Is Chairman Powell the new Columbo?

I thought FED Chair Powell played his role perfectly today. He had little margin of error after others and the market painted their red lines. He came across a bit like Columbo – not cocky, a bit hesitant and threading his words carefully while making it look accidental. The US markets neither jumped nor fell but the jury’s out for the next 24-36 hours to see how the global markets digest his best presser yet (imho). One easy inference from the FOMC today is the intermediate horizon (at least from FOMC’s spokesperson – the chair) is not signaling a change in strategy – yet.

IT update from Taiwan /S Korea / Japan

A new author for me on Seeking Alpha, posted a pretty good ‘trip report’ – a visit to Taiwan and Japan IT businesses.

While the key focus of the report is Huawei impact, there are some real gems in this report on anticipated demand – the cloud server business (contrasted to enterprise) is definitely worth watching. The ODM and component suppliers are critical in that supply chain – but I fully acknowledge that the recent Huawei issues are disrupting the predictability of the supply chain with more false positives than negatives. There are also a slew of assumptions in this piece that one has to wade thru … mostly wrt Apple in China.

There are also a few nuggets on 5G component manufacturers, e.g., SWKS, QRVO.

It’s worth a read … I love this approach of anticipating down-stream growth by upstream component supplier health / growth.

Try to answer this question wrt China

Heisenberg quoted an interview from Goldman with a Chinese think tank / policy influencer (not government), and the post ended w/ a question – quote: “So my question is: why try to kill the goose that lays the golden eggs? The whole world will benefit from China’s contributions and should not feel threatened by them.

Threatened economically makes sense – like competitors who also have to collaborate and partner as other business do every day. Existential threat makes no sense unless we convince ourselves its true for tribal political advantages.

Here is another statement – quote: “The biggest misperception is that China poses a threat to the United States. It is not unusual for a dominant power to feel threatened by a rising power, especially given the exceptional pace of China’s growth and its achievements; it now has the fastest train network, the biggest 5G network, and is set to overtake the US in terms of GDP over the next 10-15 years. These concerns are exacerbated by China’s different system, which is not well understood. China is often viewed as a state-run economy that poses a risk to the liberal world order. But, in fact, 80% of the Chinese economy is private with 10% of that comprised of foreign multinationals in China. Without this mixed economy, China would not have been able to achieve the same level of innovation, or have lifted 800 million people out of poverty, which is unprecedented in the history of mankind. In reality, China is a substantial contributor to the world. It contributes over 30% of global GDP growth, is the largest trading nation for over 130 countries, and is one of the largest donors to the United Nations. China has embraced the Paris accord, taking a global leadership role in combatting climate change. And it is on the way to becoming the largest consumer market in the world, with its middle class of about 400mn people set to double within the next couple of decades. In all of these ways, China is a supporter of the current world order.

Will our manufactured fear frame decisions that deliver insufficient and counterproductive results?

Data on some Banks – Canada

Disclaimer: Not recommendation just an observation and opinion

The big banks in Canada are some of my favorite equity income portfolio kernels; currently long time long, BMO, RY, & BNS.  Seeking Alpha post on the banks presented a good bundle of data to compare the banks – with a bias or narrative assuming mortgage credit issue impacting the banks’ portfolio quality.  I am a fan of these banks given the higher regulatory environment in Canada as well as (and most importantly) a long tradition of >100years successfully managing capital… a bit of differentiating DNA.

Here is my comment to the author:  Thanks for putting all the data on the table. I am a long time (US citizen) holder of BMO & RY as core portfolio dividend kernels – their history speaks for itself. BNS is interesting as more aggressive in emerging markets; total portfolio position 50% less in BNS than in BMO or RY. Based on the data presented here, is there really a material (statistical?) difference between TD, BMO and RY on the ratios? – My take is not so much and probably depends on your point in time to review. Currency issue/risk is worth the predictability of dividend flows. I am also looking to increase current BNS position @~$41.00US

Mr Duy’s FED update

If the title doesn’t get you – Still Less Transitory Than Persistent

the summary will – quote: “Bottom Line: My read is that at a minimum inflation remains a nonissue with the risks weighted toward the possibility that recent weakness is more persistent than transitory. In addition, the slowing pace of job growth should take more pressure off inflation in the months ahead. The combination gives the Fed room to cut rates. Assuming this data flow continues to hold, I anticipate the Fed to signal a rate cut at next week’s FOMC meeting and follow through with that cut in July.

Great graphic

I am data devil and i love great data graphics that tell a story … Heisenberg posted something from Goldman today that was just classic great.

The Heisenberg post itself quotes other experts with the following conclusion – quote: “

“Since March 7, the five-year yield has been lower than the three-month Treasury bill yield. If it stays that way for a full quarter – not merely a few days or a few hours – then the model predicts recession will follow”, Harvey wrote, on March 12. “I consider the yield curve the last of four horsemen of the recession to rear its head”. Draw your own conclusions.”

Ecosystems or Platforms?

A recent post by a followed SA author (John M. Mason) returned to the ‘ecosystem’ value chain narrative – i remember this from almost 10 years ago as my former employer tried to create “the third mobile ecosystem” behind Google and Apple. We failed miserably, but the learnings and strategy were invaluable. John has a solid way of tilting paradigms for investor evaluation, and I appreciate that. Ecosystems are a type of moat – but way more resiliant. Ecosystems take big money and years to evolve to that strength however, and that was our learning – we tried to make it happen on our timeline. They also seem cemented with differentiated and spectacular user / customer experience – not a ‘thing’.

Actionable take-way will be an increased scrutiny on my T investments.

A climate reason behind ‘why not’

Looking at different new investments, an industrial REIT surfaced from my value screens … I am not a huge fan of economic cycle REITs at this point, but the valuation was interesting – MNR

I was primarily interested in a preferred stock MNR/PR/C. But … after looking at their financials and business model a bit closer, this graphic struck me

They have a sizable property distribution on the eastern US seaboard … if i am looking at a 10 yr investment, do i really want to purchase hard physical assets that are on the coast? NO! Climate change risk was a big factor in walking away from this investment.

This makes sense …

Quote: ” I think investors need to keep their eyes on the ball. The rate of economic growth is slowing dramatically from last year and it has tempered the rate of inflation as demand slows. The declining rate of job growth is confirming that fact. The stock market is not discounting this reality. A rate cut by the Fed takes months to have an impact on real economic activity, and it would be largely ineffective in 2019. It would also signal that the economy is in dire straits, as it did 2007 and 2001, as can be seen in the chart above. “

Lawrence Fuller (no relation) posted that summary at the conclusion of his weekly update

Nothing has changed from my perspective and I remain fully in capital preservation mode and vulture-like adding capital when value unicorns pace the street.

Mr Duy – Fed update

His conclusion: “To be sure, I can’t rule out a June rate cut.As I often say, when the Fed shifts gears, it shifts quickly. Still, the reasons outlined above suggest to me the path forward is to use June to signal a high probability that the next move is a cut and to deliver that cut in July (assuming of course the data continues to support that move).”

Mr Toad’s wild interest rate ride – June 7

Not so much of a roller coaster ride but a descent faster than gravity’s pull

From early May this year to Friday … and FED cuts 3x in ’19 seem to be the crowded projection … what could happen?

Here’s another way to look at it for the graphically challenged

May 1Jun 7change
30 yr2.9202.570-0.350
10 yr2.5202.090-0.430
2 yr2.3101.850-0.460

Seeking Alpha’s last SA for FA podcast covered some possible risks to these changes and i found it succinct and aligned with my concerns

What we have is a failure to communicate …

Heisenberg Report posted a fabulous post on current trade issues – leveraging source material from Goldman.

This quote is priceless – a combo of Heisenberg and Goldman: quote –

“The bank does an admirable job of dancing around the punchline in the interest of not coming across as overtly snarky, but the bottom line is that there isn’t even an agreement on what’s being negotiated. In fact, it doesn’t appear that the two sides agree on what Trump and Jean-Claude Juncker actually said at the famous Rose Garden press conference last July. Here’s Goldman:

A divergence of opinion on what should be included in the trade deal appears to be the main stumbling block for negotiations. When the European Council passed its two negotiating mandates in May, it limited the scope of the negotiations to ‘non-auto industrial goods’ and ‘non-tariff barriers’. Agriculture is unambiguously excluded from the mandates. Conversely, the Office of the US Trade Representative (USTR) published negotiating objectives that specifically include the reduction or elimination of EU agricultural tariffs and the establishment of “specific commitments for trade in products developed through agricultural biotechnologies”.

Apple’s WDC from Morningstar

Morningstar was out this morning on Apple’s WDC so far … they made a point that hit me too. quote: “One of the most important announcements, in our view, was Project Catalyst, which helps developers port existing iPad apps onto the Mac, facilitated by the latest macOS, Catalina. We believe these moves in aggregate will usher Apple toward having its MacBook offerings running on its ARM-based A-series processors in lieu of Intel processors. However, we don’t believe this will meaningfully come to fruition for at least another three or four years, if not longer, given Apple’s 100 million Mac and MacBook installed base and the incumbent applications written for Intel’s x86 architecture.” (bold is mine)

Developers are the key and refreshing to see focus put back where it belongs. Devices are the delivery systems and need to be hip and fabulous, services need to be valuable and meaningful to users, but without apps …. nothing. There are two transitions that seem to be setting up – a) iPad / Mac blurring and interoperability (moving the iPad closer to Mac than iPhone which makes sense) and b) x86 to ARM in Mac … both totally make sense, but without developers paving the way for those, again … nothing. If I’m close to right, it surfaces how Apple is playing a long game.

Potential 5G unintended consequences?

Bloomberg posted an article on NOAA positioning that some 5G frequencies may interrupt their ability to predict weather – as i understand it (the non-scientist view), NOAA tracks waves emitted from water molecules in the atmosphere as part of their prediction toolbox. 5G disrupts that ability to the tune of 30% degradation.

Again, on these 5G posts … I am NOT pushing any position on 5G safety. I am just forcing myself to risk manage my investment priority in the IOT narrative over the next 10 years. I am making risks I find visible — no more.