta yesterday
1) Alphabet (GOOGL) reported second-quarter earnings after the close yesterday of $1.21 per share, which missed analysts' expectations of $1.32 per share.
But the stock was up this morning because revenue was up 16% in constant currency, which was decent given the previous year's blowout 57% growth. Most important, ad revenue of $56.3 billion slightly beat expectations of $56.1 billion, offering some relief to investors, who feared the worst after a dismal report from Snap (SNAP) last week that raised concerns about the digital advertising market.
My take: Alphabet remains one of the world's greatest businesses, which is why it has been a core holding in our two flagship newsletters, Empire Stock Investor and Empire Investment Report, since they launched in 2019. Since then, the stock has more than doubled the return of the S&P 500.
(To find out how to gain access to the full portfolios of open recommendations in these newsletters, you can learn more about Empire Stock Investor by clicking here and Empire Investment Report by clicking here.)
2) One of the most off-the-beaten-path ideas from the recent Value Investing Seminar in Italy was Buzzi Unicem (BZU.MI), an Italian cement company, but one that earns only 5% of its profit in Italy and more than half in the U.S. It has a highly illiquid U.S. ADR, ticker: BZZUY.
It was pitched by Ludovico Latmiral and Michele Campagner of an Italian family office called Samhita Investments. You can see their presentation here, and below are a few of the key slides:
3) Turning to inflation...
Here's New York Times columnist and Nobel Prize-winning economist Paul Krugman with a mea culpa (which mirrors mine because I, too, got this wrong): I Was Wrong About Inflation. Excerpt:
In early 2021 there was an intense debate among economists about the likely consequences of the American Rescue Plan, the $1.9 trillion package enacted by a new Democratic president and a (barely) Democratic Congress. Some warned that the package would be dangerously inflationary; others were fairly relaxed. I was Team Relaxed. As it turned out, of course, that was a very bad call.
But what, exactly, did I get wrong? Both the initial debate and the way things have played out were more complicated than I suspect most people realize.
You see, this wasn't a debate between opposing economic ideologies.
And here are the latest tweets by Pershing Square's Bill Ackman, who has been very right so far and continues to believe inflation will remain much higher than the consensus market view:
- A very thoughtful and good summary of the Fed/rates/inflation state of play: The Money Still Flows
- Tomorrow, Powell is likely to be asked: "Market pricing implies that the terminal FF rate will peak at 3.4% in 12/22 immediately declining thereafter to 2.7% by YE '23. What factors would cause the Fed to immediately lower rates after just raising them?"
Interestingly, the more the market believes that the Fed will immediately reverse course, the less effective raising rates will be in moderating inflation, and the more the Fed will have to raise rates. Inflation has become imbedded in the economy and is front of mind for every American.
For the first time, a proposed renewal of an audit contract for one of our companies was presented with an inflation factor to justify the increase in the annual fee. The biggest risk to the U.S. economy is not the Fed raising rates. It is inflation which is hurting consumer and business confidence and pricing consumers out of a new home, a car, gas, and meals on the table. The Fed understands this and therefore I expect Powell will show hawkish resolve on not only maintaining higher rates for longer, but also being open to a terminal rate meaningfully higher than 3.4%.
4) Yesterday I completed my seventh annual climb for KIPP charter schools and the 7,000-plus KIPPsters in New York City climbing the mountain to college by summiting Mount Shasta in northern California. (It's not too late to support them – just click here.)
After folding down the back seat of my rental car and getting one hour of miserable sleep at the trailhead, my guide and I started our trek at 2 a.m... and kept going and going and going for seven miles and 7,600 feet of vertical until we reached the summit at 14,179 feet seven hours later!
Here are some pictures of:
- The mountain from afar
- My bed for the night
- My guide and me starting out
- Watching the sun rise
- The miserable scree that characterized much of the trek, in which every step forward was followed by sliding back half a step – very tiring and frustrating!
- Celebrating at the summit, wearing my KIPP T-shirt!
Again, I would be grateful for your support of my favorite charity – just click here!
Best regards,
Whitney
P.S. I welcome your feedback at WTDfeedback@empirefinancialresearch.com.
P.P.S. If you donate to KIPP, send me an e-mail and I'll reply with my thanks and a PDF of my book, The Art of Playing Defense.