We lost a true legend yesterday in Jack Bogle.
Jack was founder and retired CEO of Vanguard Group, which now has $5.1 trillion in assets under management.
He also created the world’s first index fund, enabling investors to achieve high returns at lower costs than for actively managed funds.
His funds are so wildly successful he once said it’s probably only a matter of time before Vanguard owns half of all U.S. stocks, which would not serve the national interest. Let that sink in.
By creating the world’s first index fund and preaching a buy and hold strategy Jack helped millions of people achieve a better financial future.
“If a statue is ever erected to honor the person who has done the most for American investors, the hands down choice should be Jack Bogle.” – Warren Buffet
My favorite analogy for stocks vs the economy.
The stock market is a Jack Russell Terrier full of energy leashed to its owner, the economy.
The owner walks in a straight line, upright at a moderate pace. Nothing too exciting.
The Terrier is sniffing butts, chasing squirrels and barking at ducks. Kinda crazy here and there.
So if you’re just watching the dog, you’re not watching the economy.
You’re watching the manifestation of hundreds of millions of people’s greed and fear with buying and selling.
But you’re not watching an actual representation of how the economy’s doing.
So it’s important to understand they are connected, but look and act very different from each other.
#markets #economy #stocks #investing
This is a post from venture capitalist Fred Wilson who gives his thoughts on current state of market meltdown.
It’s pretty clear and w/o emotion. Which is exactly what investors need right now.
The Nasdaq is down almost 15% from its labor day highs.
Apple is down almost 25% in the last two months.
Facebook is down about 40% since July.
Bitcoin is down about 80% from its highs last December.
Ethereum is down about 90% from its highs in January.
All of those are examples of bleeding, if you happen to own any of them.
So what do you do?
Close out your position?
Buy the dip?
Sit on your hands?
It all depends on your fundamental views on these various investments.
Here are mine.
Apple is the easiest one for me. They aren’t going anywhere, although growth is slowing as they are close to saturating the high end of the mobile phone market. It will be a value stock at $120/share. If it gets there, load up on it.
Facebook is harder. They own some incredible assets like Instagram but the outlook there is cloudier given likely regulation and it won’t be a value stock for another $100 of losses.
The Nasdaq is even harder. Are we in a bear market now? Or just a painful correction? A bull market that is almost ten years old feels long in the tooth and I can see the arguments for a bear market more clearly than a correction.
Bitcoin will form a bottom at some point and is a buy when it does. But where is that bottom? Probably not $4500.
Ethereum feels like the easiest one to make a bull case for right now. It is hated. Everyone has lost their shirt on it by now. Nobody other than developers want to know about it. It feels like time to start nibbling on it but not loading up on it.
But the thing to understand more broadly about what is going on right now is that big sophisticated investors are reducing their risk exposure across all asset classes and have been doing that for some time. The pace of the “risk off” trade is accelerating. Which means a flight to safety is going on. And when that is happening, you really need conviction to be buying.
There’s a global reset happening in equity markets and that’s a good thing.
The years of easy money via central banks’ quantitative easing is over and we’re getting back to a normal macro trading environment.
Companies need a hurdle rate to clear otherwise you get all these unicorns that grow quickly but will never be profitable. That’s not sustainable and I expect many to be marked to zero over the next 24 months.
It’s going to remain ugly over the next 6 months.
Long TLT and Eurodollar.
An interesting trade idea being floated on the wire is the Eurodollar. Very contrarian.
Eurodollar is a term that refers to any United States dollar held outside the U.S. banking system.
The underlying instrument in eurodollar futures is a eurodollar time deposit, having a principal value of $1 million with a three-month maturity.
The leverage used in futures allows one contract to be traded with margin of about $1,000.
The price of eurodollar futures reflects the interest rate offered on U.S. dollar–denominated deposits held in banks outside the United States.
More specifically, the price reflects the market gauge of the 3-month U.S. dollar LIBOR (London Interbank Offered Rate) interest rate anticipated on the settlement date of the contract.
Eurodollar = 100 – 3 month Libor yield.
So if Libor is 3% then Eurodollar = 97.
If the value of the Eurodollar futures contract moves by one basis point (.01%), it would equate into a $25.00 move in the contract value. If Eurodollar futures moved one hundred basis points, or 1%, it would equate to a $2,500 move in the value of the contract.
Rates rise Eurodollar drops. Rates drop Eurodollar rises.
The reasoning to get long Eurodollar is a lot of investors are currently short Eurodollars because of central bank tightening. Remember, rates rise and Eurodollar drops. Contrarian investors think that’s not appropriate at a time when we’re late in the business cycle and growth is declining. You could argue less than ideal times are ahead and monetary policy will loosen again. Also because the short end of the yield curve is more sensitive to rate moves and Eurodollar provides greater leverage and return potential if you think rates could decline over the next few years.
There are mega industries, mostly with white collar jobs, that could see major automation over the next decade.
This is mostly the result of years of venture capital pouring into fintech companies working on better ways to transfer money or give consumers a better experience.
Industries like real estate, insurance, banking and legal are all changing.
We don’t need as many brick and mortal branches as we once did. Thank you internet. That means less tellers, personal bankers, loan officers.
You can see it beginning with robo-advisor platforms and financial advisors. And in real estate where startups are disrupting agents and data feeds.
I expect that trend to accelerate.
Long innovation. Short incumbents.
Options traders are forecasting big moves for tech stocks after their upcoming earnings.
Investors are pricing in outsize swings for Facebook Inc., FB, AAPL and when the companies release their quarterly results this week.
Options prices forecast a swing of 8.2% in Facebook shares in the days after the social-media company posts earnings on Tuesday after the market close, data from Trade Alert showed as of Friday.
Globally, people are souring on big tech and I expect that trend to continue. And FB has made changes to their ad platform that has made customer acquisition increasingly more difficult. That should have a direct impact to their top and bottom lines.
I watched a pretty incredible interview between Kyle Bass (Hedge Fund Manager) and infamous Chinese businessman Guo Wengui, also known as known as Miles Kwok, who made a series of accusations and predictions about the Chinese government. Pieces of it are crazy outlandish and sound like the backdrop to a Bond film. It was even filmed in an undisclosed airport hanger because he was fearful of extradition or assassination.
When I think of China I think of cheap labor, censorship, theft of American intellectual property — and tasty food, on-line gaming and Anime.
I heard about the fake numbers they publish, currency devaluation, state sponsored hacking, and chalked it up to maybe that’s what it takes to pull hundreds of millions of people out of poverty in short order.
This interview paints a darker picture of massive corruption by the Chinese Communist Part (CCP) and aristocrats. People like Wang Qishan and Fan Bingbing.
Kwok says the economy and banking systems are a complete shit show and total fabrication. They basically have two economies. The RMB economy of China is internal. And the economy of China in dollars is external.
And they are desperately in need of dollars because that’s how they trade with the rest of the world. Trump tariffs and trade war could not have come at a worse time for China.
Here’s a few of the most eye-opening statements:
- Chinese banking system is about 400% of GDP, and Kwok says that 50% of all loans in China might be bad.
- The CCP steals hundreds of billions of dollars from entrepreneurs and companies.
- Jack Ma had to sign over his ownership interest in Alibaba to 5 unnamed individuals.
- China’s censors everything to control information in fear of an uprising.
- China wants to weaken USD as leading global currency
He also predicts Jack Ma will be in jail before year-end.
Bullish on U.S. fixed income as The Fed probably over tightened and I expect to continue to see capital flow out of Emerging Markets into safer markets.
Here’s a chart of 30yr bond futures, which is total return on bonds. We are close to major support which I think holds.
The federal government is using the tax code to incentivize development in “opportunity zones,” economically distressed communities where new investments can receive preferential tax treatment. The incentives were quietly inserted into last year’s tax-reform bill. Treasury Secretary Steven Mnuchin recently predicted they could prompt $100 billion in private investment to low-income communities.
Anyone who makes a qualified investment in an opportunity zone can defer capital-gains from an unrelated investment, whether it’s from the sale of other real estate or cashing out a big gain on a tech stock. What’s more, any gains realized on a zone investment are tax-exempt if they are held for at least 10 years.
It feels like the downside risk to TSLA has been reduced.
He quickly settled with the SEC.
He outsells his competitors.
It’s $50b market cap doesn’t seem crazy compared to other private and public tech companies.
There’s a small twitter army of shorts that could easily get squeezed.
Canadian kush company Aurora Cannabis Inc. announced it has been approved for Trading on the New York Stock Exchange starting October 23, 2018. It’s similar to Tilray w/o the meteoric rise in price.
Previously, the stock (ACB) was traded in the over-the-counter market, an off-exchange done directly between two parties, and also on the Toronto Stock Exchange.
Getting listed on The Big Board will increase liquidity dramatically and I expect a big pop in the first week of trading.
Here’s a chart of Aurora vs Tilray. Aurora (blue) is up 43% on CA$33 million in revenues and Tilray (orange) is up 581% on CA$12.7 million in revenues. Both are expensive on a price-to-sales or price-to-earnings basis.
Tilray has had massive moves to the upside because it’s readily available for trade whereas Aurora was unavailable.
Yesterday our neighbors in the Great White North became the second country to fully legalize weed (Uruguay was 1st in 2013).
Under federal legalization there will be a regulatory framework and consumer tax of $1 per gram or 10%, whichever is higher.
This is good policy. New businesses will be started. Jobs will be created and provinces will generate tax revenues.
In today’s crazy world it’s nice to see at least one country getting things right.
Here’s a list of Cannabis related publicly traded equities. Do your own homework.
Kush is King. Long live the King.
Twilio just spent $2 billion on SendGrid in an all stock transaction.
Twilio is a voice and SMS messaging platform that major companies like Uber and Home Depot use to engage with customers.
SendGrid is a programmable email platform that touches a bulk of the digital world.
Now the only channel they are missing is postal.
I think this is a smart buy and $7 billion market cap for Twilio appears low seeing how they power customer engagement for so many companies.
They have long been the smartest at building developer focused tools and best products.
I’m no expert but did take the Codecademy lesson a few years back 🙂
Carl Icahn, legendary activist investor, published an open letter to shareholders to oppose Dell’s Purchase of DVMT Tracking shares. The Dell Tracker currently sells for approximately $92 per share but he thinks it’s worth on a pure mathematical basis approximately $144 per share.
I know what you’re probably thinking. Who is Carl Icahn? WTF are tracking shares. How can Dell still exist in 2018.
Let’s unpack some of those questions.
Carl Icahn is the big leagues of activist investors. He looks for undervalued companies that have poor management teams and works to replace them and create value for shareholders. He had previously fought Dell when they went private in 2013, and again is fighting them to go public.
Here are the facts as he sees them. Stay with me.
1/ Dell is a over-levered hardware company that was left in the early 2000s and simply can not compete with the likes of Apple and Microsoft. I tend to agree with that.
2/ Dell purchased EMC Corporation, a hybrid hardware and software company, whose brightest highlight was it’s 82% ownership interest in VMWare, a cloud computing company with strong recurring revenues and free cash flow.
3/ But, to purchase EMC, Dell needed $10 billion more than its bankers could possibly arrange, and they also needed to convince EMC stockholders that Dell’s offer was worth accepting. They accomplished this by engineering the DVMT Tracker that they said would allow EMC stockholders to continue to participate in VMware’s upside.
4/ Dell sold EMC stockholders the Tracker assuming, at most, no more than a 10% discount, yet today, Dell and some of those same bankers are now soliciting votes to agree to exchange DVMT shares at a 36% discount.
5/ Icahn alleges this plan significantly benefits Michael Dell and his backers, but at a huge cost to the DVMT stockholders.
6/ Icahn is advocating for a very substantial increase and liquidity to the DVMT stockholders that may want to sell, while also protecting the DVMT stockholders that do not want to sell from being forced out in a merger.
I’ve followed Carl for the last 10 years or so and enjoy listening to him speak and reading his papers. You don’t want to be on the other side of his trade and you definitely don’t want him coming after your company.
I also think that when you have to overly complicate a transaction it’s likely the deal would fail on it’s own or it has a bleak road ahead.
Long DVMT Tracker | Short Dell (yes I know it’s private)
Not sure how I feel about foreign state owned investment funds taking over late stage rounds typically dominated by VC/PE.
Seems like every big round these days comes from SoftBank, Saudi Public Investment Fund or China’s Sovereign Wealth Fund.
At a minimum the U.S. is letting captured value go oversees.
Surprised haven’t seen much talk about this.
The global economic and political picture is pretty complex right now.
Decades of corruption and malinvestment have caused a dozen or so countries to elect populist leaders or enact capital controls.
A strong U.S. dollar is also causing their local currencies and domestic bond markets to feel significant pain.
Emerging Markets were one of the big beneficiaries of Central Banks’ free money policy and often times those funds were not put to good use. Now, the rise in King Dollar is making debt service on their dollar denominated debt very difficult and I expect that trend to continue. It very well could be the trigger to next global recession.
Here’s a list of countries w/ populist leaders or economic troubles:
- South Africa
- North Korea
I’m probably missing a few. Interesting times ahead.
Here’s a quick video on how to use the MetaMask plug-in so you can surf web 3.0.
MetaMask is a Google plug-in that enables your browser to communicate and transact with the Ethereum network — a decentralized network that allows for peer-to-peer value transfers.
It basically helps you get up and running on the new frontier.
Angola’s lawyers say the country may have fallen victim to a decades-old type of get-rich-quick scheme, typically used to defraud individuals or companies, not sovereign states. Investors are told they can make huge returns through a private market in “bank guarantees.”
Four men have been charged in connection with the plot to siphon $500 million in central bank reserves from Angola. The cast and story-line read like Ocean’s Eleven. Not surprisingly the bank holding the cash was HSBC, which most associate with money laundering.
Amazon.com Inc. said it is raising the minimum wage it pays all U.S. employees to $15 an hour.
The new minimum wage will kick in Nov. 1, Amazon said on Tuesday, covering more than 250,000 current employees, or more than 40% of its global workforce. Another more than 100,000 seasonal holiday employees will be granted the higher pay.
Regardless if this was prompted by proposed legislation this is really good for blue collar workers. Hopefully other corporate giants follow. Will probably alleviate Trump targeting Bezos for a couple quarters as well.
Folks moved on from crypto quickly.
CB Insights asked investors if they’d rather invest in crypto or cannabis if they had $10M, and here are the results.
Long live King Kush.
Investors know bitcoin’s violent mood swings well. What they often don’t know is that unscrupulous traders, wielding purpose-built software, can be behind them.
Manipulation in cryptocurrencies is a growing concern for regulators—and even for some proponents of the digital coins. The Securities and Exchange Commission cited that risk in August when rejecting several bitcoin-based exchange-traded funds. The office of New York Attorney General Barbara D. Underwood highlighted the issue last month in a report warning that crypto exchanges were vulnerable to manipulation.
Tough to see SEC approving crypto related vehicles or broad adoption when there’s unchecked fraud and bad actors.
International Monetary Fund Managing Director Christine Lagarde is raising alarm bells about the health of the global economy, saying international growth may have plateaued.
“For most countries, it has become more difficult to deliver on the promise of greater prosperity, because the global economic weather is beginning to change,” Ms. Lagarde said in a speech in Washington on Monday.
This is pretty interesting take from Union Square Ventures about what phase the Web 3.0 community (decentralized/crypto) is in.
Narrative among some in the community is that we’re in an infrastructure phase because we need tools that make it easy to build and use apps that run on blockchains, and once we have those tools, then we can get started building those apps.
USV disagree and think we’re in another turn of the apps-infrastructure cycle. And in fact, the history of new technologies shows that apps beget infrastructure, not the other way around. It’s not that first we build all the infrastructure, and once we have the infrastructure we need, we begin to build apps. It’s exactly the opposite.
I think people say we’re building out infrastructure because there’s so few consumer facing apps that have broad adoption.
Investor frenzy around cannabis companies is generating big returns for early adopting financial firms.
Investors are piling into the sector ahead of Canada’s legalization of recreational marijuana use in October.
U.S. banks are largely holding back due to federal regulations.
It’s definitely the wild wild west. I expect a few big winners and many more losers.
Investors beware of these hot new issues.
Institutional money, led by the behemoth SoftBank Vision Fund, is changing real estate for the better.
IMO, much of the exciting disruption is happening in the way of improving the consumer experience. The current process sucks.
Enter iBuyers: platforms that offer competitive cash offers for homes and allow owners to schedule closings on their terms – without showings, open houses or listings.
I suspect traditional incumbents have very challenging times ahead.
Long disruptors : short disrupted.
On Thursday Elon Musk rejected a settlement with the S.E.C. over allegations he misled investors with his infamous “Funding Secured” tweet. In that tweet he said he was considering taking Tesla private at $420 per share and that funding was secured. Turns out that was not entirely true.
By Saturday he made an about face and accepted a deal with very similar terms.
It will require him to neither admit nor deny guilt, step down for 3 years as Chairman (1st deal was 2), and pay $20m fine (1st deal was $10m).
Further, Musk can’t tweet, send an email, talk in public, speak on earnings calls, release a deliveries report, etc., without it getting reviewed and approved by a seasoned securities lawyer. #lulz
Bears and Bulls alike will look forward to Elon returning to work on Monday.
Happy this worked itself out quickly. His projects are too important to fail because of his twitter fingers.
I’m Bob, and this is Bob’s briefs.
Here you’ll find briefings of what I find interesting and newsworthy.
Topics will vary from technology and startups, financial markets, cryptocurrency and geopolitical events.
Articles likely credit back to publishers behind a pay wall. So, you’re welcome.
I shoot from the hip and don’t take things too seriously. Reader discretion is advised.
I hope you find this insightful 🙂