There’s more to it … credit ratings

As someone who lived thru a couple of credit crunch debacles …. i am sensitive to credit ratings and the risk of a company’s demise (bad credit, too much credit, stupid debt capital plans). One of my aggressive speculation companies that i have held for months at a significant loss, CX, just had their credit rating changed.

“According to Fitch, the upgrade reflects the strengthening of CEMEX’s capital structure due to US$5 billion in debt reduction in the last three years, primarily due to robust free cash flow generation and asset sales. Other considerations for the upgrade are CEMEX’s strong business positions as well as the refinancing of about US$7 billion of debt, which has lowered interest payments by about US$200 million per year. “

The key for me … “lowered interest payments by about US$200 million per year.”

This is one of the few companies that i currently hold that do not pay substantial dividends (like 4 and the other 3 are CA weed companies) . … I also have an emotional attachment to Mexico which can be an investor’s bane, but this news is welcome! Unclear if i will double down and lower my cost basis – hard to rationalize without dividends, but this makes things easier.

Is there a negative narrative in durable goods data?

Doug Short and his team post some of the best data slices without much fanfare or noise (and their visualizations smooth out noise where apprpriate) … in the post today around durable goods data, there is an implied message that i find interesting and cautionary.

Basically … the absence of real income growth is limiting household durable good purchases. This cannot be good for those companies if / when the economy slows down. The recovery has yet to impact disposable income (that’s one potential inference). The second inference is that households are spending their money elsewhere (experiences, digital connectivity, etc … ?)

This is an interesting thread to pull out across different data sets and analysis

5G Portfolio Risk links this week

Reminder that this information is focused on helping understand and quantify the risk of public perception and scientific support for health issues impacting the investment thesis in the 5G infrastructure and user (machine too) experiences. Periodically, I will crawl thru a 7 day search to see what surfaces – I AM NOT advocating that there are or are not validated issues – simple risk management, and i cannot manage what i do not understand.

From Australia

Texas too

CBS News —

And then there are the perception gasoline fires & – then there are others sources trying to fact check this noise

All this suggests that the noise level is starting to pick up … the comms industry would benefit us all be sponsoring an independent – completely – study, or if we had a functional federal government, they could help us all understand both for our health and our wallets.

Is ‘smart money’ changing their dance?

Friday, the spread between 2 year and 3 month Treasury yield turned negative. (this is my personal chart that i track daily to keep focused on rate changes – source)

This prompted the question – as longer term investors will often state that between the two markets – bonds and stocks – the bond markets are the ‘smart money’. If you agree with the premise that there is a direct correlation between economic growth and interest rates (the higher the growth, the higher the rates), then economic growth looking forward in declining according to the smart money.

MarketWatch published a post this weekend where the author claimed to use the valuation methods employed by some of our ‘smart investors’ – Buffet, Shiller, Tobin, and Jones – for an annual return rate of the S&P 500 over the next decade. While anyone can question if those guys really represent ‘smart investors’, but look at their annual growth projections – 2.6%, 2.0%, 0.5%, 4.1%. Those numbers are in high contrast to the stock returns of the last 10 years.

Two sources of perceived smart money are pointing to a much slower economic growth and the resulting stock returns. Surprises could pop any time, any where … but something to certainly consider as portfolio managers refine their risk management and allocation targets … my Q1 portfolio review will modify risk scenarios accordingly.

5G Horizon

Cisco published a whitepaper on mobile network traffic and of course had to include their view of 5G horizon. I found it telling on a couple of fronts … the timeline, the device types that will really benefit (think BIG), and how M2M deployments play.

All the data volume projections are familar and in the same vein that Mary Meeker has used for years. My enthusiasm for the investment opportunity has not changed, but I will start refining my timelines and risk (as posted earlier).

Full disclosure – CSCO is one of my largest stock positions and i have owned for 10+ years … the position grows and shrinks as opportunities arise, but CSCO will remain a core holding for my equity / income growth sub-portfolio.

Intergenerational Theft

A recent post caught my attention, both on the question posed for portfolio management risks and a key phrase used “Intergenerational Theft”.

Quote: “The undisciplined use of debt almost always comes back to haunt the debtor, or, the debtor’s relatives. That is, the major impact of this “haunting” almost always lands harder on the next generation. As Mr. Rattner concludes, “my principal fear is that all this irresponsible borrowing amounts to intergenerational theft.” Basically, this means that there will be no room from future spending programs, like for infrastructure, or lower taxes, say to help the middle class. And, this will be the case even if we avoid a financial collapse resulting from market disruptions.”

The US and global debt will be force to be reckoned with sooner or later and how that reckoning plays out will be most likely incredibly disruptive … where did all the fiscal conservatives go? I never agreed completely with them, but their tension in the system was necessary to maintain balance … are we titling off the map and leaving the mess for our children and grand children to clean up?

Small Business Optimism Falls in January

“Small Business Optimism Returning to Normal Levels as Owners Express Uncertainty about the Future

The NFIB Small Business Optimism Index slipped 3.2 points in January, as owners continued hiring and investing, but expressed rising concern about future economic growth. The 101.2 reading, the lowest since the weeks leading up to the 2016 elections, remains well above the historical average of 98, but indicates uncertainty among small business owners due to the 35-day government shutdown and financial market instability. The NFIB Uncertainty Index rose seven points to 86, the fifth highest reading in the survey’s 45-year history.”

Poor government decisions and behavior have impact

5G – What is the risk?

This post starts a thread to be continued for 12-18 months along two vectors around the roll-out of 5G networks, technology and devices. I have moved my thinking from, “Is there a risk?” to “What is the risk?”

As with all posts, this is fully my opinions and not investment recommendations.

5G is a core theme of my investment portfolio looking out the next 5-10 years as the Internet of Things (IOT) and Machine Learning (ML) lead the next technology profit cycle. As deployment pilots start showing results and new products surface enabling innovative machine and human experiences, this area will be one vector to follow. Key will be how to better anticipate 5G investable companies beyond the infrastructure and base component segment already in my portfolio.

The second vector connects to the first as a systematic risk management thread around 5G safety. There is a strengthing risk element to 5G – the technology perhaps, but surely the public perception of that technology. I am seeing an increase in publications and posts focusing on the potential health risks of wide 5G infrastructure deployments. History is full of examples of technology assumed safe (or presented as safe) that later turned out to be deadly for both humans and the companies behind the technology (and their investors). What is the risk associated with 5G deployments for portfolio success, humanity and social justic, and how should it best be managed?

A noteable US Senator is pushing a FCC review and  seems like one important area to watch for additional clues. From a portfolio management risk perspective, either a factual support of or a public perception of dangerous technology creates material impact to portofolio assumptions and the probability of the latter risk seems to be increasing – a systematic review is required.

A couple of recent posts I found interesting

You can expect more on 5G as I keep digging for more clues

BLS Unemployment & Gig-Doers

I believe that the unemployment rate is incapable of calculating a sizeable portion of those whose “jobs” will end early in an economic downturn. These are the folks who I am calling “Gig-Doers” – these are the folks who push a side gig or a portion of their gigs are off the mainline employment / payroll system. Maybe they get cash, maybe they invoice against a services contract … but they are probably not fully calculated in the current numbers (critical here is the n).

Here is the BLS FAQ where you can get how they count

What I see happening as the economy slows, the Gig-Doers will be the early ones to lose their side hustle, lose material income and be compelled to re-enter the traditional employment system increasing the n. I intend to watch that over the next few months, as even this month unemployment went up as jobs created also went up – quote: “The labor force participation rate, at 63.2 percent, and the employment-population ratio, at 60.7 percent, changed little over the month; both measures were up by 0.5 percentage point over the year. (See table A-1.) The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) increased by about one-half million to 5.1 million in January. Nearly all of this increase occurred in the private sector and may reflect the impact of the partial federal government shutdown. (Persons employed part time for economic reasons would have preferred full-time employment but were working part time because their hours had been reduced or they were unable to find full-time jobs.) (See table A-8.)

The bold text above is my emphasis of the unknown source of the increase in part time workers. The gig economy and the prevelance of alternative payment modes outside the traditional payroll system is going to be very difficult for our current systems to monitor with any actionable sensitivity in the early changes. How this impacts economic models, projections and business decisions is yet to see, but this is the first slowing economy we will see with a material gig element.

Here is another article estimating the size of this workforce

Transparency and Strategy

Cypress Semi (CY) has a fantastic leadership team in my opinion. The recent earnings call is a great example

Reading thru this transcript gives you all the clues needed to understand their strategy, where they are facing risks / issues and where they are placing their bets for future success. Nothing was opaque, nothing was hand waving and blaming external locus of control. Refreshing.

I own a small slice and will look for lower prices (my entry point is <$12.50) over the next 3-6 months, as after reading this you can see how typical short term investors will sell this until the sweet spot of their strategy takes off once 5G edge devices start propogating … i am a fan.