Wednesday, November 9, 2016

Trump Won. Now What?

First, several self-evident facts (you can search internet if you don't believe me).

During democratic presidencies stocks grow much better than during republican.

Any attepmt to restrict imports into US under any pretext will cause trade wars, which would really cost US hundreds of thousands, if not millions, of jobs, and a lot of investment income (or cause investment loss).

Current low interest rate environment is not a fluke. It's a consequence of demographics in the developed world. I don't see how this can be changed by any government. Any attempt to significantly raise rates is going to be disastous.

Changes in strategy

My current cash position is around 25%. Going to increase it to around 30%

I have too much money invested in conventional companies. Now it's mostly dead money. Most of new investment is going to networked economy. The only exception is defence sector. GOP, in their very non-corrupt wisdom, is going to throw a lot of money there (there is a consensus between Trump and other elected GOP members). Going to sell rallies. First candidates are conventional companies with significant exports.

Because I'm close to retirement age, I already moved a lot of money into fixed income CEFs. I am going to increase that portion. All talks about bond crush is huge BS. Yes, effective yields on bonds are going to go down and that requires some careful management.

Significant portion of money should go abroad, one way or another. So far, I used ADRs, looking for other opportunities.

Monday, February 29, 2016

Tell Warren Buffet: I Can Sleep On His Matress

Today Warren Buffet said the following: "Berkshire Hathaway is sitting with billions of dollars of euros in an insurance company ... in Europe and they will bear a negative rate. We would be better off with a big mattress in Europe that we just stick all this stuff in, if I could just find a person I trusted to sleep on that mattress." Quoted from here:
Well, tell Warren he's got his man (and woman, my wife). No problem, Berkshire Hathaway puts that mattress in some nice home somewhere in Europe, pays for the house, utilities and protection. And I just live here. I will sign an obligation to sleep on the mattress with money, no problem.
But come on! I don't understand why such a great investor keeps idiots to manage his money in Europe. There are a lot of different tools, all bearing interest, to keep your money in. You can invest in sovereign funds (well, Germany is effectively at zero interest, but it's not the only country in Euro zone). There are sub-soveregns (what we call munies in US), issued by provinces and municipalities. There are corporate notes, lots of which are issued by reliable, well-capitalized and profitable companies. What's the problem?
It's a problem for US retail investor. I'm looking for the last several years for some funds investing in Euro debt, and found essentially nothing. There are several funds, but in countries I'm not interested. When PIIGS panic hit (concerns about sovereign debts of Portugal, Italy, Ireland, Greece, Spain), I was ready to buy all of them with exception of Greece, didn't see any tools. Now I'd love to invest in sub-sovereigns, nothing.
For Berkshire Hathaway, having billions and established management in Europe, it's not the problem of finding investments. It's a problem of management. I bet I can find a lot of tools and build a good debt ladder for anything Berkshire can throw at it. European debt market is not as big as ours, but it's for sure orders of magnitude bigger than what Berkshire Hathaway has.

Wednesday, February 10, 2016

Why I Bought PayPal

Bought PayPal (PYPL) yesterday. Wanted to buy this great company for a long time, but didn't like the price. Now price is OK. Doesn't mean it can't go lower, nothing is certain. But fast growing company, part of internet financial revolution, trading at less that 20 future P/E and PEG 1.20 is cheap in my view.
There are several new growth areas for a company. First of all, now many companies offer PayPal as an option when paying for online purchases. Second is If you transfer money between countries, you know how outrageously expensive it is for small amounts. Xoom lets you transfer money much cheaper at better currency conversion rates that alternatives.
There are companies on the receiving side as well. I don't know how long Moneygram (MGI) and Western Union (WU) can survive. MGI, in my opinion, is walking dead. WU has bigger reach and a lot of loyal customers. I think those loyal customers are growing old and dying, and company will be dying with them.

Full disclosure: I have long position in PYPL and no positions in MGI and WU.

Saturday, January 23, 2016

Market Is Down. Now What?

Correct answer is "I don't know". Of course. I thought that Wednesday intra-day drop of more than 500 Dow points is a capitulation. Maybe even THE capitulation. Which signifies the end of bear market and a start of a new bull one. But there is one interesting fact which goes against it. Bottom on that day happened exactly at 2:30 ET. That was the time of Feb WTI futures expiration. Oil futures roll over usually doesn't create huge drop at expiration, although some analysts claim that's what happened. It looks like some huge dump of contracts in which buyer had to take delivery, but didn't want to. It also appears that a lot of trading algorithms are currently trained to trade stock ETFs in line with oil. It shouldn't be this way, but if high frequency guys use neural networks algos, that's how such networks would react, according to the last several months of trading. Unfortunately, HFT is the majority of trading now. Not complaining, just clarifying the reality in which we trade.
OK, so what is the current situation? China is in a big trouble. Widely advertised turn to consumer economics isn't happening. At the same time, workforce in the country is not the cheapest in the world anymore, banking system is still doesn't really exist, and nobody believes government statistics. Some analysts wonder why volatility of Chinese market affects much bigger US one. The answer is simple: hedge funds invested in China are getting margin calls and selling whatever they can. Plus HFT algos are doing their thing, magnifying the effect.
Next elephant in the room: sovereign wealth funds of oil producing countries. These funds are huge net sellers of everything they own in the last 6 months. They have to, budgets of these countries need money now. Of course, this selling is also magnified by algos.
Last, but not least, is a bunch of idiot fund managers invested in commodities (especially oil futures). They are losing money hand over fist, need to sell something to avoid margin calls, so they sell stocks and bonds.
Market direction will be defined by money balance, as usual. On one side above mentioned sellers. On the other side multiple funds investing money long term, not bothering with trading. In the long term, bulls always win. The main question: when sellers are going to be exausted?
Interesting trivia. I watched Rose Bowl Parade this year and was surprised how many bears were on the floats. Never seen that many.

Sunday, January 10, 2016

Lousy Year

I lost 2.5%. No excuses. Yeah, I know, some hedge funds lost 25%. Well, I never invested in commodities, they are not an investment class. So no, I didn't have margin calls, didn't have to do a fire sale. I didn't predict some trends, true. I thought that China's crash is coming, just didn't think how much could it scare investors. I thought that oil going down is good for economy. I still do. I just didn't see that oil crash would create huge problems for funds, which would have to fire sell everything to avoid margin calls. What I completely forgot about is the amount of oil money invested in US equities. That's a big issue nobody's talking about. It affected equities in 2015, and going to affect them more in 2016.
Anyway, no excuses. I lost money. Not much. But lost.
The only bright things in 2015: Althabet (GOOGL), Facebook (FB), Raytheon (RTN) and muni bonds.
What I think about 2016? Wait for the next article.

Disclosure: I have long positions in GOOGL, FB, RTN and muni bonds.