Yuan moves

While we in US participate in what seems like a really bad soap opera, others are working to change the landscape of international finance. Currency used in international trade is very important and reducing the US $ role as the defacto international currency is something to watch. I do not have a judgement one way or the other, but such a change will alter how we do business, and how we invest.


Scarcity of resources – compete or cooperate?

A different kind of post from the recent investment focused posts … this article was very hard to ignore http://theconversation.com/how-climate-change-caused-the-worlds-first-ever-empire-to-collapse-109060

First off, I have not fact checked this to great degree yet am assuming that the basic gist is factual – there were extreme climate conditions that created scarcity of necessary resources, i.e., food and water. The refugee migrations then started and the people of the destination (who had food and water) built a long wall to keep the refugees out; effectively letting them starve and die off.

The parallel to today’s political conversation is striking, and there is a vector of cultural evolution that I find interesting. When confronted with resource scarcity, cultures can either fight to protect their piece of a shrinking pie or cooperate and produce a bigger pie. Cooperation leads to innovation; innovation leads to step function increases in the size of the pie. If one overlays Darwinist survival on this dichotomy, are we as a species still struggling with these two response modes as to which will best advance our culture and species, even after 4000 years per the referenced article?

I am, of course, over simplifying the dramatic contrast between a “us / them” competitive and a “we” cooperative cultural perspective when confronting resource scarcity. I am strongly attracted to cooperation and repulsed by competition … and believe that cooperation is the better mode for a richer future.

Uh Oh?

There was a brief post this morning on several platforms about Samsung’s profit decline in the current quarter … i saw it here first: https://www.cnbc.com/2019/01/08/samsung-q4-guidance-.html

I predict that the press will continue to connect this to the device declines (e.g., Apple) and the memory folks, (e.g., Micron) … but what really got my attention was this: “That’s following about 24 months of very, very aggressive growth,” he said. “So, suddenly, what’s happened is data center companies such as Amazon, Microsoft, Google … these companies suddenly have enough memory, and they stopped ordering. And that has really been one of the major stumbling blocks for these memory companies.”

So … does this mean that those same Cloud Service Providers (CPS) are slowing their purchases of CPU, Connectivity, Floor Space, etc? That would be HUGE and based on my experience, CPS don’t buy quantities of memory without someplace to install it … for me the key question is this

a) Did the CPS folks build out capacity sufficiently and are now consolidating operations?

b) or the worst case, has demand for data and CPS cloud services actually slowed down – if that is the scenario, “UH OH!”

Blog to watch

This blogger / author consistently posts on Seeking Alpha (https://seekingalpha.com) as the “New Deal Democrat” (Profile)

The blog is http://bonddad.blogspot.com/ – the author is anchored in data yet provides his own forward views. The 2018 view proved to be rather accurate, and his 2019 view is not surprising, but not exactly what many of the street experts (and politicians) are espousing. https://seekingalpha.com/article/4231648-short-leading-forecast-first-half-2019

Worth a read

Idiocy in Contridictions

Today there were two big news items that impacted both the stock and bond markets, and to me, they are condictory and show how lemming-like investors are.

First, jobs data came out with top-line print very positive and the news assessment was – no recession in sight.

Second, FED chair Powell spoke and stated that FED will be patient with rate increases (not said, because markets are spooked that recession / slowdown is nearer than originally thought).

How can both of those prompt one to invest more into stock market? Either growth is or is not slowing – can’t have it both ways.

Just in case you want to ask … I am selling into the rally and buying 3month T-Bills. I remain in trading / capital preservation mode and new investments are valuation driven (no more FOMO!)

Later comment – MarketWatch posted something very similar to what i said https://www.marketwatch.com/story/jobs-report-shows-the-fed-is-not-done-raising-interest-rates-2019-01-04

Canada Banks

A recent Seeking Alpha post walked through TD, RY and BNS valuation and investment thesis.  I have owned RY and BMO since before 2010 and added BNS recently.  My positions are less than they were as part of portfolio-wide rebalancing in early 2018.  I use these stocks as one of my 4 pillars long dividend oriented portfolio (income growth).

The post https://seekingalpha.com/article/4227211-disruption-creating-opportunity-canadian-banking


Strategy Tranparency – CY

I have followed Cypress Semi (CY) for some time.  Currrently, I am long $14 calls that will probably evaporate valueless.  But, CY is doing something that merits pointing out.  They are in the midst of what they are calling “Cypress 3.0” – a business transformation that was probably not all voluntary.

In a recent analyst meeting the CEO talks about the strategy and their expected results.  His remarks:

(Quote) “And obviously for a meaningful size revenue from that, it’s not going to move the needle in ’18 and ’19, but think about in the ’20 as those things get deployed as that connectivity happens, and when you have a software-as-a-service than that starts to be almost an annuity as you go through it and that will start diversifying our revenue stream while maintaining a big focus on because we need good connectivity on the silicon side in order to enjoy this seamless connection on the software, both of those together are what’s going to enable that power of cross-selling.”

I appreciate the fact that he is willing to talk long term outcomes of the strategy without too much visible anxiety of short term expectations.  Transparency of strategy outcomes in longer term timeline is refreshing.  I will keep watching and along with MRVL, CY is a top IOT narrative connectivity watch list item.

A New Business Scam

Th is last month, I officially established my consulting business, Plans and Clues LLC, with the state of Oregon as well as a US Fedral EIN.  At least one of those things puts my business name and address in the public domain … the state of OR.  So there are either people or bots scanning the public domain for new businesss so they can contact you …

They sent me this very official sounding and looking document that could easily be mistaken for a state or fedral agency requiring a fee be paid.

But if you read the top paragraph on the right side, if clearly states that this same documentation that they are asking you to pay for is available for free from the state of OR.

This is a scam that they are intending you do NOT read and just go ahead and pay.  If not, how many businesses will stay in business if the EXACT same product is available for free from the government?

Data size, quality, machine learning and Apple

A conceptual inference struck me the other day as I was considering buying additional Apple stock for my ‘invest and almost never sell’ portfolio – there’s a 5-10 year horizon for this capital.  This go around I sold PUT on Apple stock and if it gets assigned, I will be content – there is no FOMO as i can repeat this.  But maybe in the inference path I used will be helpful for thinking about weighing investments leveraging competency in machine learning which I believe will be a major investment thesis over my target time horizon – 5-10 yrs.

Here are my assumptions wrt machine learning capabilities

  • The larger the data set available for the machine learning and correction, the more accurate the machine learning – basically the faster and better it learns and is then able to execute
  • The cleaner the data set the more efficient, effective and timely the same machine learning

If you buy those, then looking at Apple there a couple of like companies with such a broad and large data set that can be leveraged to provide better and better (i.e., demanded) user services and products, e.g., Apple, Amazon, Google, Microsoft are the most relevant.  There are others that may have large data sets but I do not think they have the same breadth and quality, e.g., Facebook, Comcast, ATT, Verizon.

Apple’s data may not be the largest, but i think it is the most controled and hence the cleanest.  Microsoft is probably the second cleanest data set but not as broad across device types, usage models and connectivity modes.  While Google and Amazon probably have the largest and most diverse data sets, neither have the same control over data quality that Apple and Microsoft have.

Based on this inference thread and my current position in Apple, I will continue to add to my position until the narrative changes or my allocation of Apple exceeds 10% of my managed portfolio.  Microsoft will be added to my target list with an upcoming deep dive on 5-10 year investment thesis and entry.

Strategy Clarity

There are two companies that I am currently invested in – I own shares in both companies, and will most likely increase holdings over the next 12 months.  Both companies met w/ analysts recently and both had very clear strategy narratives, imho.  They were explicit, easy to understand and map to my IOT product experiences.

Marvell Technology Group – MRVL

  • Here is their earnings conference call transcript 
  • Here is a recent analyst update

Adesto Technologies Corporation – IOTS

The key things that surfaced for me were the following:

  1. How their product portfolio can leverage greater BOM coverage w/ same sales calls
  2. How their sales strategy stair-steps into more complex, higher margin (takes patience)
  3. How they understand the long design times and ‘designed in’ timelines in the non-consumer IOT markets

I like both of these companies for long-term investments 5-10 years. 

30 minutes on Plan for Profit

I presented at short view on “Plan for Proft” for a local Chamber of Commerce Lunch event this week. A framework to help people start thinking about the needed clues to create a plan to meet their unique and individual profit goals.  http://plansandclues.org/files/PlanforProfit-2.pdf

Caveat:  These slides are not that helpful for people who were NOT in the talk itself – this is not a “leave-behind, stand on its own” collateral.

Covered Calls for Income

I looked at some scenarios based on current prices as of Friday, Nov 2 to identify if there is a compelling covered call platform to derive medium risk income.  I selected 3 companies that I would consider owning for their long term prospects, but would not cry a river if the position was taken at a profit:  HBAN, CY and NOK.  Other criteria included:  a good dividend, predictable, sufficient option volume and stable pricing over the next 3-6 months (as the market goes so will these).

Here is the simple comparison

Price at analysis 14.29
Cost basis
500 @ 14.29 ($7145)
1. $14 Call Dec 21, 2018 $0.62
a. Outcome with 500 shares (5 contracts)
i. A - Calls sold but not assigned - $310 gross (4.3%)
ii. B - Calls sold and assigned - $155 gross (2.1%)
2. $15 Call Dec 21, 2018 $0.25
a. Outcome with 500 shares (5 contracts)
i. A - Calls sold but not assigned - $125 gross (1.7%)
ii. B - Calls sold and assigned - $480 gross (6.7%)
Price at analysis 13.51
Cost basis
500 @ 13.51 ($6755)
1. $14 Call Dec 21, 2018 $0.60
a. Outcome with 500 shares (5 contracts)
i. A - Calls sold but not assigned - $300 gross (4.4%)
ii. B - Calls sold and assigned - $545 gross (8.0%)
2. $15 Call Dec 21, 2018 $0.27
a. Outcome with 500 shares (5 contracts)
i. A - Calls sold but not assigned - $135 gross (1.9%)
ii. B - Calls sold and assigned - $1424 gross (21.0%)
Price at analysis $5.80
Cost basis
1000 @ 5.80 ($5800)
1. $5.00 Call Dec 21, 2018 $0.85
a. Outcome with 1000 shares (10 contracts)
i. A - Calls sold but not assigned - $850 gross (14.6%)
ii. B - Calls sold and assigned - $0 gross (0.0%)
2. $6.00 Call Dec 21, 2018 $0.17
a. Outcome with 1000 shares (5 contracts)
i. A - Calls sold but not assigned - $170 gross (2.9%)
ii. B - Calls sold and assigned - $320 gross (5.5%)

The CY purchase and $15 Call with these assumed prices appears the best idea.  This idea fits my objectives of increasing greatest cash flow in worst case scenario (i lose the position) as well as the probability of losing the position (lower w/ CY @ $15) … not a recommendation to execute this trade, but a look at how it might be done and how I came up with the idea.

Data Analysis – Stop the Spray & Pray

A very short thought on data analysis and the use of data to make decisions.  I often hear people in different domains reference “data based decision making”, “data driven business”, and the list goes on …

But what so many people follow is the “Spray and Pray” approach of data analysis.  They collect as much data as possible, they spray it on the wall for everybody to see and pray that something meaningful surfaces.

What they miss is that any data analyst worth their salt would do the following:

  • Identify the most important data
  • Explain why that data is important
  • Relate what that important data means and its shortcomings / limitations
  • Recommend what actions should be taken based on that data (non action is appropriate response as well)