Average Annualized Return Per Closed Trade: 17.9%
Average Return Per Closed Trade: 15.5%
Average Holding Period: 320 days

Less than one week after ordering an airstrike in Syria in retaliation for Assad’s use of chemical weapons—the first direct U.S. attack against the Syrian government—President Trump ordered MOAB the first use of a MOAB, dropping it in the Nangarhar Province in Afghanistan.

The 11-ton MOAB, or Massive Ordinance Air Blast (also nicknamed “Mother of All Bombs”), is the most powerful non-nuclear bomb the U.S. has ever deployed in combat. The bomb targeted a network of underground tunnels used by militants as part of an ongoing Special Forces mission against ISIS in the area.

Stocks slid slightly in reaction to the announcement of the bomb drop. The market is indeed cold hearted. It generally analyzes world events in economic terms; in other words, whether or not the events are believed to carry material economic impact.

On their own, if isolated, the Syrian airstrike and today’s MOAB drop won’t impact the global economy very much, but if they mark the beginning of escalation of the conflict in the Middle East, then the geopolitical risks could begin to affect the markets. For example, if the U.S. were to be drawn into a proxy war with economic powerhouses such as Russia and China, they could result in sanctions and impact trade relations.   

The slight dip in the market today reflects the discounting of an uptick in geopolitical risk but it’s far from a run to the exits.

So far President Trump has yet to implement any tangible economic reforms. First came the health-care debacle and now the military actions in the volatile Middle East. The market has enjoyed a very nice run since his election due to optimism over his expected economic agenda, but so far he has yet to deliver.   

The uncertainty surrounding Trump’s policy will likely keep the Fed conservative when deciding when to raise interest rates again and when to begin to sell bonds to reduce its balance sheet (bloated as a result of years of quantitative easing).

The monetary decision makers will meet again in the beginning of May. Even before last Friday’s soft hiring numbers, the Fed was unlikely to raise the federal funds rate in back-to-back months. The disappointing figures will likely give it pause.

Stock Update: Innoviva (INVA) has become embroiled in a proxy fight. Hedge fund Sarissa Capital took a 3 percent stake in the company and approached Innoviva management about “working together to improve the company.” The company responded by publicly announcing that Sarissa was seeking control of the Board of Directors and that it opposed giving Sarissa any control.

Sarissa’s criticism of Innoviva management centers around its allocation of capital, most specifically executive compensation and costs, which Sarissa deems excessive for a royalty company. It seeks to add three members to the seven-member board and make changes in these areas.  

The vote is scheduled to take place April 20 at the annual shareholder meeting. We have not seen any indication of which way Baupost Group leans, but we believe Sarissa has some valid points. Innoviva yesterday announced that it would undertake a “comprehensive review” of its cost and compensation structures, which gives credence to Sarissa’s criticism. Thus, even if Sarissa’s challenge fails, the process would be positive for shareholders if Innoviva indeed finds way to improve its cost profile.

We post a snapshot of our Brain Trust Profits Portfolio and the record of our closed trades below. For a more detailed table of current recommendations as well as information on closed trades, log into our website and click on the ‘Portfolio’ link.
 

Closed Trades: