Cheque Kiting

Month End Update – May 2021

All the companies that you own have now reported earnings for the quarter ended March, 2021. These companies continue to navigate well the various challenges that have beset the world since the outbreak of the Coronavirus early last year. It is a testament to the strength and creativity of the management teams and the products and services they deliver to their customers. Our goal is to always invest in the best companies in the world, stick with them and watch them grow, all the while keeping an eye on the horizon for trouble.

There are no changes to our long-term positive outlook for the companies which we have chosen for your accounts. As always, there are company-specific issues that must be navigated, but the general economic backdrop for continued global recovery continues to be a positive tailwind. 

That having been said, the potential for a setback in market valuations is rising. The laundry list of boogeymen under the bed is, as always, long. The popular debated themes for potential trouble are mostly related to excessive government spending; leading to the threat of inflation, leading to rising interest rates, leading to contracting economic activity, and thus causing falling profits and stock prices. That’s a mouthful of worries. But wait there’s more!

We all know how successful, Apple, Google, Facebook, and Microsoft are, and that is why we own them. Frankly, if these companies did not exist this past year, it would have been much more difficult for billions of people. Even the people who hate these companies admit they are amazing. Nonetheless, there are those that want or try to compete with these giants, and there are others who have already lost the battle and thus, they ask politicians to help redistribute the spoils. Politicians are hammers looking for nails.

Long ago we postulated that globally, politicians would attack these great companies, if for no other reason than these companies have most of our collective money in their bank accounts, and the governments want it in theirs. Governments love being able to say that they are there to help the down and out competitors but really, governments just want money. It’s a stick-up. They don’t explicitly say that, they say things like this:

  • is selling us stuff too cheaply and efficiently and they want us to pay more.
  • Apple charges companies to sell stuff in their AppStore and they want it to charge less.
  • Google lets companies advertise cheaply and they should pay newspapers for being obsolete.
  • Facebook lets us say rude or untrue things to each other and they should stop us.
  • Microsoft is being left alone right now because that was a war the U.S. government long ago lost.

We expect more interesting arguments from both sides, and we continue to wish we could invest in the legal profession. Expect governments to continue to fine and tax anyone they can so that they can continue to help…

Governments worldwide have doused the world with money as the pandemic raged. Who will pay the bill? Luckily right now, the bill is being paid (mostly) by investors buying bonds at very low interest rates. These low interest rates are also being maintained by each government’s own Central Bank because it buys most of the bonds the government sells. The government then sends the money to your bank account and hopes you spend it. It’s akin to you writing yourself an I.O.U. and then going to the bank and making a deposit with that I.O.U. (some people call this cheque kiting). Poof, you’ve created a deposit! The bad news is that deposit pays little interest, but that’s the point. You are supposed to spend it.

Now the fun part – and why we own the following companies. Reading the news on your Google news page, or seeing your friend’s new kitchen posted on Facebook, you feel like you should do something too with all the money that keeps showing up in your bank account. You take that deposit and give the money to your local Home Depot, and they give you a new lawnmower from Stanley Black & Decker. Or you buy a new iPad from Apple, paying for it with your Visa card, and have FedEx deliver it to your door. Your new iPad is fantastic, so you watch the most recent Disney movie and while watching, you order McDonald’s for a snack. The people from McDonald’s are all wearing uniforms and washing their hands with sanitizer delivered and made by Cintas. Cintas recently has been buying smaller competitors suffering from the pandemic.  J.P. Morgan, Bank of America, Citibank and PNC Financial provide banking loans to all of Cintas’ suffering competitors. The banks politely suggest that for the sake of keeping the loans in good standing they should sell their business to Cintas. The banks are especially pleased because they get a bad loan off the books and get paid to do it. Cintas hires Accenture for advice on how to integrate the businesses they bought, and Accenture suggests Microsoft’s productivity software hosted on’s cloud servers. Cintas buys Covid testing equipment from Thermo Fisher Scientific and adds United Health Group benefits to all their new employees so that they can get a hip replacement from Stryker. Stryker uses Rockwell Automation software and robotics to make the hips in a safe and clean environment.  Rockwell has lots of trade secrets the Russian and Chinese hackers are trying to steal, so they use Raytheon’s cyber security software. Cool, huh?

The stock market will do what it does. The governments will do what they do. The press will scream as loudly as they can to get your attention, and interview experts like us to try to make sense of it all. The companies you own will ignore it all and go about their daily business.

Are stocks overvalued? There are a lot of stocks in the world. You own amongst the best in the world, and they are doing just fine and will for a long time.

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