One of favorite writers put out a great post on the FED’s recent (COVID-19 required) actions to create another bubble to fix the bubble that just popped in the credit markets. Sounds like a comedy or a tragedy depending on your point of view. But Lance’s insights have helped me make and prevent losing money over the last couple of years. His inputs are worth the time to understand … I also echo the ‘pension problem’ issue and the recent decline in assets will make it bigger – but nobody is really talking about it yet.
Quote from his conclusion: “The lynchpin in the U.S., remains demographics, and interest rates. As the aging population grows, they are becoming a net drag on “savings,” the dependency on the “social welfare net” will explode as employment and economic stability plummets, and the “pension problem” has yet to be realized. While the current surge in QE may indeed be successful in inflating another bubble, there is a limit to the ability to continue pulling forward future consumption to stimulate economic activity. In other words, there are only so many autos, houses, etc., which can be purchased within a given cycle.
There is evidence the cycle peak has already been reached.One thing is for certain, the Federal Reserve will never be able to raise rates, or reduce monetary policy ever again.
Welcome to the United States of Japan.” (lance’s italics)
Many people think lower interest rates are good … some people know that rates reflect bond traders & investors view of future economic growth. This runaway train data set bodes poorly for economic growth ahead …
Report out this morning was very good if you can live in a rearview mirror. It obviously is not forward looking given the global virus impact … but to throw some salt in the current administration’s wounds
Without a blockbuster 2020, job growth will be annually lower than the Obama years …
Copying the key visualization to support the quote …
Quote –> “And if the market is going to destroy everything created from October on, it means it needs to go back to the very beginning. To somewhere between 2860 to 2940. But at this point, who knows! Nobody. This is what happens when you combine ETF’s, Algo’s, and leverage together.”
The BOLD emphasis is mine … that nailed my view. These instruments were not that widely used the last time we had this magnitude of selling pressure both duration and depth. Until recently, they had only been ‘tested’ with upward pressure … we maybe in another financial science experiment like bundled mortgage-backed securities in our not-too-distant past.
Comment – author points to three 5G announcements that they see as positive for INTC: a) network edge Si / Atom – think what’s on the towers; b) Xeons underneath the big NFV trend and c) wired adapter to meet 5G needs
My thoughts based on my previous knowledge – a)Atom on the edge – hard to see how they compete on price vs ARM – mrvl; b) not much new NFV play and c) adapter I am not smart enough to even estimate if this would move revenue / margin needle (but I assume WAY off)
I commented on article: Of the three elements highlighted- edge, nfv, and adapters … nfv is probably in everybody’s baseline, the adapter I’m clueless… but the edge with atom, price will matter imho and I remember too well the mobile battle with ARM … I wave yellow caution flag on that one – unless remote Management or security is uniquely tied to Si”
Conclusion: does not change my investment thesis wrt INTC
Heisenberg gathered some info from some of his friends, and I am paying attention! Not sure exactly what more I can do to ‘defend my portfolio’, but I will not be surprised if a 2000 tech refresh hits the air waves.
Quote: “With the bulk of US companies having reported, we have summed up the report and accounts posted so far. Despite strong markets last year, net income barely moved, with a rise of just 0.3%. More worrying is without the Big 5 companies (Microsoft, Alphabet, Apple, Amazon and Facebook), net income fell 7.5%.“
And if you just want a bit more poison in your coffee, quote: “In valuation terms the divergence of tech forward PEs from the overall market has only been a very recent phenomenon. And just as notable is the extreme divergence of valuations between tech and value stocks something not seen since the late 1990s Nasdaq bubble. One key difference with the late 1990s Nasdaq bubble is that it is now not just tech (and growth stocks generally) that have reached extreme levels (both in absolute terms and relative to value stocks). Quality stocks (with sound balance sheets) have also joined the party.”
I am often reminded how much money and effort is spent convincing the public and investors things are not all that they seem to be … call it spin, call it manipulation, call it bulls^^t … it’s all the same and as investors putting our hard earned and saved capital to work requires us to do our due diligence
Regardless if you fully believe the points made here in this post, investors need to pay attention … it’s time to REALLY read SEC submitted documents and annual reports, not just press snippets.
Comment- Aftermissing earings and revenue by a large margin, I was expecting a much more detailed discussion on root cause, strategy and forward modifications of strategy – not much. They did however declare they’re backlog is solid and sold out thru mid’21.
Conclusion: Who is the most ops efficient PV manufacturer, where are their factories and does PV space merit investment? FSLR is probably NOT the company to bet on.
Comment – They are so consistent with strategy and are both delivering above their expectations and getting noticed in a ESG oriented investment environment.
Conclusion: Position is full – increase / decrease only with allocation sizing / resizing. Overallocation (possible +7% of actively managed portfolio) only after strategy refresh next year – and if strategy supports overallocation.
Comment – equinox and core are network centric and the most resilient to both pricing and demand if digital economy slows. DLR, CONE and QTS while interesting, and especially CONE and QTS, may face trouble ahead imho (or be bought obviously).
Conclusion: no divergence from my strategy of having these in CEF / ETFs, but not individually at these valuations and dividend yield.
Comment – With 2 small speculative bond positions in TEVA, this article was helpful but seemed a bit overly optimistic on a couple of fronts. Prices have risen beyond risk / reward tolerance in my mind. Per the author, the debt outside ‘23 is risky income hold as it will probably be pushed out – replaced with lower rate bonds.
Comment – I missed this investment earlier – wanted to by ~$15 and just couldn’t pull that trigger. NUAN is the lead in medical voice activated solutions and they are now turning the corner w/ financial results. Hard to argue against their future success.
Bloomberg posted this today – while somewhat funny, the implications are terrible for ADS quality assurance teams. The magnitude of corner cases is rather breathtakingly large
Quote: “A Tesla vehicle was tricked into speeding when researchers put a strip of electrical tape horizontally across the middle of the “3” on a 35 mile-an-hour speed limit sign. The change caused the vehicle to read the limit as 85 mph, and its cruise control system automatically accelerated, according to research by McAfee. The human behind the wheel was able to slow the car. Here’s the video of the incident. “
He closes with, quote: “As I stated above, the U.S. has been running MMT for the last three decades, and has resulted in social inequality, disappointment, frustration, and a rise in calls for increasing levels of socialism.
It is all just as you would expect from such a theory put into practice, and history is replete with countries that have attempted the same. Currently, the limits of profligate spending in Washington has not been reached, and the end of this particular debt story is yet to be written. But, it eventually will be.”
Heisenberg put a rational focus on this morning’s retail data. (quote from eTrade): “Just in, January retail sales increased 0.3% (Briefing.com consensus 0.3%), while the December reading was revised down to 0.2% from 0.3%. Excluding autos, retail sales increased 0.3% (Briefing.com consensus +0.3%), and the December reading was revised down to 0.6% from 0.7%. Import prices were unchanged in January, while prices, excluding oil, increased 0.2%. Export prices increased 0.7% in January, and prices, excluding agriculture, also increased 0.7%.”
Heisenberg’s graph is an interesting but confusing visualization (the data, not his presentation)
Compare same q y to y and inconsistent variability. He correctly points out, however, quote: “The advance read on Q4 GDP showed business spending declined for a third straight quarter, and consumption, while still strong, slowed sharply.”
I certainly agree w/ this point (my bold): “Perhaps more concerning is that it comes against record high confidence, record low unemployment and record high stocks. Something doesn’t add up there, and the problem is that the US economy is now leaning almost entirely on the consumer.”
When it comes to my investments, unknown variable mashups bug the crap out of me …. sigh