Money flows from oil

A provoking post on Seeking Alpha this morning that prompted deep thinking on the money flows from the large changes in oil prices over the last 5 years.  The basic gist which totally makes sense is that the oil profits are not as important as the consumers’ total cost for oil.  The lower their costs, the more they spend elsewhere in the economy.  The inference then is that higher oil prices are totally deflationary – they reduce broader consumer purchasing … it doesn’t really matter if the oil profits end up in US, Canada, Russia or Arabian Peninsula.

It’s Oil Stupid

An End to US$ as Global Currency?

I have been talking about this for several months, maybe even a year or so, but not to the technical depth that these two people are this past week.  I think this is worth considering and baking into your long-term risk management variables.   My pontifications have been more cultural evolution derived but these guys are helping me understand the investment implications.  

JP Morgan analyst is quoted within the below

Heisenberg on Seeking Alpha

2nd Qtr GDP

GDP ‘3rd’ estimate was released this morning.  One paragraph i found most interesting:  “The acceleration in real GDP growth in the second quarter reflected accelerations in PCE, exports, federal government spending, and state and local government spending, as well as a smaller decrease in residential fixed investment. These movements were partly offset by a downturn in private inventory investment and a deceleration in nonresidential fixed investment. Imports decreased after increasing in the first quarter.”

I bolded the points i focused on.  Government spending was a key catalyst in the figures – debt spending in great degree (?)

Full report is here:  https://www.bea.gov/news/2018/gross-domestic-product-2nd-quarter-2018-third-estimate-corporate-profits-2nd-quarter-2018

Declining Bank Assets

This post by a followed article is a good read, and rather than comment on the details (you can read it) … i’ll ask some questions

Eric Basmajian on SA today

Questions:  

  • Is college debt for ages 25-35 having an impact on additional debt assumption?
  • What is the driver behind the decline – Banks unwillingness to lend, or debtors unable to take on more (other than credit cards)?

This was an interesting look an another indicator that suggests the economic growth continues to deaccelerate.

3 must reads for the week

Rather than comment on different articles this Sunday, i will point them out and make a point

i do not think there’s a needed order to read – but read the comments

Point – risks continue to grow globally across mutliple asset types.  there are short term plays but they contain complex variables and winning hands are beyond average investors (myself included).  i am comfortable with my recent moves taking more and more capital out of equities and placing in short-term treasuries (<6 months).  Might i miss out another 5% of S&P upward melt?  sure … but as somebody posted last week (can’t remember who):  i want a return OF my capital, not just a return ON my capital.

Reminder:  i’m semi-retired with short runway to acquire additional capital

How daily news distorts

I woke up early this morning and reviewed overnight market results and became momentarily optimistic … maybe all this trade tension has released, and we can go back to normal investing / trading.

Alas … that’s how daily news distorts things and invites us to relase our well thought out strategies.  I am often reminded of something smart people taught me long ago:  a single or couple of data points do not make a trend.  Plans and strategies are based on a set of clues (trends) not single data points.

Here is the key single data point that i found burried in https://barchart.com daily update:  “China’s Shanghai Composite climbed to a 2-week high on signs that state-sponsored funds entered the market and bought blue chip stocks.”  – that diffused some of my news based optimism earlier.

My bearish move money to Treasuries and wait for better value entry points (in US and Asia) remains intact.

Here’s another post on the topic of government intervention  https://seekingalpha.com/article/4207078-comes-chinas-literal-plunge-protection-team

SA Author (Thomas) Points to Bain & Co Post

In the not too distant past, I worked on a large corporate project w/ Bain & Co, so a SA post from Brad Thomas (Mr. REIT) caught my attention.  Knowing Bain’s basic methodology is not necessary to undertstand this article https://www.bain.com/insights/some-companies-arent-the-biggest-players-in-an-industry-wsj/

Segment profit pools and differentiation are the critical elements here from an investment analysis perspective.  I will be using this in my portfolio 2.0 (or 2025 Portfolio) exercise targeting first on two segments:  Global telecom (Canada and India) and IOT low-power connectivity solutions.  These are both foundational elements in my 2025 Portfolio. 

A subsequent post in October will build out the other elements in 2025 Portfolio, and how that construct will be used.

Late Cycle Stimulus – SA commentary

I’m back after vacation …

One of my favorite SA authors posted a great summary of Jeff Gundlach’s recent webcast, and it is definitely a good read.  there was one point that i think is critical for non-investors (or investors who know and care about others)  https://seekingalpha.com/article/4205991-maybe-listen-jeff-gundlach-says

Quote:

“Meanwhile, the threat that tariffs will eventually push up consumer prices in the U.S. only adds to the case for preemptive rate hikes. Goldman’s Jan Hatizius released a note this week that carried the title: “More growth, more tariffs, more hikes”. Whether or not the Fed will reach the end of the road in terms of their capacity to raise rates sometime in 2019 is the subject of vociferous debate and I won’t broach that subject here. For our purposes, the point is simply that piling stimulus atop a late-cycle dynamic forces the Fed into hawkishness.

That’s dangerous because it has the potential to create a false sense of confidence among, for instance, small-business owners, who may not appreciate the finer points of what’s going on. On Tuesday, the NFIB said small-business confidence (as measured by their optimism index) hit the highest level in its 45-year history in August.”

S&P Earnings Growth Projections

this is a well measured take on recent earnings growth projections and historical comparisons of PE expansion / contraction.  The industry growth changes since July 1 are important i think.  The two areas i will be diving into:  Teleco and Utilities (sustainable) to look for additional solid dividend payers with dividend growth at good price (entry point).

This both fits the current target narratives (IOT and 5G)  … VOD was added this past month, and the Canadian telecos (especially RCI and TU) are being watched carefully.

https://seekingalpha.com/article/4203629-s-and-p-500-earnings-much-earnings-growth-tax-reform-related-year-pe-contraction

Takes brains to turn data & information into knowledge

A recent post really hit the nail on the head in describing a future scenario where the overwhelming quantity of data and information will require well-educated people to analyze, interpret and make plans (knowledge).  It is easy, I think, to infer that those markets (geographies, countries, cities, etc) that are heavily investing into education, training and innovation around mathematics, science and computer science will be the economic, innovation and thought leaders of the future.

Sadly, most of us in the USA watch as our education programs wither from underfunding and especially the under appreciation of teaching as a serious, high-paying profession.

https://seekingalpha.com/article/4192307

Customer orientation

A recent article which I am assuming is accurate at least at the root highlighted a view of ‘Orientation’ by companies.

https://www.cbsnews.com/news/kroger-threatens-to-ban-visa-cards/

Now … I find the ‘corporate profit orientation’ above that of the customer.  Would not a retailer want to provide convenient and customer choice modes of payment?  I get it the op costs could be higher with different vendors, but would you rather have happy, loyal customers?

Swings: WELL & HBAN = looking long; UA = short again

Three stocks floated across my desk this weekend for possible actions next week

  1. WELL (Welltower)
    • I lost 200 shares this month due to an open Call sell at $60.  Still own more than that, but …
    • The senior healthcare housing market is a tough segment right now
    • WELL is my top selection amongst the group – above OHI and VTR for sure imho
    • Earnings call was interesting – especially the specific questions (in the QA) and management’s characterization of ‘bouncing around the bottom’
    • The situation appears as if management is positive looking forward (tough times, we’re bouncing at the bottom and we’re making the right plans), but analysts are highly skeptical
    • If stock drops below $60 without a varying narrative, I will look to add more
    • Earnings call https://seekingalpha.com/article/4191416 
  2. UA (Under Armour)
  3. HBAN (Huntington Bancshares)
    • I owned Oct 15 calls – sold most of them
    • There were some interesting points management brought out in the earnings call and this post highlights them well
    • This could be a decent EOY ’18 swing trade, but i would like an entry point below $15.25 – if the current breakout above RL2 continues — too late (want a short pullback before opening additional positions)
    • https://seekingalpha.com/article/4191622

Important Start to Q2 Earnings – Important to Watch

these folks are the best at talking about data w/out emotion or agenda.  their forthcoming posts on S&P earnings are a must read.   My bias is that Q2 earnings reports (earnings, revenue and forecasts) will be underwhelming and Q3 even more negative unless something changes.  Financial engineering and government stimulus and debt financing (private and public) can only march on for so long … As result, i bought SPY October puts at 275 adn 278 (way down now, but i will be patient)

http://fundamentalis.com/?p=7957