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

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!”

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

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.

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

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.

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

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

BRK – a sign of the times

https://www.marketwatch.com/story/warren-buffetts-berkshire-stock-set-for-biggest-gain-in-7-years-analyst-cheers-buyback-policy-change-2018-07-18

Berkshire just changed their corporate policy wrt stock buybacks … they WILL now be able to buy their own stock.  This is an important sign of the times … good values are REALLY hard to find.  Here’s a JPM analyst take:  “J.P. Morgan analyst Sarah DeWitt said the new repurchase policy is “a major positive catalyst” for the stock, since it gives Buffett and Munger more flexibility to spend excess cash of about $86 billion, which has been a large drag on returns, “particularly given Berkshire has not been able to find attractively valued acquisitions in an expensive market.”

Caution to those of you looking for long-term good value purchases at this point …

Jeff Miller’s WTWA – July 15

Note:  This is one of my ‘must read’ posts every Sunday – here are the elements i found useful and interesting.

https://seekingalpha.com/article/4187277-weighing-week-ahead-anything-goes

Quote:  The punditry should prepare for a week where Anything Goes.

  • Jeff’s comment:  “The market was up 1.5%, a very nice gain. The week’s trading range was only 1.2, lower than the last few weeks and much lower than the long-term average.”
  • My comment:  I am finding that ‘big’ money hits in last 10 minutes of trading days.  Look at the volume spikes at day’s end.  This week each spike furthered the day’s trend, yet Friday’s end petered out.

CPI both Headline and Core  – External pointer   https://www.advisorperspectives.com/dshort/updates/2018/07/13/inflation-an-x-ray-view-of-the-components

  • I found this graphic telling 

More on sentiment — investor sentiment may have shifted this week – while as this author points out it’s not ‘really high’.   I pay attention to these shifts, both for contrairian indicator and increasing awareness on spikes in FOMO buys from inexperienced investors and traders.   http://www.horancapitaladvisors.com/blog/2018/07/12/sentiment-is-widely-positive

  • 10 yr flat from last quarter
  • Higher S&P 500
  • Anticipated inflation down slightly, but risk of inflation increasing

External link to 7 year rate of return forecasts https://pensionpartners.com/the-next-7-years/

  • in many of the divergences, mutliple / value expansion beyond normal expectations ruled
  • seems sooner or later mean regression plays its part … the timing is always a mystery and its catalyst unknown as of yet
  • The one key take away from both prediction sets (2011 and 2018) is that rates of returns across the different groups are MUCH lower in the 2018 set.  – I agree

Jeff’s closing had two points that i found interesting

  • Quote:  “Earnings season. Everything suggests a big increase over last year – 20% or so. The forward guidance last quarter was good, and the tax cut effects are playing out. This may not translate into higher stock prices unless the report is perfect. The market meme emphasizes trade war, strong dollar, and rising costs. Any company that highlights these themes in the outlook will see an instant reaction in the stock price.”
    • Earnings conference calls should be brutal this quarter if folks are doing their jobs and folks w/ downside views are going to get punished severely.  But this also sets up companies exaggerating 2H 2018 and more importantly 2019
  • Quote on worrying topic:  “The trade war. With the apparently modest market reaction, more of the punditry is concluding that victory is in the cards. Actually, stocks would probably be about 10% higher without the trade concerns.”
    • This i struggle with … i doubt if the FANG folks would be 10% higher, but maybe broader participation.