Intergenerational Theft

A recent post caught my attention, both on the question posed for portfolio management risks and a key phrase used “Intergenerational Theft”. https://seekingalpha.com/article/4240474-federal-debt-anyone-concerned

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?

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

Transparency and Strategy

Cypress Semi (CY) has a fantastic leadership team in my opinion. The recent earnings call is a great example https://seekingalpha.com/article/4237365-cypress-semiconductor-corp-cy-ceo-hassane-el-khoury-q4-2018-results-earnings-call-transcript

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.

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.

https://www.reuters.com/article/us-china-yuan-asean/china-promotes-use-of-yuan-among-southeast-asian-nations-idUSKCN1P51EV?il=0

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

https://seekingalpha.com/article/4227211-disruption-creating-opportunity-canadian-banking?app=1#alt1

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.

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. 

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

HBAN
Price at analysis 14.29
Cost basis
500 @ 14.29 ($7145)
Possible
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%)
CY
Price at analysis 13.51
Cost basis
500 @ 13.51 ($6755)
Possible
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%)
NOK
Price at analysis $5.80
Cost basis
1000 @ 5.80 ($5800)
Possible
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.

Extended Hours Poaching

A recent experience and additional observations have created a very jaundiced view of a group of traders who take advantage of less experienced folks.  They are poachers with all the negative connotations of that term.  Let me explain with an example

I had a short position in RUTH.  I stupidly placed a stop lost / limit order to protect my capital from a price increase above my limits.  I absent-mindedly left that stop loss order open over night … it was snapped up first thing when market opened at about $0.25 above the next trade.  I looked at RUTH trading history and there are several of these very odd very early trades way above the market … Poachers taking advantage of stupid people like me.

Not to self:  Never leave stop loss orders open overnight and especially in thinly traded stocks like RUTH.

Trading Tides Have Turned

After a very difficult trading month so far in October and a couple of interesting SA posts (Jeff Miller’s weekly trading post) and a new author for me posted I have finally figured out a way to describe the change:  the tides have turned and the winds have shifted.  Mary Poppins like …

Previously, the trading tides were pushing upward so trades were easily identified with consolidation at support points and falls from strong resistance.  The winds were blowing upward so lower values on dips made sense … and consolidation support points held – they were the floor. 

It seems that the tides have turned now after watching support levels break down consistently … the dips are now hard to stop (supports are like false bottoms).  The trading tactic now looks to be waiting for consolidation bottoms and upward lifts with volume and strength through weak resistance points.   This may reduce potential gains on the upside (longs) … shorts are also complicated as there are no support levels below (what can i logically expect for exit and profit)?

While I fully admit that i am not an expert technician and use fundamental DCF valuations as the filter for my trades, for me at least, the tides have turned.