Market complexity and simplistic press narratives

One of the most complex / dense writers that I read regularly and usually read more than 1x, the Heisenberg Report, posted on SA today an article that reflects a point I was making earlier this week about the simplistic press narratives and marketing spin used to keep individual investors putting our capital in play.

This is a dense post and has at least two key themes, but the one that I am focused on is how simplistic narratives drive both human and headline algos to make investment decisions that may / may not be completely factual, or grounded on solid financial data. As marketing departments do what they are designed to do – drive more business, they will continue to get better and better and influencing consumers (amateur investors) to generate revenue for the professionals. The marketers / spinners are not evil or malicious; they are doing exactly what they were designed to do: drive revenue growth.

The key take away for me, which is the same point I made earlier here, is that we individual investors need to really spend the time and diligence behind our strategies and investment decisions – check, cross-check and corroborate all inferences and recommendations with our own data analysis. Our jobs are getting harder.

Stock analyst observation

I follow stock analysts’ daily picks on a site that i find useful

My observation (no data collected) over the last couple of months of daily monitoring the top analyst picks (only 4 and 5 star analysts) is that their picks between buy and hold are sentiment driven more than fundamental business driven. When sentiment is low, the ‘holds’ out pace the ‘buys’ and the inverse when sentiment seems positive.

Key observation and suggestion: don’t trust the recommendation poke and dig thru the data to understand exactly WHY they made that recommendation. It takes hard work to be a good stock picker and even more work to be a good portfolio manager.

5G – is the investment risk increasing?

Over the weekend, I saw a poster at one of the local healthfood markets about this organization and upcoming protests about 5G.

This organization seems focused on delaying or preventing the installation of smart electricity meters and 5G infrastructure. They also posted a large resource list

Eugene, OR has groups that protest against just about every issue one can identify, so it is not surprising that a local effort against 5G roll out exists. For potential investors using 5G as a major investment narrative, these local push-back efforts will both slow the deployment and increase the costs of those roll outs.

The risk requires monitoring imho.

Interest Rates April 12

Interest rates recently have given us something like Mr Toad’s wild ride … the question that seems most interesting is: have facts really changed over this time, or only perceptions embellished with spin and marketing? Price moves like this make big money for somebody – who made it this time?

Only the 3 month rate is at / below trend for the year; the other rates have had quite the ride over the last 30 days.

The spread between 2 year and 3 month has been on a like wild ride

US Agriculture – is there a HUGE risk here?

First, MorningBrew surfaced this story in my daily email

Second, Bloomberg has a good summary report, and I quote:

“The new report only captures part of a downturn that’s persisted into 2019, fueled by a trade war with China that’s limited buyers in a year with bumper crops. That’s boosted grower debt to a record $427 billion, spurring a continuing death watch on the mid-sized farm. The industry’s debt-to-income ratio is now the highest since the mid-1980s.”

Do you remember the 80’s? The start of FarmAid and John Mellencamp’s Scarecrow album? It certainly looks like there is a huge risk in the heartland of American farming, and we all depend on these folks …

Data Devil Delights from JP Morgan

JPM quarterly update (link from Jeff Miller WTWA) – great big dollop of data for those who love poking thru a data trove.

What i found interesting

After looking at this set of data, a hypothesis surfaced as both residential and motor vechicle levels above are below recent cycle highs – is this part of a structural change in consumption that favors ‘services and experiences’ over objects (physical assets like houses and cars)? – if that is feasible / plausible, then monitoring the rate of change in physical asset investment may be less of a leading indicator than it once was … an updated leading indicator approach would focus on service consumption rate of change.
The far right of this graph shows the commonly discussed point that the Fed and the market see different trends in rates … do you trust the fed’s crystal ball and abilities, or the smart money gang that was so accurate earlier in this century?
Another commonly discussed data set – debt quality and levels of debt vs GDP – the left panel is quite interesting -seems households learned their lessons last time around nad have actually decreased their debt; but corps and government are above the last cycle peak – especially governments. Begs the question of how much of this recent growth cycle is debt funded and the price yet to be paid.
One of my emerging investment research projects places India as a core driver – the top right chart supports the potential of that research. I expect to have an update by end of Q2.

5G Upate Early April 2019

One of my followed authors on Seeking Alpha – Dividend Sleuth – published an article on telecom industry and through the comments he posted some links to my question about health risks.

Dividend Sleuth shared the following and i pass along without deep review – so some may / may not be helpful. – Below copied directly from our comments:

Simon Rockman’s September 2018 Forbes article, “Is 5G A CIA Plot?” (…)

Here’s a good November, 2018 Vox article by Julia Belluz about the mechanics of radiation on the electromagnetic spectrum: “A comprehensive guide to the messy, frustrating science of cellphones and health.” (…)

A website about radiation health risks has an interesting article about 5G and home routers: “Why 5G Cell Towers are More Dangerous,” (…).

Finally, here’s an article by Michael Luciano at ECN: “Will 5G Affect Your Health? Maybe…But Probably Not.” (…)

Executing a strategy I don’t understand = pain

This is probably obvious to most, but like many things, I had to bang my head against the wall to learn it. My lesson is not investment domain specific though that was my classroom.

I am always receiving promos for different investment or trading platforms, most of which are subscription cloud services. Sometimes i see one that is worth giving it a spin. My first lesson awhile back was a ‘paper exercise’ is not a sufficient test; i always make exceptions or rationalizations of insufficiencies of the platform or my required responses to it. I have to put skin in the game, i.e., money, to learn.

I saw one that seemed like worth a try; I followed their daily recommendation but failied to exercise the stop/loss due to my inability to monitor every minute of trading hours. – i did not understand the behavioral requirements of the strategy. I lost all $200 of my test.

Looking back, I would do one of or both of deeply understanding the strategy and my required behaviors and / or follow a poorly undertood strategy to the letter of the prescribed behaviors. The risk of the second action is that I would not be able to innovate within the strategy when conditions change, yet conditions always change.

This then is the pain of a poorly understood strategy … failures of execution both due to mistakes and the inability to innovate within changing conditions. The remedy is simple – execute only strategies I know sufficiently to innovate; and ideally, constantly increase my strategy portfolio.

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.