W.A.T. Winter 2020 #3
WAT = Walking around town
A beautiful sunny afternoon after several just as nice …
Simply stated … stock market blues 2-27-20
Today us investors had one hell of a day …
From Yahoo.com/finance
Mott Capital Management nailed it today in a rather long technical view of today’s prices.
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.
Batched non-urgent financial reads – 2-26
- Disclaimer: not advise for investment or trading purposes; simply my opinions.
- INTC: Intel Focuses On 5G Infrastructure
- 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
- 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
- BMO: Bank of Montreal (BMO) CEO Darryl White on Q1 2020 Results – Earnings Call Transcript
- Comment
- Loved strategy focus on ESG (especially climate) and mental health of employees and community
- Clear articulation of strategy and objectives
- Conclusion: Too soon for more capital (already a kernel holding) – oil and transportation are drags and could worse with virus – watch, wait and listen
- Comment
- BNS: The Bank of Nova Scotia (BNS) CEO Brian Porter on Q1 2020 Results – Earnings Call Transcript
- Comment
- Strategy was referred to at investors day – not here
- Transitional time for bank, especially in Latin America
- Expenses are growing too fast relatively to income (especially compared to BMO above)
- Lower price entry point needed as well as some patience to see how virus and transition pans out
- Conclusion: Too soon for more capital (already an inner ring holding)
- Comment
Grist advice – “avoid jargon!”
A corporate president I interfaced with often one time said to our team, “you have completely failed to understand the power of the English language.” How we use language has tremendous impact on what we can accomplish with other humans. Grist has some great advice!
Key words and their ‘non jargon’ explanation … which would you prefer to hear? (quoted below)
- Carbon footprint: How much carbon-dioxide emissions can you attribute to a country, company, or maybe your neighbor? The answer is their carbon footprint.
- Circular economy: A system where nothing really gets thrown away. In other words, your old smartphone gets broken up into its different parts and recycled — or more likely, you’re repairing it.
- Climate adaptation: Improving our ability to cope with climate change. Think building sea walls, breeding crops that can tolerate droughts, and restoring the natural course of rivers. (See “resilience” below.)
- Environmental justice: A phrase underscoring the broad idea that the people who did the least to cause climate change and pollution are the often the most at risk from the consequences.
- Just transition: Shifting to an economy that runs on solar and wind energy without killing jobs.
- Geoengineering: Using technology to try to counteract some of the warming caused by burning coal, oil, and gas. Like spraying tiny particles in the air to reflect the sunlight back into space so it doesn’t heat up the planet.
- Net-zero: Canceling out the carbon dioxide we emit by making sure that the same amount gets sucked up by trees, plants, machines, or other things. (See: Offset.)
- Offset: Something you buy that promises to cancel some or all of the carbon dioxide produced by, say, your next cross-country flight.
- Resilience: Our ability to deal with climate change’s effects. Simply put, a more resilient New York City will be better able to withstand another Superstorm Sandy.
- Sustainable: Using a resource in a way that won’t deplete it. Example: Making sure a forest has a bunch of new trees growing before you cut down an old one.
Upside to wind power?
https://www.sciencedaily.com/releases/2020/02/200224183457.htm
Quote – no comment needed
The United States could generate 20% of its electricity from wind within 10 years, without requiring any additional land, according to Cornell University research published in Nature Scientific Reports.
“The United States currently produces about 7% of its electricity from wind energy,” said Sara Pryor, professor in the Department of Earth and Atmospheric Sciences. “This research shows that a quadrupling of the installed capacity of wind turbines from 2014 levels will allow us to attain the goal of 20% of electricity from the wind, without requiring additional land, or negative impacts on systemwide efficiency or local climates.”
Dataset that only increases questions
while this data is interesting, what was the baseline … just looking at changes w/out knowing the starting point renders an actionable inference impossible. This is not helpful, but still somewhat interesting to ask another set of questions
Could happen, probably will happen? … regardless: no surprises!
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.”
Do your due diligence investors!
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.
https://seekingalpha.com/article/4326833-earnings-lies-and-why-munger-says-ebitda-is-bull-s
Jobs & automation in near future
In reading a post about Janet Yellin’s recent interview, I ended up here – my most valued take-away from the post.
Here’s the reference section, quote: “Yellen referenced a McKinsey report on automation, artificial intelligence (AI), and the future of work that estimates about half of current jobs could be automated by new technologies. What happens to the people who are displaced? Many are likely to end up in low productivity jobs. And that, Yellen said, is “a scary prospect.”
Agree or disagree on the specifics or the particulars of skill sets or geography, the magnitude of the changes are probably not too far off … a tremendous inflection point.
Again, regardless of how accurate you believe these numbers and supporting details are, a dialogue is over due on contingency, mitigation and transition plans … a transition of this magnitude (people) takes time, and technology is consistently proving to transition faster! The only national level politician that spoke this narrative was Andrew Yang – I hope he re-enters the discussion soon!
Batched non-urgent financial reads – 2-23-20
- TU: TELUS Corporation (TU) CEO Darren Entwistle on Q4 2019 Results – Earnings Call Transcript
- Comment: I found their strategy and update mostly incoherent – like a laundry list that wasn’t woven together, but they seem confident in returning more capital to shareholders over near term
- Conclusion: I will only build current position with purchases at high discount – hard to justify paying premium without more coherent strategy.
- FSLR: First Solar, Inc. (FSLR) CEO Mark Widmar on Q4 2019 Results – Earnings Call Transcript
- Comment- After missing 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.
- HASI: Hannon Armstrong Sustainable Infrastructure Capital, Inc. (HASI) CEO Jeff Eckel on Q4 2019 Results – Earnings Call Transcript
- 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.
- Data Center REITs: Battle Of The Clouds
- 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.
- Teva: The Road To Perdition Has Turned Into A Path Towards Redemption by The Fortune Teller
- 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.
- Conclusion: No action – hold existing bonds.
- NUAN: 3 Reasons To Buy Nuance Communications
- 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.
- Conclusion: Further study required
- Mobility/IT: CES 2020 UAM, Future Mobility Solutions
- Comment – A CES overview from 100ft view. The one element that surfaced was around additional and new human / technical integrations – automation and digitalization of human behavior –
- Conclusion: Deeper dive on how Toyota (and others) are investing to benefit from broader technology implementations like smart cities – are there early investment opportunities?
wow! Possible solar technology breakthrough
Quote: “Researchers have set a world record for the conversion of solar energy to electricity via the use of tiny nanoparticles called ‘quantum dots’. The technology has a huge range of potential applications, including the possibility to use it as a flexible, transparent skin to power cars, planes, homes and wearable technology.”
This is really cool if it pans out and is commercially viable; no surprise that the research does NOT come from US (seems we spend all our research $ on guns and bombs).
A bit more detail, quote: “Professor Wang’s team set the world record for quantum dot solar cell efficiency by developing a unique surface engineering strategy. Overcoming previous challenges around the fact that the surface of quantum dots tend to be rough and unstable — making them less efficient at converting solar into electrical current. “This new generation of quantum dots is compatible with more affordable and large-scale printable technologies,” said Professor Wang. “The near 25 per cent improvement in efficiency we have achieved over the previous world record is important. It is effectively the difference between quantum dot solar cell technology being an exciting ‘prospect’ and being commercially viable.'”
Source https://www.sciencedaily.com/releases/2020/02/200218182208.htm
Cobalt study – a flawed conclusion
I disagree and find this almost inflammatory in its complete disregard for environmental impact.
Article: Cobalt supply can meet demand for electric vehicle and electronics batteries (reference)
Here is there summary, quote: “Greater use of electric vehicles might be good for the environment, but further growth hinges on continued availability of critical battery components such as cobalt. Cell phones and other electronics also depend on the element’s availability. Supplies of the metal are adequate in the short term, but shortages could develop down the road if refining and recycling aren’t ramped up or made more efficient, according to new research.”
The bold is my emphasis. Why not advocate a different technology completely?
To add fuel to the fire, (no pun intended) think about cobalt’s source, quote: “Roughly 60% of mined cobalt is sourced from the Democratic Republic of Congo (DRC). The element is often recovered as a byproduct from mining copper and nickel, meaning that demand and pricing for those other metals affects the availability of cobalt. Half of the current supply of cobalt is incorporated into cathodes for lithium-ion batteries, and many of those batteries are used in consumer electronics and electric vehicles.”
The authors seem more concerned about meeting the cobalt needs based on today’s technology and usage models without any regard to the impact of DRC environmentally and / or socially. Just a sad, sad perspective to omit those potential impacts and conclude, quote: “the researchers concluded that cobalt supply is adequate in the short-term. They estimate supply will reach 320-460 thousand metric tons by 2030, while demand will reach 235-430 thousand metric tons. The team recommends that the industry invest in additional efficient refining and recycling capacity, so it can continue to meet demand.”
Plastic Recycling – is the landscape changing?
Mechanical recycling – green
Recycled plastic demand surplus – grey
Basically, the demand for recycled plastic is growing faster than the supply (not supply of ‘old’ plastic, but the supply of recycled available plastic).
From Bloomberg, quote: “About 8 million tons of plastics are going into the ocean annually,” he said in an interview. “If you look at plastic packaging, around 95% is not being recycled each year which is $100 billion worth of plastic, and that’s valuable for entrepreneurs.”
And the punchline: “An estimated $80 billion-$120 billion of value is lost because of packaging that goes into the environment, said Navneet Chadha, principal operations officer at the World Bank’s International Finance Corp., which helps fund private sector investment in developing countries. “We have to think of used plastic as a resource, not as a waste.”
Think of all the QA corner cases … oh my!
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. “
Consumer Card- charge offs & delinquencies
Basically, things are the same month to 3 month avg.
January credit card delinquency/charge-off rates • 3:24 PM
| Company | Type | January 2020 | December 2019 | November 2019 | 3-month average |
| Capital One | delinquency | 4.10% | 3.93% | 3.91% | 3.98% |
| charge-off | 4.31% | 4.55% | 4.43% | 4.43% | |
| American Express | delinquency | 1.60% | 1.60% | 1.60% | 1.60% |
| charge-off | 2.30% | 2.50% | 2.40% | 2.40% | |
| JPMorgan | delinquency | 1.14% | 1.13% | 1.17% | 1.15% |
| charge-off | 2.19% | 2.28% | 2.20% | 2.22% | |
| Synchrony | core delinquency | 4.50% | 4.40% | 4.60% | 4.50% |
| adjusted charge-off | 5.20% | 5.40% | 4.90% | 5.17% | |
| Discover Financial | delinquency | 2.65% | 2.62% | 2.61% | 2.63% |
| charge-off | 3.45% | 3.50% | 3.46% | 3.47% | |
| Alliance Data Systems | delinquency | 6.00% | 5.80% | 5.90% | 5.90% |
| charge-off | 7.20% | 6.10% | 6.30% | 6.53% | |
| Citigroup | delinquency | 1.58% | 1.56% | 1.58% | 1.57% |
| charge-off | 2.49% | 2.77% | 2.57% | 2.61% | |
| Bank of America | delinquency | 1.61% | 1.60% | 1.63% | 1.61% |
| charge-off | 2.54% | 2.54% | 2.60% | 2.56% |