Showing posts from December, 2016

Jamie Dimon Interview with Economic Club of Washington DC (Sept 2016)

As always, David Rubenstein does a very good job with this interview of Jamie Dimon at the Economic Club of Washington, DC. Conducted in September 2016, it clearly illustrates why some consider Jamie Dimon to be a natural for politics (even though Dimon has said he isn't interested and doesn't think he will have much success in it). I don't think businesspeople are very good in politics--business is all about maximizing profits and doing anything including discriminating against customers, whereas politics is almost the opposite with the goal of satisfying all stakeholders and funding something for the very-long term irrespective of what "profits" may appear to be. But I think Dimon, unlike most bankers and wealthy individuals, has a very good understanding of society at large and what is happening at the street level--hence I think he can probably do a good job. I neither follow nor know much about the financial services industry but from what little I have rea

Sunday Spectacle CCVI

December Christmas Shopping Declining? In developed countries, shopping during December for Christmas, which is the largest and most important shopping period for retailers, has been declining. In most countries (except Italy and Japan below*), annual retail spending is higher than it was in the past--at a minimum, rising population and inflation results in higher spending over time--so it doesn't mean people shop less. The Economist posits several possible reasons for the December declines (from The Economist's Daily Chart, Dec 25 2016 ): There are at least three explanations for the recent decline in holiday cheer. First, the growth of e-commerce has made it easier for consumers to shop for seasonal items year-round. Second, the rise of gift cards—which are not recorded as sales until they are redeemed by the recipient—has shifted holiday consumption into January or later. Finally, younger shoppers may be dragging down end-of-year sales at many traditional brick-and-mort

Jim Chanos on Donald Trump and Current Events

I ran across a very good interview with Jim Chanos by the Institute of New Economic Thinking  that I found interesting (h/t Naked Capitalism ). It is mostly about politics and very little to do with investing per se. I excerpted some of his points below but you should read the whole thing if you are interested in econopolitics. (As usual, bolds are by me.) source: "Chanos: Is a big change underway in global capitalism?" by Lynn Parramore for the Institute for New Economic Thinking, Dec 21 2016. Lynn Parramore: What about the rise in bank stocks since the election? Are banks anticipating deregulation? Jim Chanos: Almost all stocks are going up, mostly because of the belief of lower taxation. But after Obama’s election, most stocks went down and kept going down until the following March — and then they tripled! So I wouldn’t read a lot into the first month or two. It could be that banks are anticipating deregulation, but so what? Deregulated to what end? They’re st

Investors Podcast Audio Interview with Bill Miller

I thought Bill Miller retired but apparently not. I thought he wouldn't get a chance to try again but now that he is trying to get his firm going, it looks like he is spending his time on investing (hard to tell what his co-portfolio managers do and how he fits into the decisions). Anyway, I'm still a fan of him and it's always good to hear his thoughts. One thing I like about him is that he is very frank and open; very honest. He speaks his mind and explains his processes and his stock picks. In contrast, there are numerous investors, including those such as Warren Buffett and Seth Klarman, who never give any details into their analysis and newbies like me can't really learn the basics from them (after a while, it all sounds repetitious and very philosophical--good to know but doesn't help you with securities analysis or the mechanics of investing). As I have said numerous times, I have not seen any value-oriented investor tackle technology companies as successfu

Current Thoughts on Risk Arbitrage

I was writing a long post on risk arbitrage and how it seemed attractive but didn't finish it after things changed rapidly and got scary real fast after the Trump election . Spreads used to be somewhat large (5%+ for somewhat "safe" deals; right now spreads for similar deals appear to be around 1-2%)  and I believe spreads were attractive a few months ago due to: Peaking credit cycle/private equity/buyout/merger cycle: M&A is very cyclical and I had charts clearly illustrating how they peak (usually very close to stock market peaks). It seemed like we were getting close to a peak--sort of reminded me of 2007 when I was blogging and investing--with almost everyone buying each other for ridiculous prices, including numerous massive mergers/buyouts. Usually risk arbitrage appears to produce larger spreads (hence good for risk arbitrageurs) near the peak and it seemed like that time was now. Possible capital shortage for risk arbitrage: Merger spreads are usually ver

Sold/Merger: Virgin America

The Virgin America-Alaska Airlines merger closed successfully and I was cashed out on December 16th. This is one of those deals that seemed like it had high chance of being completed but the return was low (unless you are a professional arbitrageur who uses leverage and has positions in numerous mergers at the same time). The spread was somewhat wider a month ago and I thought about increasing my stake but it seemed scary. Sold/Merger Cash-out: US$72.00 Total Return: 5.37% (annualized: 54% (meaningless--too short of a holding period)) Good luck to all parties involved, especially the employees and customers who are impacted, and we will see if Alaska airlines can develop into a major national airline in the future (right now it is a west coast one).

Sunday Spectacle CCV

History of American Retail Stores (select sample) (source: Internet Trends 2016 - Code Conference , Mary Meeker, KPCB. June 1 2016)

Articles for the week ending December 16, 2016

Some stuff I found interesting... in no particular order... (Recommended) " Napoleon Is Dead! Wait. That's a Stock-Market Scam." (Barry Ritholtz, Bloomberg, Dec 16 2016): Everyone has heard of fake news, which are more easily spread on the Internet, potentially having a political and social impact, but, believe it or not, it extends into the investing realm as well. Probably doesn't impact long-term investors that much but still something to watch out for. In fact, how many of you have heard of the fake-news-driven Great Stock Exchange Fraud of 1814? "China Halts Trading in Key Bond Futures as Panicky Investors Sell Securities" (Yifan Xie and John Lyons, The Wall Street Journal, Dec 15 2016): Not a major story in itself but something to watch and see if it is a trend... There have been several stories in various media of emerging market bonds selling off (due to rising US$ and rising US interest rates). Some macro investors speculate that emerging mark

Warren Buffett & Bill Gates Video from 1998

Here is a good video of Warren Buffett & Bill Gates Q&A from University of Washington from 1998. It is a bit more tech-oriented and it's always interesting to hear younger Buffett and Gates. Given that Gates was running Microsoft at that time and Buffett is a value investor (who doesn't invest in technology stocks), it's good to hear the contrasting opinions on some issues.

Valuations Seem High... Market Looks Dangerous

If you are a value investor or a contrarian of any sort, it's a tough time to invest right now. I don't have much experience and was away from investing for about 5 years but I did start serious investing a few years before the financial crisis but it seems worse right now. It is really difficult right now to find anything attractive. Everything seems overvalued and the market is rallying unexpectedly (at least in my view). I was going to write a post on market valuation but ran across an excellent article by John Mauldin that captures my feelings quite accurately so I'm going to quote his work below. I don't always agree with Mauldin and definitely don't share his right-leaning political views but this was a great piece. If you are macro-oriented, I would highly recommend that you read his article, " The Trump Rally Will Morph " (Dec 11 2016), which contains more graphs and thoughts than my post. "The P/E ratio spent most of the last century bet

5-Year Industry Performance and My Ideas

Being a contrarian, I like to look at underperforming industries*. There are many different ways of approaching this but one simple method I use is to look at under-performing industries over 5 and 10 years. If you are looking at 10-year underperformance, you need to be really careful with industries that are becoming obsolete and possibly on their way to a zero. Something like the newspaper industry is a good example of one that has done horribly over 10 years. Having said that, if you are into deep-value investing, distressed investing, or something along those lines, 10 year lows are a good place to look. Given how the current bull market has lasted almost 8 years--2009 to almost 2017--I think 3 to 5 years is a good time period to look. Depending on what you are trying to do, you don't want to use starting points at the trough of a bear market or a peak of a bull market (for instance, I would avoid any period that started in 2008 or 2009). In the past, I often looked at

Sunday Spectacle CCIV

Spending Trend over a Century In rich countries like America, one of the big changes over the century has been the amount of money spent on food & clothing has declined significantly. In contrast, in many poor countries, the average person still spends a huge chunk of their income on food & clothing. The amount spent on housing/shelter has increased slightly in America to 25% (as of 2002, based on a select sample). Overall, it's amazing that food, clothing and housing, which was about 80% of a typical household's budget in 1901 has declined to about 50% (in 2002 but probably same now). I don't think anyone living in 1900 could have imagined such a thing. The increased savings on food & clothing has generally gone to leisure activities (such as travel and entertainment). The big beneficiary in rich countries have been the leisure sector. Only the wealthy used to travel in the early 1900's but now almost anyone can. From a business and investment persp

Sunday Spectacle CCIII

Bitcoin You Say? Still not sure what to think of Bitcoin (for those not familiar, it is the original and most popular cryptocurrency ). It has the potential to change financial transactions as we know it. Numerous authorities are against it and have been trying to regulate it for years. Some private investors are bullish--most notable are the Winklevoss twins from Facebook lore who suggest it is the gold for the modern age . Wall Street and some Main Street banks have been trying to get into the action. Matt Levine of Bloomberg, one of the top business journalists I have come across (that is freely accessible), isn't sold on the idea yet . Whatever it is, you definitely need stronger, more secure, and more professional Bitcoin financial institutions before the public will get involved to any large degree ( the $400M+ loss at Mt Gox a few years ago probably set back Bitcoin by years--who the hell would want to get involved in such an amateurish operation (and that was the top B

Articles for Week Ending December 3, 2016

Not in any order, here are some articles I ran across recently that you may find interesting... I often link to old articles so if there are stock suggestions or macro speculations, pay attention to the date (thesis may have changed by now). The Oscars of Paper Currency (James Tarmy for Bloomberg Businessweek, Dec 1, 2016): Didn't know some entity actually gave out award for best currency design. Kind of fun to see the artistic style of various currencies. Horizon Kinetics presentation on indexation and ETF problems (Steven Bregman, Horizon Kinetics, for Grant's Fall 2016 Conference - Oct 4 2016): Pretty good presentation on some issues with ETFs and indexation. If you invest in ETFs, check it out. Bear case presentation on Home Capital Group (Marc Cohodes for Grant's Fall 2016 Conference - Oct 4 2016): Bearish thesis on Canadian mortgage lender. If the Canadian housing market falls, HCG might be one of the first ones to get hit badly. Contender for the worst tra

Opinion: You Can't Build a Society with Flat Taxes

Libertarians, classic conservatives and many on the right* love flat taxes and always seem to be in favour of flat taxes but I have never seen it ever last. I thought I would comment on it after reading that Estonia has started to abandon its flat tax . Apparently the first country to introduce flat tax in Europe, Estonia is starting to back off the flat tax. In my opinion, you just can't build a society with flat taxes. If anything, history seems to indicate that as societies advance, their taxes become more progressive. The flat tax helped a lot of ex-Communist states after they gained independence when no one was paying taxes and the system was completely dysfunctional, but it is hard to build a society with such a system. Wealth grows exponentially and hence accrues to the top few disproportionately--most investors probably know that 80% of the American stock market is owned by around 10% of the population--and it's hard to do anything at the societal level if most of