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Today’s release of the NFIB Small Business Optimism Report showed a slightly larger than expected downtick in overall optimism.  With economists collectively expecting the overall index to decline from 105.8 down to 105.6, the actual reading came in at 105.3.  Despite the larger than expected decline, overall optimism is much higher than where it was just a few months ago, well above its average level of 96.0 dating back to 2000, and also right near its cycle highs. So from an economic perspective, it’s hard to get too disappointed with this reading.  That said, while optimism remains solid, as the NFIB stated in the report, “Optimism has not faded, but the enthusiasm has yet to be translated into an equally impressive increase in spending and hiring. This will require progress on the agenda that business owners voted for.”

Within each month’s survey, the NFIB asks small business owners what the number one problem is that they face in running their businesses.  In this month’s data, we saw a lot of sizable changes.  For the first time in a long time, Taxes and Government Red Tape are not the two top problems cited. Taxes remain at the top with 22% of small businesses citing it as their number one problem, but Govt Red Tape saw a sharp drop in the percentage of businesses that cited it as their number one problem, falling from 19% down to 15%.  At the same time, Labor Quality moved up two percentage points from 15% to 17%.   In terms of Labor, the increase of businesses citing Labor Quality as their number one problem could ultimately lead to increased labor costs down the road as business owners are forced to pay up for better workers.  That didn’t show up in this month’s report, though, as Cost of Labor was actually only cited by 5% of small business owners as their number one problem, which was down from 7% in January.

The charts below show the change over time in the percentage of small businesses that cited Quality of Labor and Government Red Tape as their number one problems.  In the case of Quality of Labor, this month’s reading of 17% is tied for the highest reading in the history of the survey going back to 2008.  Meanwhile, the 15% of small business owners that cited Government Red Tape as their number one problem dropped down to its lowest level since June 2011.  It’s amazing what a changed tone out of Washington can do for sentiment.

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While everyone has had their share of losing trades during their career, the most high profile losing trade over the last year or so has been Pershing Square’s long position in Valeant Pharmaceuticals (VRX).  After establishing a position in the stock back in Q1 of 2015, VRX was initially a profitable trade for Pershing — briefly trading above $250 before coming crashing down in the second half of 2015, into 2016, and then into this year.  All along the way, the big question everyone was asking was, “Will Ackman sell now?”  For well over a year, the answer to that question was no, but just today after the close, news hit the tape that Pershing has liquidated its position in VRX at a price of $11,  which is more than 9% below Monday’s closing price.  With Ackman and Pershing Square now out of the nightmare position in VRX, we’ve heard a number of people ask whether this may mark some sort of short term bottom as a former large holder finally cries uncle.

For some guidance on how VRX may react, it might help to look how another big, high profile losing trade for Pershing Square played out a few years back.  That trade concerned JC Penney (JCP).  In the case of JCP, Pershing first started acquiring a position in the stock back in October 2010.  Like the VRX trade, JCP initially worked out well, but beginning in early 2012, it quickly began to sour as CEO Ron Johnson’s vision for the company wasn’t boosting sales, but in fact hurting them.

In August 2013, Pershing Square decided to cut its losses in JCP at a price of around $13.  Just like now, back then a lot of people wondered if the fund’s sale would mark a low for the stock.  As shown in the chart below, though, while JCP was a big loser for Pershing, it could have been worse…a lot worse.  Within two months of Pershing’s sale, JCP lost another 50% of its value, falling to $6.42.  Now three years later, JCP is even lower still, closing at $5.99 on Monday.  Over this period, the S&P 500 is up 45%.  If you are thinking about jumping into VRX now that Ackman is out, hopefully you can come up with a better reason.

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The “Dogs of the Dow” crushed it in 2016, but they’ve gotten off to a slow start in 2017.  Below is a table of 2017’s Dogs, which are the 10 highest yielding stocks in the Dow 30 at the start of the year.  (Read more about the Dogs of the Dow strategy here.)  We also include a list of the 20 non-Dogs along with their YTD performance.

As shown, this year’s Dogs are up an average of 2.44% year-to-date.  That compares to an average YTD gain of 6.29% for the 20 non-Dogs.  Four of the ten Dogs are in the red so far this year, with Exxon Mobil (XOM) down the most at -9.99%.  Just three of the twenty non-Dogs are in the red, with General Electric (GE) down the most at -5.43%.

We’ll provide another update on the “Dogs” strategy in a couple of months, so be sure to check back if you’re interested.

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Today marks the 31st anniversary of Microsoft’s (MSFT) IPO back on 3/13/1986.  You don’t need us to tell you what a great run it has been for MSFT shareholders, but just to remind you, if you invested $10,000 into MSFT at the IPO, that investment would be worth $6,646,604.94 today, and that doesn’t even include dividends!  Not a bad investment even for a 31-year time frame.  What’s even more interesting about MSFT over the last 31 years, though, is how the company has been able to reinvent itself from a PC-centric company to more of a cloud-based company.  It’s hard enough for a small company to reinvent itself, but for a company that was once the largest in the world to lose a lot of its relevance and then shift focus and move back into a leadership role is nearly unheard of.  Apple (AAPL) is a name that quickly comes to mind, but other examples of such a reinvention are few and far between.

The chart below does a good job of showing the rise, fall, and rise again of Microsoft over the last 30 years.  As shown, it’s been anything but a straight line.  As far back as December 1999, the stock was less than $5 from its current level before its share price dropped 75%.  Whereas a $10K investment in MSFT at the IPO is worth $6.7 million today, a $10k investment back in December 1999 would only leave you with $10,900 excluding dividends.

Since the MSFT IPO 31 years ago, no other current member of the S&P 500 has had a better run than Mr. Softee.  The table below lists the fifteen current members of the S&P 500 that were around at the time of the MSFT IPO who have seen their share price increase by more than 10,000%. We also show the two stocks — American International Group (AIG) and Xerox (XRX) — that have actually seen their share price decline during the same time period.  Remember, this is a list of current S&P 500 stocks that were public back in 1987.  Obviously there are a lot of companies that were around in 1986 that have declined, gone out of business, and/or are no longer public.

As far as the two losers cited, if a company has seen its share price decline over a 31-year stretch, there isn’t much you can say.  As far as the winners are concerned, there are a lot of household names.  A name like Amgen (AMGN) has rallied 57,577% since March 1986, while Home Depot (HD) has gained over 40,000%.  Surprisingly, Apple ranks just sixth on the list with a gain of 31,373%.  Finally, while these days it seems like just about every retailer besides Amazon.com (AMZN) has fallen on hard times, there are actually two retailers — Best Buy (BBY) and Ross Stores (ROST) — that made the list. The way things have been going for the sector, though, we wonder if they will be able to hold on to these gains a year from now.

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