Showing posts sorted by relevance for query it's too early. Sort by date Show all posts
Showing posts sorted by relevance for query it's too early. Sort by date Show all posts

Monday, December 21, 2015

"Morgan Stanley: ‘Still Too Early’ to Buy MLPs" (AMLP)

I may have to sue Morgan Stanley.
AMLP $10.55 up 11 cents. All-time low $10.55 on December 8th.

From Barron's Income Investing:
It’s the question on the mind of every investor with even a passing interest in energy-focused master limited partnerships. Is it time to buy?

It has certainly seemed like it was the time to buy at other points in the past year. And each time the sector has moved down another leg along with the price of crude. The Alerian MLP ETF (AMLP), which tracks the benchmark MLP index, has stabilized some since the Federal Reserve raised interest rates last week, but it is still near its lows, down 40% this year.

Now the folks at Morgan Stanley Research are saying it is still to soon to buy. This comes in a Monday research note looking at which equity sectors are mispriced since Fed liftoff. They write of MLPs:
Our view is that it is still too early to buy the MLPs. There are many concerns about bankruptcies in the energy sector coming,and both Evan Calio and Adam Longson are incrementally negative about oil dynamics in the near term. Many yield-seeking investors, particularly on the retail side,are very overweight this group,and there may be substantial selling in front of us....
...MORE

Note the interior quote marks in the Barron's headline.

Long time readers may remember such hits as "Buying Oil Stocks: It's Still Too Early (XLE; XOP)".
Or as documented in July 21's "Both the Major Oil Company ETFs Set Multi-Year Lows This Morning (XLE; XOP)":

I'm Troy McClure. You may remember me from such earlier posts as:

Jan. 30



It's too early


"It's Too Early"
Jan. 12

It's Too Early

 

It's (still) Too Early
Jan. 2

It's Too Early 
Dec. 8

It's Too Early
Nov. 29

It's Too Early
Nov. 4

It's Too Early
Oct. 27

It's Too Early
Oct. 22
It's Too Early


Repetitious but at least we varied the type size/face. 

There are quite a few more during the summer-fall of 2014 from before we settled on the three word formulation. 

Going forward we'll try to change it up a bit for our patient (and long suffering) readers. 

Friday, June 26, 2015

Major Integrated Oil Stocks Once Again At Support (XLE; XOP)

The proxy for the majors is the Energy Select Sector SPDR ETF comprised of the biggest oil companies in the S&P 500. $75.68 last, down 15 cents. The multi-year low hit on Jan. 14, $71.70, is less than four bucks away.

From FinViz:
XLE  The Energy Select Sector SPDR Fund daily Stock Chart

I bring this up because the proxy for the smaller companies, the SPDR S&P Oil & Gas Exploration & Production ETF has traded decisively through its rising trend line. Again, from FinViz:

XOP  SPDR S&P Oil & Gas Exploration & Production ETF daily Stock Chart
Although still higher above the January low, in both absolute and percentage terms than the XLE, the little guys are acting as if the hot money that piled in on the up-moves is getting bored and/or scared.

See also May 29's "Chartology: Oil Stocks Are At A Very Interesting Price Level (XLE; XOP)".

And although we had to suffer the slings and arrows of outrageous fortune--you can quote that if you wish--because we've been counseling against getting back on board the love train--ditto--of energy equities as they made these 10-20% up-moves we still think it's too early.

Related:
"Wait For the ‘Second Low’ Before Buying Energy Stocks" (XLE; XOP)
and:

*I'm Troy McClure. You may remember me from such earlier posts as:
Jan. 30

It's too early
"It's Too Early"
Jan. 12
It's Too Early
 
It's (still) Too Early
Jan. 2
It's Too Early 
Dec. 8
It's Too Early
Nov. 29
It's Too Early
Nov. 4
It's Too Early
Oct. 27
It's Too Early
Oct. 22
It's Too Early


Repetitious but at least we varied the type size/face. 
There are quite a few more during the summer-fall of 2014 from before we settled on the three word formulation. 
Going forward we'll try to change it up a bit for our patient (and long suffering) readers.  

Friday, March 13, 2015

Hi, I'm Troy McClure: "WTI Plunges To $45 Handle - Lowest Since January"

WTI is going lower and as for hydrocarbon equities:
It's Too Early*
April futures $46.12 down 93 cents after trading as low as $45.92

Lifted in toto from ZeroHedge:
While none of the catalysts are new (IEA warning temporary stabilization amid rising oil glut and increased US production), it appears the February bounce is done as our discussions of storage limitations gains traction among the ETF-driven knife-catchers. April WTI Crude futures have collapsed in the last few days from over $52 to a $45 handle now - the lowest since January and only marginally above cycle lows... As oil cratered so EURUSD slipped and S&P futures fell.
Crude Carnage...
And EURUSD algos hit another trigger point
As Reuters notes,
Oil prices might have stabilized only temporarily because the global oil glut is worsening and U.S. production shows no sign of slowing, the International Energy Agency said on Friday.

"On the face of it, the oil price appears to be stabilizing. What a precarious balance it is, however," the Paris-based IEA said in its monthly report.

"Behind the façade of stability, the rebalancing triggered by the price collapse has yet to run its course, and it might be overly optimistic to expect it to proceed smoothly."

"Yet U.S. supply so far shows precious little sign of slowing down. Quite to the contrary, it continues to defy expectations," the IEA said.
*  *  *

*I'm Troy McClure. You may remember me from such earlier posts as:
Jan. 30
It's too early
"It's Too Early"
Jan. 12
It's Too Early
 
It's (still) Too Early
Jan. 2
It's Too Early 
Dec. 8
It's Too Early
Nov. 29
It's Too Early
Nov. 4
It's Too Early
Oct. 27
It's Too Early
Oct. 22
It's Too Early

Repetitious but at least we varied the type size/face. 
There are quite a few more during the summer-fall of 2014 from before we settled on the three word formulation. 
Going forward we'll try to change it up a bit for our patient (and long suffering) readers.  

Tuesday, July 21, 2015

Both the Major Oil Company ETFs Set Multi-Year Lows This Morning (XLE; XOP)

They have since bounced along with WTI, most active September's $50.59 up 15 cents with the Dow Jones Industrials down 216 and the S&P down 11.

Here's the ETF for the Major's, State Street's Energy Select Sector SPDR®
XLE Energy Select Sector SPDR ETF daily Stock Chart
And the fund for the little guys, the SPDR® S&P® Oil & Gas Exploration & Production ETF:
XOP SPDR S&P Oil & Gas Explor & Prodtn ETF daily Stock Chart
So What now? 

Pretty much what we've been saying for a while now:
I'm Troy McClure. You may remember me from such earlier posts as:
Jan. 30

It's too early
"It's Too Early"
Jan. 12
It's Too Early
 
It's (still) Too Early
Jan. 2
It's Too Early 
Dec. 8
It's Too Early
Nov. 29
It's Too Early
Nov. 4
It's Too Early
Oct. 27
It's Too Early
Oct. 22
It's Too Early


Repetitious but at least we varied the type size/face. 
There are quite a few more during the summer-fall of 2014 from before we settled on the three word formulation. 
Going forward we'll try to change it up a bit for our patient (and long suffering) readers. 

Tuesday, November 4, 2014

"Energy shares lead Wall St lower in broad decline" (XLE; ERY)

You may remember us from our previous hit posts such as October 21's "Oil Sell-off, the Goldman View (XLE; ERY)":
We are seeing a lot of recommendations to buy hydrocarbon companies and want to note:

It's Too Early
More to come.
Oct. 22's "WTI Crude Slides Below $81":
It's Too Early

Or Oct. 27's "Oil: Goldman Lowers Forecast, Brent and WTI Both Down":

It's Too Early

Repetitious but at least we varied the type size/face.

And we still think the broader market is going higher.
The XLE has just rebounded a bit, $84.14 down $1.90 (2.21%).
The triple levered inverse ERY up $1.24 (6.82%) at $19.42 with a target of $21.00.
WTI $76.45 down 2.96% on the day.

From Reuters via Yahoo Finance:
U.S. stocks fell in a broad decline on Tuesday, with energy shares leading the selloff as crude prices declined for a fourth straight day, raising concerns about global demand.

U.S. crude oil fell 2.7 percent to $76.64 per barrel, dropping to its lowest level in about three years after Saudi Arabia cut sales prices to the United States. This is the fourth straight session that crude has fallen, losing 6.8 percent over that period. It is down more than 30 percent from a recent closing peak.
While the broader market has risen this year, energy has lagged. The S&P energy index fell 2.5 percent on Tuesday, and it is the only one of the ten primary sectors to be negative on the year.

The Energy Select Sector SPDR ETF fell 2.7 percent on Tuesday to $83.74, while Chevron Corp fell 1.2 percent to $115.38....MORE

Saturday, November 29, 2014

UPDATED--Oil: Rout (XLE; ERY)

Update: "Lower oil price could stoke US stock bubble"
Update II:"Oil: So Where Does the Decline Stop?"
Original post:

I'm Troy McClure. You may remember me from such earlier posts as:
Nov. 4
"Energy shares lead Wall St lower in broad decline" (XLE; ERY) 
You may remember us from our previous hit posts such as October 21's "Oil Sell-off, the Goldman View (XLE; ERY)":

We are seeing a lot of recommendations to buy hydrocarbon companies and want to note:

It's Too Early
More to come.
Oct. 22's "WTI Crude Slides Below $81":
It's Too Early
Or Oct. 27's "Oil: Goldman Lowers Forecast, Brent and WTI Both Down":

It's Too Early

Repetitious but at least we varied the type size/face.

And we still think the broader market is going higher.
The XLE has just rebounded a bit, $84.14 down $1.90 (2.21%).
The triple levered inverse ERY up $1.24 (6.82%) at $19.42 with a target of $21.00.
WTI $76.45 down 2.96% on the day....MORE
WTI settled at $66.15 yesterday, Nov. 28 and the ERY closed at $21.92 up $3.57 or 19.46%. 
Now what?
We'll get to that over the course of the weekend but first a look at where we're at right now:

Prices were down along the entire curve (CME) but the contango steepened dramatically.
Our $70 target was beaten handily and I'd expect some countertrend action on Monday. 
The ERY is a triple levered inverse of the XLE, be careful. On Friday the triple-levered gold miner ETF NUGT was down 25.05% (4.01) at $12.00. These things are dangerous.
Brent $70.15. 

From the FinancialTimes:
Market rout as oil slide rocks energy groups
Shares in the world’s biggest energy groups have tumbled in a market rout as plunging oil prices put at risk billions of dollars of investment and jeopardised future supplies of crude.

The sharp slide in the price of Brent oil after Opec’s decision not to cut output triggered warnings that oil companies would cut as much as $100bn of capital spending in response, imperilling the US shale bonanza and threatening much Arctic oil exploration.

Meanwhile oil’s fall continued to play havoc with the currencies of oil exporting countries, especially Russia. At one point on Friday, the rouble slid to a record low.

Leonid Fedun, vice-president of Lukoil, Russia’s second largest crude producer, told the Financial Times that Opec was trying to turn the US shale oil “boom” into a “bust” for smaller producers.
He compared the surge in North American shale to the dotcom and subprime mortgage booms, and said Opec’s objective now was “to get small producers with large debts and low efficiency to pack up and leave the market”.

Opec said on Thursday that it was leaving its output ceiling of 30m barrels a day unchanged, prompting a swift 8 per cent drop in the oil price, which was already down by nearly 40 per cent since mid-June. Brent fell $2.80 on Friday to $69.78, a four-year low....MORE
“We cannot overstate what a dramatic and fundamental change this is for the oil market,” said Mike Wittner, senior oil analyst at Société Générale.
That would be a bingo.


Hi, I'm Troy McClure from Chris Coleman on Vimeo.

Monday, January 12, 2015

Retail Investors Have Been Buying Oil Stocks (XLE; XOP; HAL)

For probably-jaded long-time readers I apologize for dragging this old chestnut out of the memory hole but:

It's Too Early

For newer readers I did the "It's too early" schtick in October and November 2014 while waiting for a couple of the major oil & gas ETF's to visit two-year low territory. Here's the big dog, the Energy Select Sector SPDR Fund with all the behemoths from the S&P energy sector:
$74.24 Down 2.12 (2.78%) today.

And here are the pups, the S&P Oil & Gas Exploration & Prodction ETF:


$42.94 Down 2.32 (5.13%)on the day.
We're there and now I've got to say, ahead of earning and guidance season:

It's (still) Too Early
From Yahoo Finance:

Retail investors predict a bottom for oil
Armed with the information and technology to make moves quickly, retail investors are trading more and trading from anywhere they want. Nicole Sherrod, Managing Director of Trading at TD Ameritrade (AMTD) analyzed the trends of more than six million individual investors to find out what they’re buying and how they’re going about it.

During last month’s end of year rally, Sherrod saw TD investors tweak portfolios and take a step back. “In the last quarter, they started to slightly take their foot off the gas. As the market pushed up, they rotated out of some of the momentum stocks and into stocks with higher yield and lower beta.” Sherrod says clients were seeking to balance opportunity with restraint. “It seemed like a very strategic way to position themselves to still take part in the markets as they pushed to higher highs but also be a little more cautious.”

As oil prices plummeted, investors started buying more shares of companies with close ties to the industry. 

“At the end of the year the big story was energy. I think some of it was trying to call the bottom. They were looking at oil producers that paid a higher yield. I think that was a valuation play,” says Sherrod. Shares in the energy sector were the most popular purchase by TD Ameritrade clients in 2014. Buys of Halliburton (HAL), Chevron Corporation (CVX) and BP PLC (BP) all increased as their stock prices fell. ...MORE
Halliburton is interesting as a possible "tell" on the entire industry sector, more tomorrow.

Thursday, July 27, 2017

Latest memo from Howard Marks: There They Go Again...Again

From Oaktree:
Some of the memos I’m happiest about having written came at times when bullish trends went too far, risk aversion disappeared and bubbles inflated.  The first and best example is probably “bubble.com,” which raised questions about Internet and e-commerce stocks on the first business day of 2000.  As I tell it, after ten years without a single response, that one made my memo writing an overnight success. 

Another was “The Race to the Bottom” (February 2007), which talked about the mindless shouldering of risk that takes place when investors are eager to put money to work.  Both of those memos raised doubts about investment trends that soon turned out to have been big mistakes.

Those are only two of the many cautionary memos I’ve written over the years.  In the last cycle, they started coming two years before “The Race to the Bottom” and included “There They Go Again” (the inspiration for this memo’s title), “Hindsight First, Please,” “Everyone Knows” and “It’s All Good.”  When I wrote them, they appeared to be wrong for a while.  It took time before they were shown to have been right, and just too early. 

The memos that have raised yellow flags in the current up-cycle, starting with “How Quickly They Forget” in 2011 and including “On Uncertain Ground,” “Ditto,” and “The Race Is On,” also clearly were early, but so far they’re not right (and in fact, when you’re early by six or more years, it’s not clear you can ever be described as having been right).  Since I’ve written so many cautionary memos, you might conclude that I’m just a born worrier who eventually is made to be right by the operation of the cycle, as is inevitable given enough time.  I absolutely cannot disprove that interpretation.  But my response would be that it’s essential to take note when sentiment (and thus market behavior) crosses into too-bullish territory, even though we know rising trends may well roll on for some time, and thus that such warnings are often premature.  I think it’s better to turn cautious too soon (and thus perhaps underperform for a while) rather than too late, after the downslide has begun, making it hard to trim risk, achieve exits and cut losses.

Since I’m convinced “they” are at it again – engaging in willing risk-taking, funding risky deals and creating risky market conditions – it’s time for yet another cautionary memo.  Too soon?  I hope so; we’d rather make money for our clients in the next year or two than see the kind of bust that gives rise to bargains.  (We all want there to be bargains, but no one’s eager to endure the price declines that create them.)  Since we never know when risky behavior will bring on a market correction, I’m going to issue a warning today rather than wait until one is upon us....MORE
HT: Alpha Ideas

Monday, October 27, 2014

Oil: Goldman Lowers Forecast, Brent and WTI Both Down

Following up on Izabella Kaminska's Oct. 21 post "Oil Sell-off, the Goldman View (XLE; ERY)", which we took as an opportunity to inveigh* against jumping wholeheartedly back into the oil & gas stocks.
Brent $85.43 down 70 cents, WTI $80.50 down $0.51
From FT Alphaville:

Goldman’s new improved view on the oil sell-off
Earlier this month Goldman Sachs put out a note arguing that whilst their overall view was still bearish, the oil price sell-off thus far had been too much too soon.

The spot market fundamentals, they noted, were in balance — meaning that if anything was driving a “change” in demand it was curve repositioning, mostly by overly anxious speculators who had decided an exit was warranted despite the balanced fundamentals.
This, however, is no longer Goldman’s view.

As of Monday, the new Goldman rhetoric on oil goes as follows:
While large shifts in positioning precipitated a sell-off in oil prices that far exceeded the actual weakening in fundamentals, our confidence in a 2015 oversupplied global oil market has increased. As a result, we are bringing forward our medium-term bearish oil outlook. We now forecast that prices will need to decline further in 2015 as (1) accelerating non-OPEC production growth outside North America will outpace demand growth, leaving the oil market oversupplied, (2) the scale and sustainability of US shale oil production is driving the global cost curve lower and sustaining cost deflation, and (3) OPEC will no longer act as the first-mover swing producer and that US shale oil output will be called upon to fill this role.
I.e. the price sell off has not been too much too soon, and more like, ooops, perhaps speculators were right to pull out early after all....MUCH MORE
*We are seeing a lot of recommendations to buy hydrocarbon companies and want to note:

It's Too Early
More to come.
Energy Select Sector SPDR ETF (XLE) Friday close $85.60. ERY (Direxion Daily Energy Bear 3X ETF) Friday close $18.65.
Oct. 21 closes $85.96 and $18.54 respectively.
It is still too early, meaning there should still be some profitability to be found in the ERY.

Related:
"WTI Crude Slides Below $81"

Tuesday, November 30, 2010

"How cleantech VCs are reacting to the broken venture model"

From Greentech:
In many of my recent conversations with colleagues, there's a recurring theme: As a group, these investors are increasingly convinced that the traditional venture capital investment model as applied to cleantech hasn't been working.

In part, this is because there's increasing conviction among VCs and LPs across sectors that the venture capital model overall is broken and needs re-invention.  And in part, this is because the exit window has been so tough to hit for so many venture-backed startups across all sectors, over the past decade. So it's not just a cleantech thing.

But even so, with some exceptions the overall body of cleantech VCs I speak with do recognize that there are differences in energy, water and materials markets that mean the mid-2000s Silicon Valley approach to cleantech venture capital doesn't work.  To recap some of these which we've previously discussed on this site:

1. The investment models have been too focused on and accepting of capital intensity, without already knowing where the capacity-buildout / project finance capital would come from.

2. There's been too many investments done at valuations that reflect unrealistic growth expectations, unrealistic visions of the endgame being some "winner take all" scenario, and unrealistic hopes for huge IPOs instead of the more likely M&A exit.

3. Too much of a focus on proprietary IP, when so much of that IP is just defending one particular way of producing a commodity.

4. Too much of a focus on the technology, and not enough on the management team's ability to out-execute other teams.

5. Too much focus on just a handful of subsectors (solar, biofuels, transportation, building energy efficiency), when cleantech is really more an overarching investment thesis about looming natural resource scarcity, and thus more broadly applicable to a wider variety of subsectors.

6. Too much capital put in too early in the lifecycle of the company.  Putting in a ton of capital after the science risk is removed, under the expectation that now it's off to the races... but then finding that the path of successful productization, scale manufacturing, and commercialization will take longer than expected, which can be deadly when the company has been put into a high cashburn situation.

For all of these reasons, VCs who have invested into the cleantech sector are now talking to me and to each other about hard lessons learned from the past 5 years of investing.

What's interesting right now, however, is to see how differently many of these investors are reacting to these lessons.  If you think about it, there are really four basic ways to react to the realization that the traditional venture model as applied to cleantech isn't working.

- You can continue to beat your head against the wall anyway.  And there are certainly numerous investors out there doing just that.  They may talk about doing things differently, but at the end of the day their investments in 2011 will look much like their investments in 2007.

- You can narrow down your view of cleantech so that you're only investing in the sectors that look very much like other sectors you're more used to.  For example, narrowing down to only investing in internet and electronics-based sectors within cleantech.  And there are many investors, predominantly among the generalist VCs who had dabbled in cleantech, who are doing exactly this.  They don't want to say they're abandoning cleantech, but they do say they're really focusing on familiar-looking areas. Which helps partially explain the current high level of interest in "energy efficiency" as a category, because so much of that is IT-based.  This makes a lot of sense, but is kind of where most of the herd is headed right now, and also it's a bit unclear still how a "Netscape Moment" can emerge out of these investment categories.

- You can run screaming for the hills and abandon the category altogether.  And this is definitely happening across the generalist venture landscape as well.  Rarely is it being done overtly, but in many cases it's been a quiet retreat as cleantech teams get purged from big-named generalist venture firms.  And it's happening to a lesser extent among LPs, although it's tough to tell how much of this is just due to a general pullback of LPs from venture capital altogether.  But the net result is the same -- fewer specialist firms able to raise their next fund, and fewer cleantech specialists within generalist funds, so fewer cleantech venture investors overall....MORE

Friday, November 8, 2024

Bond Mavens At DoubleLine: "In Terms of Inflation, the Beast is not Tamed"

From Neue Zürcher Zeitung's TheMarket.ch, November 5:

Jeffrey Sherman and Bill Campbell, investment managers at DoubleLine, expect price pressures in the US economy to continue. They explain what the presidential election means for the economy and financial markets – and where they spot attractive opportunities for investments.

Deutsche Version

In the financial markets, meaningful movements are taking place. The yield on ten-year U.S. Treasuries – the most important price in the world – has shot up from less than 3.7% to almost 4.4% since mid-September. Meanwhile, equity markets are experiencing a rotation out of big tech stocks and into a broader selection of companies.

With the US presidential election underway, investors are bracing for a key event that will have a significant impact on the markets. The same holds true regarding the future balance of power in Congress. In addition, the Federal Reserve will decide on interest rates at its meeting on Thursday.

Jeffrey Sherman and Bill Campbell, investment managers at the bond firm DoubleLine, discuss the outlook for the US economy and the potential impact of the elections. In an in-depth interview with The Market NZZ, they also talk about the next steps for the Fed and explain which strategies they favor in the current environment.

«It’s a little too early to tell whether it’s a soft landing or a no landing, but it sure doesn’t look like a hard landing»

Despite all the anxiety, the US economy is doing well. Where do you stand in the debate about a hard or soft landing?

Jeffrey Sherman: It’s a little too early to tell whether it’s a soft landing or a no landing, but it sure doesn’t look like a hard landing. Of course, external shocks can impact the economy, but the data feels pretty good. The labor market is clearing itself, services remain strong, and you still have wage growth of more than 4%. That’s the state of the US economy, and that’s why credit spreads are tight. So maybe this is really a soft landing, or we’re at least circling the airport for a while.

Bill Campbell: Another positive impact on the economy is the synchronized global central bank easing cycle, which is occurring outside of a global recession or a financial crisis – a key distinction from typical cycles. We haven’t seen this in decades, potentially dating back to the 1990s.

What role do the US elections play for the economic outlook?

Campbell: There are so many uncertainties around this election; not only in terms of the outcome, since there’s not a clear front runner, but also the policies just seem extremely different. What’s more, on each candidate’s side, it’s not clear how exactly the sequencing will look like: what the details of the policy will be, and if Congress will get in line with the outcome of the executive election for president. And then, another layer of uncertainty is how markets will respond to these potential outcomes.

To what extent is the uncertainty surrounding the election affecting the economy and the markets?

Campbell: Going into this election, employers and businesses have been pretty cautious, as have market participants. There’s not a ton of risk deployed. We believe that capital expenditures and new spending plans have been put on pause because businesses need to know which way policy is going to go in order to spend.

Sherman: I don’t know if there’s more certainty after the election, but there’s certainly more clarity at least. One of the biggest hurdles regarding corporate spending is tax policy. The Tax Cuts and Jobs Act of 2017 is set to expire next year, and it’s thought that a Harris victory would eliminate those tax cuts for businesses, whereas a Trump win would probably lower the corporate tax rate further. So this divergence in outcomes exacerbates some of the uncertainty around the capex side.

What do you think is the most likely scenario after the US elections?

Campbell: Looking at all of this, if global central banks continue to lower interest rates, there’s a reasonable possibility that confidence could start to rebuild and that the business cycle could be extended after we’re getting through the election. This also suggests we may be more in the middle of the economic cycle rather than nearing its end. And in our view, that’s what has been starting to be meaningfully repriced in the past few weeks.

Sherman: You can add to that the clarity you’re getting from central banks, confirming that we are going to get lower rates over the next year. What that exact rate level will be, we can all debate, but it gives confidence to planning from a corporate perspective. So maybe this will rekindle some of the ‹animal spirits›, which also could lead to a higher nominal GDP. But when we get some acceleration in economic growth, we also maybe get a little bit of incremental inflation – and that means the Federal Reserve won’t be as dovish as the market was implying.

Is this a possible explanation as to why yields on U.S. Treasuries have risen again in recent weeks?

Sherman: Yes, but there’s also another driver....

....MUCH MORE

Tuesday, October 21, 2014

Oil Sell-off, the Goldman View (XLE; ERY)

We are seeing a lot of recommendations to buy hydrocarbon companies and want to note:
It's Too Early
More to come.
From FT Alphaville, Oct. 17:
Oil sell-off, the Goldman view
Ever the market-moving contrarians, Jeff Currie and team at Goldman came out with a note on Thursday doing for oil markets what Bullard and Haldane have been doing for markets in general.

When it comes to the oil price decline it is, they say, too much too soon. And, critically, the issue is on the expectations side NOT on the current market supply side:
The recent sell-off in oil has been mostly driven by positioning based upon expected fundamental shifts as opposed to currently observable shifts. While looking into 2015 we have sympathy for these medium- to longer- term bearish views that have driven prices lower, we believe it is too much too early. Prices have also likely overshot to the downside particularly as the lower we go the tighter the near-term balances become. This leaves us near-term constructive despite being bearish as we look further out.
In other words: this is not the oil market price crash you’re looking for. Move along, move along. The curve should not be in backwardation. It should be in lovely yield-generating contango. Why is the market being such a fool?...MORE
Recently:
Oct. 15
Snapping Back At The Close: Energy, Biotech, Solar
Oct. 9 
"Energy Stocks Are Crashing As WTI Plunges Under $85"
Oct. 2 
Options: "Transocean LTD Trader Bets Big On Steeper Losses" (RIG) 
Sept. 30 
Chartology: "Energy- Worst performer over 90 days is on channel support" (XLE; ERY; XOP) 

Tuesday, February 10, 2009

The Australian Wildfires: Kindness roars from embers in Victorian bushfires

It is easy to forget how unpopulated Australia is. The entire country counts 21 million citizens.
Police and fire authorities now believe that upwards of 300 people died in the flames. On a comp basis, that would be 4200 Americans.
It appears the fires were deliberately set.

From the [decidedly right-of-center] (Melbourne) HeraldSun:

I COULDN'T give food. Too much had been donated already.

I was turned away from the Blood Bank. The queues are so long I was told to come back next week.

I could only give money, and tens of thousands of you have done that, too.

What an avalanche of help. Have your fellow Victorians ever shown themselves to be so good?

Our pain now is terrible. The loss immense. But this much we now know to our consolation: A fire can destroy our towns, but not our community.

In fact, never have I seen so many people so desperately eager to lend a hand. My God, but we are strong.

In these days no one walks taller than a volunteer of the Country Fire Authority, of course.

But see how many other of our institutions have rushed to help, too.

Our politicians, so unfairly mocked when all is well and we can afford to quarrel, have been brilliant. Premier John Brumby in particular has shown not just leadership, despite worries for his own property and family, but the compassion that's too often hidden.

OUR police are there in force, of course, and never has Chief Commissioner Christine Nixon's busy warmth seemed so right.

Everywhere you turned, there were people rallying for the victims. ABC radio instantly turned itself into a 24-hour service for Victorians desperate to know about the fires or their missing relatives, or wanting to organise help or issue warnings. 3AW did the same, and became a place where people could talk over their fears, and reach each other....MORE

Here are a couple Op-Ed pieces from [the decidedly left-of-center] The Australian:

AUSTRALIA is a fire continent: it is built to burn. To this general combustibility its southeast corner adds a pattern of seasonal winds, associated with cold fronts, that draft scorching, unstable air from the interior across whatever flame lies on the land. At such times the region becomes a colossal channel that fans flames which, for scale and savagery, have no equal on earth.

Yet even by Australia's standards, Saturday's fires were a horror, which is saying much. Australia has filled the weekly calendar with Red Tuesdays, Ash Wednesdays, Black Thursdays, and is having to re-number its sequels. There was a Black Saturday on February 12, 1977, but Black Saturday II is a bad bushfire on steroids.

It is not an alien visitation. It is a recurring nightmare - at times worse, at times less savage. Australians seem unable to do anything but fight and flee, and curse and console.

Yet for those of us who have long admired Australia's resolve in the face of conflagrations and regarded it as a world leader for the calibre of its fire sciences and bushfire brigades, the recent spectacle arouses dismay.

What saddens many of us is that Australia knows better. It developed many key concepts of fire ecology and models of bushfire behaviour. It pioneered landscape-scale prescribed burning as a method of bushfire management. It devised the protocol for structure protection in the bush, especially the ingenious stratagem of leaving early or staying, preparing and defending. In recent decades it has beefed up active suppression capabilities and emergency services.

Almost uniquely, Australia seemed to have gotten the basics right, certainly better than the muscle-bound, paramilitary response of North America. That approach only set up an ecological insurgency that summer surges of hardware and firefighters could never quell. Americans looked to Australia as a kindred country that knew how to replace feral fire with tame fire.

Yet Australia keeps enduring the same Sisyphean cycle of calamitous conflagrations in the same places. It isn't translating what it knows into its practices. It seems to be abandoning its historic solutions for the kind of telegenic suppression operations and political theatre that have failed elsewhere. Even when controlled burning is accepted in principle, there always seems a reason not to burn in this place or at this time. So the burning gets outsourced to lightning, accident and arson.

It's too early to identify the particulars behind the latest catastrophe. But it's likely that investigation will point to the same culprits, perhaps aggravated by climate change and arson. Both are relevant, but both are potential distractions.

Global warming might magnify outbreaks, but it would mean a change in degree, not in kind; and its effects must in any case be absorbed by the combustible cover.

Arson can put fire in the worst place at the worst time, but its power depends on the capacity to spread and to destroy susceptible buildings....MORE

And:

...I have been a bushfire scientist for more than 50 years, dealing with all aspects of bushfires, from prescribed burning to flame chemistry, and serving as supervisor of fire weather services for Australia. We need to understand what has happened so that we can accept or prevent future fire disasters.

That this disaster was about to happen became clear when the weather bureau issued an accurate fire weather forecast last Wednesday, which prompted me, as a private citizen, to raise the alarm through a memo distributed to concerned residents.

The science is simple. A fire disaster of this nature requires a combination of hot, dry, windy weather in drought conditions. It also requires a source of ignition. In the past, this purpose has been served by lightning. In this disaster, lightning has not played a big part, and for this Victorians should be grateful. But other sources of ignition are ever-present. When the temperature and wind increase to extreme levels, small events -- perhaps the scrape of metal across a rock, a transformer overheating or sparks from a diesel engine -- are capable of starting a fire that can in minutes become unstoppable if the fuel is present.

The third and only controllable factor in this deadly triangle is fuel: the dead leaves, pieces of bark and grass that become the gas that feeds the 50m high flames that roar through the bush with the sound of jet engines.

Fuels build up year after year at an approximate rate of one tonne a hectare a year, up to a maximum of about 30 tonnes a hectare. If the fuels exceed about eight tonnes a hectare, disastrous fires can and will occur. Every objective analysis of the dynamics of fuel and fire concludes that unless the fuels are maintained at near the levels that our indigenous stewards of the land achieved, then we will have unhealthy and unsafe forests that from time to time will generate disasters such as the one that erupted on saturday....MORE

We had better start controlled burns in California, now.

Wednesday, September 26, 2018

Media—Amazon Wants To Run Digital Advertising and Subscriptions For Newspapers

Maybe not AMZN directly, but the lines of distinction between Bezos, Amazon, and the WaPo are very faint-to-nonexistant except for the legal fictions.

A deep dive from NiemanLab, Sept. 25:

Newsonomics: The Washington Post’s ambitions for Arc have grown — to a Bezosian scale
It is increasingly the tech stack of choice for major news publishers. But now Arc wants to be the backbone of your digital advertising and subscriptions, too.
In the blink of a digital era, The Washington Post’s Arc publishing platform has sprinted from an experiment to a full-on strategic business.

Arc is now used by more than 30 clients operating more than 100 sites on four continents. It’s not the industry standard, but it’s not too early to call it an industry standard. But its ambitions are still nowhere near met. Now the Post is moving Arc into a new phase, talking of a connective effect that could impact the face of the business formerly known as “newspapering.”

Arc wants to be more than a technology stack — it wants to be a network.

“Arc is reaching a critical mass of most of the advertising markets in the United States, the major markets,” Shailesh Prakash, chief product and information officer for the Post, told me recently, listing off cities where it has customers — New York, Los Angeles, Chicago, Boston, Philadelphia, Dallas, Washington.

How do publishers traditionally make money? Two ways: from advertisers and from readers. Arc has plans to be a player in both for news sites around the country and around the world.
First, ads: The Post will begin testing an ad network based around Arc clients in 2019. “We’ve got this technology we call Zeus, which basically does a more effective header bidding. Does things like autoplay for video, refreshing of ads. And I think our sales team is fairly good on the programmatic side to figure out how to get more, to squeeze money.”

Can the Post convince publishers in all these different markets to let the Post power some of their advertising?Prakash thinks so. “It’s good for us because The Washington Post now has a wider network to sell to, and it’s good for them because we think we can raise their CPMs. Certainly, we raise our own CPMs over here with our technology. So can we do that for others?”
He says Zeus increased the Post’s CPM ad rates by 30 percent. What drives that growth? Speed, viewability, and optimizing programmatic bidding, says Prakash.

Next, readers: The Post’s new ambition is to become a key part of its customers’ digital consumer revenue too — that is, the digital subscription businesses of its customers. At the end of this month, starting with the New Zealand network of sites NZME, the Post will launch a paywall product Prakash calls “a CMS for subscription.”

“Everybody has a paywall, but there’s a lot of back and forth that goes on every time you want to try a particular offer,” he said. “Let’s say Mother’s Day is coming, and you want to be a retailer — put some kind of an offer out there. There’s a lot of friction between the business team that wants to do and the design team and the engineering team that has to implement it.”

Just as content management systems took a once difficult task (updating a webpage) and made it one-click easy, this new offering aims to make paywall adjustments simple to pull off on the fly — “you basically put your creative in there to set your prices and to let the offer go,” Prakash says. Want to make your sports paywall tighter than your opinion paywall and see what happens? Make traffic from Reddit unmetered for the day? Offer out-of-town visitors a different deal than locals get? Each of those could be worthy ideas, “but then it gets lost in all the usual confusion that occurs when an engineering team gets involved.” The goal is to enable rapid and frequent paywall testing, “to empower the business analysts to do their own experiments to come to an optimal configuration of what works for them. The next version of the paywall of the subscription module will be propensity-based.”
At this point, the Post plans to market this offer-making technology to Arc clients. As it develops a more sophisticated propensity modeling — intended to parallel the work of such paywall-tech incumbents like Piano Media — the Post and Arc could get more fully into the digital subscription business. It’s not hard to imagine networked, perhaps bundled, digital subscription offers, though that’s not in immediate plans. The subscriptions product will be in beta this fall and “will become generally available early winter,” says Prakash.

If this story sounds familiar, it’s because this isn’t the first time a Jeff Bezos-led company has tried to pull this trick — becoming the infrastructural underpinnings of an industry by offering products both good enough and easy enough that they fade into the (highly profitable) background. That’s the path Amazon Web Services took to becoming a profit-producing machine. And AWS followed the same path Arc wants to head down: a technology stack built first for internal use (running Amazon’s servers, running the Post’s digital publishing), developed for a “first and best customer,” and then licensed out to the world.

Not a replacement — an upgrade
As the daily newspaper world continues to reel — from print ad loss, uneven digital moneymaking, and intensifying cost pressures — the Post wants to make Arc central to the business strategies of the trade....
...MUCH MORE

Earlier today
"UK's News Media Association says Google and Facebook should fund the journalism from which they profit"
"Amazon staff said to be taking bribes to leak data" (AMZN)

Monday, October 20, 2014

New York Magazine's Million Word Interview With Mark Andreessen

It's not really a million words but man-o-mandingo the guy likes to talk.
From New York Magazine:

In Conversation Marc Andreessen
The Netscape creator turned Silicon Valley sage on why optimism is always the safest bet
It’s not hard to coax an opinion out of Marc Andreessen. The tall, bald, spring-loaded venture capitalist, who invented the first mainstream internet browser, co-founded Netscape, then made a fortune as an early investor in Twitter and Facebook, has since become Silicon Valley’s resident philosopher-king. He’s ubiquitous on Twitter, where his machine-gun fusillade of bold, wide-ranging proclamations has attracted an army of acolytes (and gotten him in some very big fights). At a controversial moment for the tech industry, Andreessen is the sector’s biggest cheerleader and a forceful advocate for his peculiar brand of futurism.

I love this moment where you’re meeting Mark Zuckerberg for the first time and he says to you something like, “What was Netscape?”1Mouse over or tap underlined text to read footnotes.
He didn’t know.

He was in middle school when you started Netscape. What’s it like to work in an industry where the turnover is so rapid that ten years can create a whole new collective memory?
I think it’s fantastic. For example, I think there’s sort of two Silicon Valleys right now. There’s the Silicon Valley of the people who were here during the 2000 crash, and there’s the Silicon Valley of the people who weren’t, and the psychology is actually totally different. Those of us who were here in 2000 have, like, scar tissue, because shit went wrong and it sucked.

You came to Silicon Valley in 1994. What was it like?
It was dead. Dead in the water. There had been this PC boom in the ’80s, and it was gigantic—that was Apple and Intel and Microsoft up in Seattle. And then the American economic recession hit—in ’88, ’89—and that was on the heels of the rapid ten-year rise of Japan. Silicon Valley had had this sort of brief shining moment, but Japan was going to take over everything. And that’s when the American economy went straight into a ditch. You’d pick up the newspaper, and it was just endless misery and woe. Technology in the U.S. is dead; economic growth in the U.S. is dead. All of the American kids were Gen-X slackers2—no ambition, never going to do anything.

What did you do?
I just went to college. I did my thing. I came out here in ’94, and Silicon Valley was in hibernation. In high school, I actually thought I was going to have to learn Japanese to work in technology. My big feeling was I just missed it, I missed the whole thing. It had happened in the ’80s, and I got here too late. But then, I’m maybe the most optimistic person I know. I mean, I’m incredibly optimistic. I’m optimistic arguably to a fault, especially in terms of new ideas. My presumptive tendency, when I’m presented with a new idea, is not to ask, “Is it going to work?” It’s, “Well, what if it does work?”

That stance is something I work very hard to maintain, because it’s very easy to slip into the other mode. I remember when eBay came along,3 and I thought, No fucking way. A fucking flea market? How much crap is there in people’s garages? And who would want all that crap? But that was not the relevant question. The eBay guys and the people who invested early, they said, “Let’s forget whether it’ll work or not. What if it does work?” If it does work, then you’ve got a global trading platform for the first time in the world, you’ve got liquidity for products of all kinds, you’re going to have true price discovery.

But clearly you don’t think everything’s going to work.
No. But there are people who are wired to be skeptics and there are people who are wired to be optimists. And I can tell you, at least from the last 20 years, if you bet on the side of the optimists, generally you’re right.

On the other hand, if there’d been a few more skeptics in 1999, people might have kept their retirement money. Isn’t there a role for skepticism in the tech industry?
I don’t know what it buys you. Let me put it this way. If you could point to periods of time in the last hundred years when everything just stabilized and didn’t change, then maybe yes. But that never seems to actually happen. The skeptics are wrong all the time.

These days, Silicon Valley is this cultural institution in a way that Wall Street might have been in the ’80s.
That has its pros and cons. But one of the things you’ll hear from entrepreneurs is it’s better—not necessarily easier—to build companies when there’s a recession because there’s less froth,4 it’s easier to hire people, there are fewer competitors. Entrepreneurs say in an economic boom it’s actually hard to build a company because everybody’s too excited and there is too much money funding too many marginal companies.

There are a few big companies in the tech industry today: Facebook, Google, Amazon, Apple. Which of today’s start-ups do you think is going to join them?
All of ours.

You’ve got your hands in so many pies as an investor.
And you have to love all your children equally.

One of the things that you seem to really enjoy, at least on Twitter, is digging up old pessimistic predictions of people like Paul Krugman, saying that the internet’s going to be the next fax machine or something.
This is part of what you experience in the tech industry. And it’s so weird, but it actually goes to the heart of American culture. You’ve read de Tocqueville,5 right? There’s a paradox at the heart of American culture: In theory, we like change, and then when change actually materializes and presents itself, it gets vast amounts of blowback. We like change in the general case, but we don’t like it in the specific case. With every single thing that anybody here has ever done, there’s always been people saying, “That sucks. That’ll never work. That’s stupid.”...MUCH MORE
HT: Business Insider's "ANDREESSEN: The American Middle Class Is A Historical Accident"

Thursday, February 24, 2022

Ag Commodities: USDA Attempts To Forecast Production/Consumption Upended By Russian Invasion

From DTN Progressive Farmer, February 24:

Russian Attack Causes Ag, Food Impacts
Russian Invasion Disrupts Markets, Halts Grain-Export Operations in Ukraine

This article was originally posted at 9:44 a.m. CST on Thursday, Feb. 24. It was last updated with additional information at 4:32 p.m. CST on Thursday, Feb. 24.

**

OMAHA (DTN) -- As the invasion of Ukraine caused global grain companies to suspend their operations there and put some global grain exports at risk, U.S. Agriculture Secretary Tom Vilsack said Thursday one of his biggest immediate concerns is the possible impacts on fertilizer or other input supplies for farmers.

Vilsack was asked Thursday by reporters on a livestream press conference from the USDA Ag Outlook Forum whether the invasion posed new risks for farmers in terms of fertilizer and energy costs. The secretary raised some concerns that suppliers could try to take advantage of the situation to further increase prices.

"That's my biggest concern here in terms of the current situation," Vilsack said. "It will take some time, obviously, for the impact of all of this to be understood and felt. I sincerely hope that no company out there -- whether it's fertilizer or any other supply that may be impacted by this -- will take unfair advantage of the circumstances and situation." He added USDA would be "making sure they don't use this situation as an excuse for doing something which isn't necessarily justified by supply and demand, and that's my biggest concern. We will keep an eye on that."

Vilsack also said it was too early to talk about food impacts -- though he acknowledged he would have a different view if he were an agriculture secretary in Europe rather than the U.S.

"It's too early to talk about Ukraine, as it relates to Europe," Vilsack said. "From a U.S. perspective, I don't foresee a circumstance where American consumers on the food side are necessarily going to be impacted and see the kind of impact we will see on European consumers."....

....MUCH MORE

Friday, January 14, 2022

"Massive cyberattack hits Ukrainian government websites as West warns on Russia conflict"

I'm thinking it's Estonia.

From Reuters via the New York Post:

KYIV – A massive cyberattack warning Ukrainians to “be afraid and expect the worst” hit government websites late on Thursday, leaving some websites inaccessible on Friday morning and prompting Kyiv to open an investigation.

Ukraine’s foreign ministry spokesperson told Reuters it was too early to say who could be behind the attack but said Russia had been behind similar strikes in the past.

The cyberattack, which hit the foreign ministry, the cabinet of ministers and the security and defense council among others, comes as Kyiv and its allies have sounded the alarm about a possible new Russian military offensive against Ukraine.

“It’s too early to draw conclusions, but there is a long record of Russian (cyber) assaults against Ukraine in the past,” the foreign ministry spokesman told Reuters.

The Russian foreign ministry did not immediately respond to a request for comment. Russia has previously denied being behind cyber attacks on Ukraine.

“Ukrainian! All your personal data was uploaded to the public network. All data on the computer is destroyed, it is impossible to restore it,” said a message visible on the hacked government websites, written in Ukrainian, Russian and Polish.

“All information about you has become public, be afraid and expect the worst. This is for your past, present and future.”....

....MUCH MORE

Tuesday, June 24, 2014

AQR Capital's Clifford S. Asness: My Top 10 Peeves (#1 knocking down a "straw-geek")

From the CFA Institute:
1. “Volatility” Is for Misguided Geeks; Risk Is Really the Chance of a “Permanent Loss of Capital” 
There are many who say that such “quant” mea - sures as volatility are flawed and that the real defi - nition of risk is the chance of losing money that you won’t get back (a permanent loss of capital). This comment bugs me.

Now, although it causes me grief, the people who say it are often quite smart and successful, and I respect many of them. Furthermore, they are not directly wrong. One fair way to think of risk is indeed the chance of a permanent loss of capi - tal. But there are other fair methods too, and the volatility measures being impugned are often mis - understood, with those attacking them setting up an easy-to-knock-down “straw geek.”

The critics are usually envisioning an overval - ued security (which, of course, they assume they know is overvalued with certainty) that possesses a low volatility. They think quants are naive for calling a security like this “low risk” because it’s likely to fall over time. And how can something that is expected to fall over time—and not bounce back—be low risk? What we have here is a failure to communicate. A quant calling something “low risk” is very dif ferent from a quant saying, “You can’t lose much money owning this thing.” Even the simplest quant framework allows for not just volatility but also expected return.

And volatility isn’t how much the security is likely to move; it’s how much it’s likely to move versus the forecast of expected return. In other words, after making a forecast, it’s a reflection of the amount you can be wrong on the upside or down - side around that forecast. Assuming the quant and non-quant agree that the security is overvalued (if they don’t agree, then that is an issue separate from the definition of risk), the quant has likely assigned it a negative expected return. In other words, both the quant and the non-quant dislike this security. The quant just expresses his dislike with the words “negative expected return” and not the words “very risky.” A clean example is how both types of analysts would respond to a rise in price unaccompanied by any change in fundamentals now or in the future. On the one hand, those who view risk as “the chance of permanent loss” think this stock just got riskier. Viewed in their framework, they are right.

On the other hand, quants tend to say this stock’s long-term expected return just got lower (same future cash flows, higher price today) rather than its risk/volatility went up, and they too are right! It is also edifying to go the other way: Think about a super-cheap security, with a low risk of permanent loss of capital to a long-term holder, that gets a lot cheaper after being purchased. I—and everyone else who has invested for a living for long enough—have experienced this fun event. If the fundamentals have not changed and you believe risk is just the chance of a permanent loss of capital, all that happened was your super-cheap security got super- duper cheap, and if you just hold it long enough, you will be fine. Perhaps this is true.
However, I do not think you are allowed to report “unchanged” to your clients in this situation. For one thing, even if you are right, someone else now has the opportunity to buy it at an even lower price than you did. In a very real sense, you lost money; you just expect to make it back, as can anyone who buys the same stock now without suffering your losses to date. If you can hold the position, you may be cor - rect (a chance that can approach a certainty in some instances if not ruined by those pesky “limits of arbi - trage”).

For example, when my firm lost money in 1999 by shorting tech stocks about a year too early (don’t worry; it turned out OK), we didn’t get to report to our clients, “We have not lost any of your money. It’s in a bank we call ‘short NASDAQ.’” Rather, we said something like, “Here are the losses, and here’s why it’s a great bet going forward.” This admission and reasoning is more in the spirit of “risk as volatility” than “risk as the chance of a permanent loss of capital,” and I argue it is more accurate.

Putting it yet one more way, risk is the chance you are wrong. Saying that your risk control is to buy cheap stocks and hold them, as many who make the original criticism do, is another way of say - ing that your risk control is not being wrong. That’s nice work if you can get it. Trying not to be wrong is great and something we all strive for, but it’s not risk control. Risk control is limiting how bad it could be if you are wrong. In other words, it’s about how widely reality may differ from your forecast. That sounds a lot like the quants’ “volatility” to me. Although I clearly favor the quant approach of considering expected return and risk separately, I still think this argument is mostly a case of smart people talking in different languages and not dis - agreeing as much as it sometimes seems.
...so much MORE

HT: FT Alphaville's The Closer post

Tuesday, July 1, 2014

"Warren Buffett’s Early Investments" (BRK.b)

Much closer to gunslinger than the current iteration.

From ValueWalk:
“The highest rates of return I’ve ever achieved were in the 1950?s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It’s a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that.”Warren Buffett, 1999

Most Warren Buffett fans have seen that quote. I recently had a few questions and comments that I’ve been meaning to address regarding Buffett’s early strategy. In fact, my own thoughts on how Buffett really generated those 50-60% annual returns in the 50?s have changed as I’ve really researched his past holdings. In my opinion, there are two things regarding Buffett’s early investment style that most people don’t fully weight:
  • Warren Buffett understood the power of compounding at an early age, and cared about the quality of a business and its long term earning power, even in the early days
  • Buffett’s portfolio management strategy, and specifically the level of concentration he put on the compounders
There is a perception out there that Warren Buffett made his huge returns in the early years by buying a bunch of cheap Graham style cigar butts and flipping them for profits. At the annual meeting a few years ago, he mentioned that the majority of his returns—even in the early years—were due to just a select few decisions. The rest were largely average results. I think he mentioned he owned over 400 securities during the time of his partnership (not at once—400 over the entire time period of 13 years).

It’s hard to say exactly how he made these 50% returns in his pre-partnership years, but we do know about a few of the investments he made. From studying his early letters and the two main biographies, I believe that he made his returns largely through the higher quality businesses that could compound value (in some cases good businesses with profitable histories that were also ridiculously cheap), and not the cigar butts that everyone talks about. In fact, you can piece together a few of his early investments from reading Snowball and a few other biographies.

Some Early Buffett Investments

Buffett made 75% in 1951, mostly because of a large position in GEICO, that proceeded to double in the first 18 months he owned it. He sold it too soon (it would rise 100x over the coming decades), but he replaced it with another insurer in 1953 that was a profitable business trading at around 1 time earnings and a fraction of book value. Most are familiar with a column Warren Buffett wrote called “The Security I Like Best”, which was an excellent writeup on GEICO. Fewer people know about the next insurance stock he invested in called Western Insurance. Buffett referenced Western Insurance at a talk at Columbia in 1993, using it as an example of stocks he found by flipping through Moody’s manuals:

“I found Western Insurance in Fort Scott, Kansas. The price range in Moody’s financial manual was $12 to $20. Earnings were $16 per share.”

Warren Buffett also wrote up a column on this stock, demonstrating how remarkably cheap the stock was. The interesting thing about looking at the old Moody’s manuals is that the company was profitable, and had a stable operating history with rising premium volume and consistent earnings. As a side note, this stock actually traded as a low as $1 in 1949, and appreciated up to $95 in 1955, a 95-bagger for those fortunate souls who bought the stock six years earlier!

Buffett was buying Western in 1952 and 1953, and although I’m not sure where he sold, it’s likely he at least doubled his money on this stock as well. He said he was buying between $12 and $20, and wrote his analysis write-up in early 1953 when the stock was at $40–later that year it traded to $65 and then to as high as $95 two years later.

We know how good of a company GEICO was, but Western Insurance–despite being incredibly cheap–was also a quality business. Of course, the attraction was not just that it was a good business, but it was cheap: When Warren Buffett wrote the column, it was trading at $40, and had made $24 per share of earnings the previous year in 1952, a year Buffett called a poor year for auto insurers. Buffett felt the company had “normal earning power” of $30 per share, which gave this stock a P/E of around 1.3 at that price....MUCH MORE

Wednesday, June 14, 2017

"Blockchain’s Got No ‘Killer App’ Yet, Says Morgan Stanley, Even as Bitcoin Soars"

From Barron's Tech Trader Daily:
Morgan Stanley writes that Blockchain, the technology for an open, verifiable general ledger, is still in a "proof of concept" phase, and it may be several years before it is used in everyday practice for financial settlements. They see incumbents such as UBS and BNY Mellon having an early advantage in testing the technology. The reason for the soaring value of Bitcoin and other crypto-currencies is less clear, they write.

Fans of the financial ledger technology known as Blockchain may be interested to know Morgan Stanley analysts today unveiled a longish (43 pages) white paper on the state of the technology in the financial services business, declaring that there is yet not “killer app” for BlockChain, but rather “we are now firmly in the middle of the proof-of-concept phase of development."

The report also offers some thoughts about why Bitcoin, the crypto-currency that took off in tandem with Blockchain, has been soaring in value.

Tech analyst James Faucette, along with several of his colleagues at Morgan, take a look bake at how things have progressed in the twelve months since they first wrote about the prospects for BlockChain to be used in financial settlements and other services.

The authors take a look at five case studies that have been done, including a government bond settlement project by BNY Mellon (BK), and something from UBS Group AG (UBS) called “utility settlement coin."

The premise of all of these experiments, they note, has generally been that "Blockchain is a tool to improve efficiency." "As the technology matures, funds and securities firms will have an opportunity to further reduce headcount and operational expense as Blockchain technology becomes more widely used to clear and settle transactions."

However, "Many proofs of concept are in the process globally, but there is no killer app yet, which we think is needed to kick-start adoption."

As a consequence, "Blockchain still hasn't had a true test," the authors write. "Early signs are that this is a promising technology, but many of the big questions have yet to be answered, and it hasn't been tested at scale in a complex, fast-moving business environment."

"It is still too early for specific investment conclusions; however, progress is being made, and we may see initial parts of the  shared infrastructure emerge over the next 12-24 months."

Translation, from now through 2018 is the “proof of concept” phase, with 2017 to 2020 being a time for “shared infrastructure” to emerge, and 2021 to 2025 being a time when “assets proliferate."

While it’s too soon to make an investment recommendations on all this, the authors opine that "incumbents are generally more likely to benefit than new entrants and are most likely to see cost benefits or possibly increased capital efficiency further down the road,” by which they mean “companies that are more involved early on in the process […] including ASX, UBS, BNY Mellon, Northern Trust, State Street, and JPM."...
...MUCH MORE