Bucket List

Bernie Sanders finally creates value

SPX

Democratic Party hopeful Bernie Sanders announced overnight that he is dropping out of the presidential primaries. For the first time ever, his actions actually led to substantial wealth creation, sending the S&P500 up 3.4% on a $21 trillion market cap index.

All jokes aside, we thought markets have found a (short-term) bottom. S&P has reclaimed almost half of the peak since the corona-crash. We question the sustainability of this rally. At the moment the trend is our friend. We pointed out that the kitchen sink would be thrown and provide one last hurrah before the realities of businesses coping with a return to business played out.

As the lockdown continues, it is very hard to determine what the actual prints will be for large-scale macro-economic data and where that fits into expectations. We know that the Fed has already been out hosing the credit markets with promises of unlimited QE.

The housing market is already giving us hints. According to the Mortgage Bankers Association’s (MBA) Forbearance and Call Volume Survey, the total number of loans in forbearance grew from 0.25% to 2.66% from March 2 to April 1, 2020, with mortgages backed by Ginnie Mae seeing the largest growth (from 0.19% to 4.25%).

While not strictly an apples for apples comparison, the Delinquency Rate on Single-Family Residential Mortgages, Booked in Domestic Offices, Top 100 Banks Ranked by Assets peaked at 12.89% in 2010.

Plenty of trouble ahead. The market complacency is quite astonishing.

Political expediency will trump Coronavirus market rout. Await market manipulation

MARKETS YTD

Share markets have been decimated in recent weeks across the globe. This year to date (YTD) chart above shows the extent. It shouldn’t really have taken Coronavirus or plunging oil prices to lead to this. We’ve been living high on the sauce for two decades and even though GFC in 2008 was a rude hangover, our authorities thought doubling down on all those free money excesses would work again.

Let’s not get too carried away. On a 5-yr basis, shares haven’t exactly blitzed with the exception of the S&P500. The ASX has put on just under 7% in 5 years. Germany, Japan and Italy have gone down. So if one is 45% higher than 5-yrs ago with an S&P fund, is that a mass hysteria moment?

INDEX 5YR

Automotive stocks have been dud investments over the last 5 years. It didn’t take Coronavirus to expose the underlying trends. BMW is don 52% on 5 yrs ago. Ford down 60%. Volkswagen -40%.

Car stocks

Industrial bellwethers like Caterpillar and GE have also not escaped stagnation. YTD, all of these stocks have bloody noses. Boeing has held up surprisingly well despite the MAX problems.

Industrials

Yet if we look at the FAANGs (Facebook, Apple, Amazon, Netflix & Google), we can see that over 5 years, investors have made a bundle.

FAANGAs these 5 stocks make up 15% of the S&P500 Index by weight, if they fall the impact is greater. With the exception of Netflix, these monsters are down 15~20%.

FAANG 1M

Worried?

Fear not, our heavily indebted incompetent political class and complicit central bankers will concoct a new potion of even lower rates, more QE and further fiscal spending on wind farms, solar panels and roads to nowhere to keep the ship afloat. It may be a hapless task in the long run but just watch the printing presses move to full speed. The ride is about to get interesting.

We’ve been bearish for years based on the underlying tenet that financial market manipulation by authorities has merely distorted the most efficient clearing mechanism -free markets. The invisible hand will eventually win. Just not quite yet.

Italian Senator and former Deputy PM Matteo Salvini has called for a ban on short selling. Why? All he’ll do is exacerbate the sell-off by diverting capital from Milan to London. The politicians just don’t get it. That is why Milan FTSE All-Share index fell by 10.75% overnight. That market is down 23% YTD.

When the pandemic hit the economy, we should have known from last month that it would spread and impact global travel, trade and oil prices. Why did it take so long?

We wrote last week that the explosion in market chasing (especially levered) ETFs would exacerbate distortions on the downside. The main reason being is that options markets that hedge levered products see heavy delta bleed (pricing blowing out) during routs. The reason is in bull markets human nature is more comfortable taking risk. In bear markets, people panic hence needing larger insurance premiums to protect against the madness of crowds.

Essentially what that means is that when ETFs were a far smaller chunk of the market, today’s 7.8% drubbing may only have been -4% in equivalent terms. That is because the ETFs chase, not lead markets because their product design is to replicate the immediate past. Yet our first instincts are to compare these apples with oranges and equate them to 2008. Wrong. Furthermore, a larger part of the market is dominated by a smaller

So the question is, do we liquidate all of our shares into the falling knife or take the view that some wonderful opportunities will present themselves to get exposure to what we hopefully viewed as sensible long term investments.

We take the latter view. We need to separate Coronavirus (the disease) and the hysteria (eg hand sanitizer and toilet paper panic buying).

While the disease is problematic and will hit the economy hard in the coming quarters, the question is market hope pinned to government response will come back. The measures should continue to grow and grow until they have cauterized the wound. After all, we live in a market where financial TV programs are summoning the opinions of NY Mets baseball pitchers for their ideas on stocks.

Of course, it will be all academic, but confidence is the only thing that matters from here. As soon as we get on top of Coronavirus, markets will swing back into action and many will simply fall for the same tricks like Pavlov’s dog and the short squeeze will send stocks powering back.

Governments now have a legitimate excuse to blow out deficits and borrow to save us. In that sense, this pandemic is a blessing in disguise. That isn’t to trivialize Coronavirus but to note that politicians will do almost anything to stay in power, even if the long term consequences will linger long after they’re out of office.

Where will they spend? The automotive sector has been in the doldrums for ages. Expect to see EV related subsidies which will be a boon for the EV battery plays – we’ve bought Jervois Mining (JRV.AX) which is about to start a cobalt mine in Idaho.

Think of support to the aviation industry when the crisis is under control. Boeing and Airbus. Don’t forget that American Airlines renewed 900 aircraft soon after it announced Chapter 11 bankruptcy back in 2011.

Think construction – cement companies and construction machinery companies tend to benefit from public works programs. We continue to hold gold (have done since 2001) as the ultimate insurance policy when the whole system can no longer heal with band-aids.

So get ready to buy some bargain-basement names with cash flow survivability, especially if you have a self-managed super fund.

Yes the underlying economic backdrop is dreadful but there will be one last hurrah!

BoJo bans Davos attendance by his ministers

UK PM Boris Johnson has reportedly said that his ministers won’t be allowed to travel to Davos to attend the World Economic Forum citing,

Our focus is on delivering for the people, not champagne with billionaires…[Davos] is a great big constellation of egos involved in massive mutual orgies of adulation.”

The cost of membership and attendance is extremely high.

As we pointed out yesterday, the depth of WEF analysis leaves a lot to be desired. Still that won’t stop elites flying in to Zurich Airport on private jets before hitching helicopter rides to the summit and talk about we need to live more responsibly.

Good call PM.

Bloomberg confirms the bleeding obvious

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Nothing like a 77-yo former New York Mayor Mike Bloomberg coming off the top buckle and body-slamming the current list of Democrat primary candidates Hulk Hogan style. So hopeless is the current field running that Bloomberg’s long-time advisor, Howard Wolfson said,

Mike is increasingly concerned that the current field of candidates is not well-positioned” to defeat Donald Trump.

The question remains whether Bloomberg actually runs. If he doesn’t, he has literally thrown the present lot straight under a bus. Precious thanks to their campaigns. No doubt he will see how the reaction is before committing to the run. He will be 78 if he runs.

Yet, what record did Bloomberg leave behind in NY? Recall current Mayor Bill DeBlasio heaped scorn on Bloomberg for turning the city into one for the haves and the have nots. The argument that when he left office in 2013, 31% of the residents spent more than 50% on rent. That was a higher figure than when he took office.

One thing to bank on if Bloomberg wins the primary and challenges in November 2020, make sure you back up the truck on renewables investment when the polls all point to him doing a Hillary repeat (i.e. coronation) and sell just before the election result because it will be a fully priced sector before that date.

Mike Bloomberg is a climate alarmist of the first order so he’d likely re-sign the Paris Accord. Note that his own company has a dedicated Bloomberg NEF site for all things in clean energy.

ASX listed stocks linked to the renewable space include,

Infigen Energy (IFN) – Wind

Great Cell Solar (DYE) – Solar

Quantum Energy (QTM) – Solar

Solco (SOO) – Solar

M Power Group (MPR) – Solar

Carnegie Clean Energy (CWE) – Wave

ReNu Energy (RNE) – Biogas, Solar

Petratherm (PTR) – Geothermal

Black Rock Mining (BKT) – Graphite used in energy storage

Pacific Energy (PEA) – Biogas

Alterra Ltd (1AG) – Sustainable agriculture

SBS impartiality & Amanda McKenzie’s colossal clumsiness

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Good to see the SBS has made sure it has an impartial position on topics such as climate change remains steadfastly in line with its charter. It not only avoided enlargening the font in bold of certain choice words spoken by Climate Council CEO Amanda McKenzie but it also refrained from putting a picture of the broadcaster’s ultimate boss holding a lump of coal. The irony is that the Climate Council guru’s facts were, unfortunately, wrong.

PM Scott Morrison’s facts were by and large correct. Never mind that they disagreed with McKenzie’s narrative. Good to see that SBS followed up with a rigorous line of questioning to get her to point out exactly where the PM was out of line. Sadly, that was a bridge too far for the alarmist journalists.

Presumably “colossal bullshit” should have been evidence enough. The Climate Council did release a statement but instead of countering fact, it just produced its own interpretation of what it wanted to hear, rather than point out where Morrison had blatantly told porky pies.

For instance the Climate Council stated:

Morrison statement: “Australia is responsible for just 1.3 per cent of global emissions. Australia is doing our bit on climate change and we reject any suggestion to the contrary.”

Fact-check: Australia is the 17th largest polluter in the world, bigger than 175 countries.  We are the third-largest exporter of fossil fuels in the world. 

CM: It is irrelevant. Australia’s GHG as measured by the IPCC, IEA and Eurostat are 1.3% of human-made CO2. It is the truth from sources that align with the Climate Council. It only shows that the previous 16 countries absolutely dwarf us by comparison. China is 29.3% on its own.

Furthermore to make statements that our coal exports should be counted in our emissions number is the same argument as saying that every imported passenger car, transport truck and commercial jet should have emissions docked against America, Japan, Korea and the EU.  That would be consistent

Morrison statement: “And our Great Barrier Reef remains one of the world’s most pristine areas of natural beauty. Feel free to visit it. Our reef is vibrant and resilient and protected under the world’s most comprehensive reef management plan.”

Fact-check: In 2016 and 2017, the Great Barrier Reef was severely damaged through back-to-back bleaching events which killed half of all corals on the planet’s largest living structure. Australia’s current goal, if followed by other countries, would sign the death warrant of the Great Barrier Reef. 

CM: Maybe she should speak to Professor Peter Ridd and question why the James Cook University faculty lost (although still not completely settled due to an appeal) all aspects of the unfair dismissal case against it for Ridd’s refusal to buckle to the cabal’s orthodoxy. The reef is not dying. It is thriving. So much so that Greenpeace needed to use a picture of bleached coral in The Philippines to distort the truth because the GBR presented no such photographic opportunities.

Morrison statement: “Our latest estimates show both emissions per person and the emissions intensity of the economy are at their lowest levels in 29 years.”

Fact-check:  Australia has the highest emissions per capita in the developed world. It is true that Australia’s emissions per capita have fallen more than most countries [is that colossal bullshit?], but this is from an extraordinarily high baseline [so what?] and has largely been driven by rapid population growth. Even with this drop, we still have the highest per capita emissions in the developed world. Our emissions per capita are higher than Saudi Arabia, a country not known for its action on climate change. Ultimately, our international targets are not based on per capita emissions. 

CM: Australia’s CO2 emissions per unit of GDP since 1990 have fallen 33.9%. Wrong Amanda, Canada has higher emissions per capita at 16.85 vs our 16.45. Unless under Justin Trudeau Canada has lost developed nation status which is highly possible! Saudi Arabia is 19.39. So, in fact, your comments are incorrect.

We could go on. So if Amanda McKenzie wants to throw the PM under the bus with profanity it helps if she actually provided accurate figures.

Perhaps the most colossal bullshit to come from McKenzie was this,

Over the winter we saw bushfires burning across Australia while the Amazon rainforest and the Arctic were on fire. A major new report shows that suburbs in Sydney, Perth and Melbourne could experience serious sea level disasters every year on our current trajectory.

It would appear that the Australian seaside property prices aren’t at (excuse the pun) fire-sale prices and that the bushfires in the Amazon, Australia and the Arctic are not related to climate change. The truth is that the acreage lost to bushfires have fallen 24% over the last 18 years. Unless NASA is lying.  Maybe the Climate Council has been channelling the Sierra Club CEO Aaron Mair?

 

Vegan feminist cafe closes & Trip Advisor comments priceless

A vegan feminist cafe, Handsome Her, has closed its doors for good. It had imposed an 18% gender surcharge for men to account for the ‘wage gap’ and given women priority seating. Perhaps if the cafe focused on service in the normal fashion it might have flourished. Take these 1 star Trip Advisor reviews.

This from John P.

I was in Melbourne on business recently and a friend of mine recommended this cafe. What a shame I listened to her. It took 5 minutes to get the attention of a waitress who seemed to be more interested in chatting to her friends, rather than serving a customer who’d just walked through the door. I was eventually seated and chose the gnocchi paired with the suggested pinot noir. The gnocchi arrived and I was bitterly disappointed. The gnocchi was very undercooked and had a floury texture, the mushrooms were burnt and the dish lacked any real flavour. The only enjoyable part of the meal was the wine. I left most of my meal on the plate and finished my wine.

When I asked for the bill, the waitress asked if there was a problem with my meal, since I’d left most of it on my plate. When I told her of my dissatisfaction with the meal, she morphed into an aggressive and irate woman who then started dispatching some rather vile language. Not wanting to cause a scene, I subsequently left the requisite cash on the table, which included a 15% tip, and promptly walked out. As I was walking past the register on the way out, I could hear the same woman telling the other waitress working with her that I was a “vile beast” and that I “wasn’t welcome here again”.

I certainly won’t be coming back. One of the worst experiences I’ve had in quite some time.

Date of visit: August 2017

Cuban_American from Englewood, Colorado wrote

This place is a giant turd. Nobody in their right mind should eat at such a horrid place. Your sexism and gender attacks are cancer to society. Be gone forever.
Date of visit: April 2019
Jack from Adelaide wrote “Get Woke, Go Broke”
“Went there to see what the hype was all about. The conditions were dirty and unclean. The people working there looked like they hadn’t had a wash in days. The food was overpriced for what you got and the plate presentation was sloppy.”
Date of visit: January 2019
Fast Food Reviews wrote,

“A terrible cafe that has no respect for either equality or the law, with horrible staff that I swear the owner had to scour the scum of the earth to find. Spend half an hour trying to get a waitress to come over and when they finally showed up they told me I’d have to wait because I was a “cis gendered white man” and there were women who needed to be served first. According to the waitress I’d have to wait until ALL women in the shop were served before they’d take my order, even those who came in after me. I left at that moment and will never return.

Date of visit: February 2019

Good Tenks suggested,

“What a disgrace that in 2019 in Australia we allow a restaurant to discriminate against a group of people based on something they cannot change.
I went to handsome her with 3 girls who are close friends (I’m a male) and was spoken to like a second class citizen, the attitude and demeanour of the employees is abhorrent.
The food wasn’t bad, the coffee was terrible but the attitudes are disgusting, I was spoken down and made to feel like garbage.

Myself and the ladies all agreed this is promoting discrimination and against what we believe in which is equality.
What a joke, avoid at all costs there is much better around.”
Date of visit: November 2018
Do look up Handsome Her Cafe reviews on Trip Advisor. Sadly those that don’t pay attention to customer needs face the wrath of evil capitalism.

Valentine’s Day according to Google Trends

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Gender stereotypes? Google Trends just threw a spanner in the works in a study on Valentine’s Day gift searches for a loved one. It seeems like women are far more proactive and engaged in searching for gift ideas than their boyfriends appear to be. What could explain it?

Could it be that men simply are too hard wired/unimaginative? Many women could attest to their men sticking with boring flowers, chocolates, and dinner reservations through experience or a sense of duty.

Tales out of school. At my old firm I used to buy 120 individually wrapped cakes for my female clients on Valentine’s Day and spend all morning delivering them personally. Never did I receive more sincere thank you’s for thinking more creatively than dropping off boring chocolates. So a note to the lazy men out there – women seem more likely to praise the “effort” over the “result” – hopefully ladies can confirm this so we can get “equality” back into Valentine’s search engines.

Could it be that males are harder to shop for causing women to have to search harder? Could it be that women are kinder and more thoughtful souls than men?

Most women get that men probably don’t want flowers or chocolates, but what will he like? Season tickets to watch his favourite team? A sports magazine? Golf balls (dangerous territory if he’s a keen golfer), motorcycle parts (extremely high risk)? A tie? Socks? iPhone goods? Underwear? Don’t laugh. Studies show that women are behind 80% of the purchases of men’s undies. Indeed it may well be that men are pickier (or lazier) about gifts causing women to search 2-3x more.

If we look at the above chart it seems that women searching for gifts for their boyfriends keeps making higher highs as the deadline approaches. Men too albeit at a flatter trajectory.

Maybe the devil in the data is what Google could really do for men and women. Instead of judging a partner’s devotion by the scale of money dished out on such a grossly commercial day, perhaps Google could let one know how much they meant to their significant other by the timeline on when the Valentine’s Day search began and to avoid gaming the system informing hours spent online during the process.

There are millions of factors which trigger Valentine’s decisions but isn’t that what diversity is all about – freedom of choice.

$450m for a painting? Maybe but 5 of the top 10 traded artists are now all Chinese!

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While one of Leonardo DaVinci’s pictures might have gone under the hammer for a record $450m (50% more than the previous record) last week,  the TEFAF Art Market Report 2017 shows that Chinese artists occupied 5 of the top 10 traded artists. Zhang Daqian traded almost as much as Pablo Picasso. Admittedly Picasso sales were down 50%YoY but even still the art market has continued to surge in an asset bubble everywhere world.

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So even since the heady days leading into the GFC art related exports are 100% higher than the post Lehman collapse shock and almost 50% higher than the previous peak. Imports showed a similar trend.

Art is usually unique. One offs. Trading of such pieces is also very sporadic. It is rare that a Monet or Chagall gets flipped inside a few weeks.

Perhaps the art world report’s best picture was this one. The political stage and how it will impact the art world?

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Surely art’s crowing glories often come from tortured minds which sees artists lop off their ears, smear themselves in excrement or provide more excuses to take illicit substances to come out with the next masterpieces. Interesting how a US Presidency can impact US based art dealers. Although the data would show otherwise.

Then again as much as the total value is trading higher in the art world, according to Artnet, the average prices have been trending down since 2015. The overall picture is one of general prices having peaked during July 2015 and by the start of 2016, they were back to the level seen at the beginning of 2014. Over 2016 prices have fallen to the level they were at between 2014 and 2015, roughly 15% higher than the market trough in November 2012, and still 6.25% higher than ve-years ago.

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Recall when the Japanese were snapping up Van Gogh & Monet’s during the bubble period. Has the art world sent a subliminal message?

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A long report but one full of surprising trends.

Trudeau in trouble

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I watched interim Leader of the Opposition Rona Ambrose tear strips out of Canadian PM Justin Trudeau over conflicts of interest. His answers to say the least were so hollow, scripted and insincere that there is little wonder why his poll numbers are tanking. He didn’t answer questions surrounding his family trip to the billionaire Aga Khan’s resort deflecting it by saying he’d happily answer questions from the conflicts of interest and ethics commissioner. The Conservatives are accusing Trudeau of misleading Canadians for suggesting the RCMP encouraged him to break the law. Liberals accused Rona Ambrose of vacationing with a billionaire herself but there were no conflicts of interest to be had.

Watching Ambrose reveals how out of his comfort zone Trudeau looks when facing her. He simply can’t make credible responses which show him as a capable leader. As much as he likes to promote his youth as a factor it is wearing on more Canadians.

According to the Forum Poll in Canada, the virtue signaling Liberals are being smacked in the polls. It seems Canadians would prefer a Conservative Party in its place. If an election were held today, the Conservatives would romp home with 170 seats, the Liberals 128, the NDP 26, the BQ 13, and 1 for the Greens.

The poll suggested many were unhappy with the outcome of the budget.

Liberal support Fell three points, from 39% on February 26th to 36% now. Conservative jumped three points, from 35% to 38%.

In BC the Liberals (35%) are well ahead of the Conservatives (29%), who are tied with the New Democrats on 28%.

In the Atlantic, the Liberals dropped 11 points to 48%. The Conservatives are up 2 to 32% are up two points.

In Québec, the Liberals are up 2% to 40%and Conservatives are up 3% to 20%. The BQ (22%) ceded 5 points.

In Ontario, the Liberals lost 4 points to trail the Conservatives (45%, +6) by seven points.

In the prairies, the Conservatives gained 6 to 48% while Trudeau’s Liberals were thumped 10 points to 19%..

 

Pint-sized beat the Pensioner who beat the Poleman

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What an epic race. It was more than expectations. 110,000 delirious fans lighting yellow flares and screaming love for their hometown hero, who makes a special helmet for each home race.  However the gentleman of the paddock, Dani Pedrosa, showed that a hot track and his pint size were a formidable mix on the day, edging out home favorite Valentino Rossi and The record pole setter Jorge Lorenzo.

Motorcycle racing is a sport that throws up so much more variables than F-1.  Weather, track temp, suspension setting and  rider skill/bravery to push a 270hp 360km/h missile to its limits. With the switch to Michelin tyres in 2016, Pedrosa has had a pig of a time. Because he has a weight many women would envy, the wet races and mild track temps experienced so far this year means he can’t get enough heat into the tyres to get the grip to compete. This race he came from 7th until the tyres started working at the mid point before he carved up the field and won by a couple of seconds.

Moto 2 was also a feast with hometown hero 19yo Lorenzo Baldasarri (a Rossi protege) coming from a distant second to catch up the leader Alex Rins to win his first ever race. He has huge talent for becoming a future champion.

Another Italian in Moto 3, Enea Bastianini, was pipped at the post by the likely future champ Brad Binder of Sth Africa. Moto 3 is perhaps the hardest class. They are in some respects the bravest. With tiny 250cc engines, the lead changes constantly as they rely on sheer corner speed on skinny tyres and slip streaming.

This weekend I ticked off something from my bucket list. It was so good it is worth ticking off again. Is it in the rules to double dip?