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David Nelson, CFA
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David Nelson, CFA is the Chief Strategist of Belpointe Asset Management. The members of his firm, DC Nelson Asset Management LLC (DC Nelson), recently merged into Belpointe. At Belpointe he will continue to manage his Alpha Select Portfolio. He is a Chartered Financial Analyst (CFA), a... More
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  • 4 Questions Investors Are Asking About The Russian Invasion

    UkraineBy David Nelson, CFA

    I said earlier this year during a CNBC interview "one of the things that keeps me up at night are the events I can't quantify. Among those are military conflict and political unrest." Well, we certainly got that as we headed into the close Friday with reports coming out of the Ukraine that Russian troops had invaded Crimea. The New York Times is reporting that a senior Obama administration official said Russian troops now have "complete operational control of the Crimean Peninsula, with some 6,000 airborne and naval forces there." What was particularly interesting is that initial phase of the invasion showed troops obviously well trained and equipped with Russian weapons but bore no insignias.

    This will dominate the news cycle for weeks and certainly was the focus of every media outlet throughout the weekend. As usual during times of political uncertainty the knee jerk reaction will be to sell stocks, buy gold and drive energy prices higher. Let's discuss four questions investors are asking.

    1. Why Did it Happen?

    It's been obvious for some time Mr. Putin is looking to advance Russia's prominence on the world stage. He is confident that the U.S. may threaten economic and political sanctions but will do little from a military perspective. Secretary of State John Kerry said in an interview on Meet the Press that "the last thing anybody wants is a military option in this kind of situation."

    This will play well to Putin's base in Russia. Over the weekend I participated in a Merrill Lynch conference call with economic and political experts from the region that believe Putin will likely get a bump in the polls at home. For now, he seems willing to sacrifice the Russian markets which are down significantly this morning.

    2. What's the End Game for Russia in the Ukraine?

    I believe that Putin will stop short of moving beyond Crimea. As pointed out by the press and media, Crimea is a strategic asset for Russia with a predominantly ethnic Russian population. In addition, Russia has military assets in the region and will likely defend at all cost. The Russian military has set an ultimatum demanding Ukrainian army and navy units to surrender and leave bases in the Crimean peninsula. It would seem that a full occupation or annexation is the end game.

    I believe the Russian invasion will be limited to the Crimean peninsula and that further military escalation won't materialize. If however, my calculus is off and Russia moves into the rest of the Ukraine then all bets are off and both Europe and the U.S. may be forced to do more than threaten economic sanctions and expulsion from the G8.

    3. What Military Assets Will Russia Use?

    While tanks, jets and the ubiquitous AK-74M are formidable assets in any conflict, the most powerful weapon Russia has at the moment is natural gas. According to Bloomberg OAO Gazprom (OGZD) said on Saturday that they would end the current natural gas discounts for the Ukraine if they weren't paid the $1.55 Billion already owed for fuel. During the Merrill Lynch conference call which included Russian Economist Vladimir Osakovkiy the consensus was that Russia would use price as a weapon and not supply.

    4. What Is the Likely Outcome for?

    Even under the best of circumstances predictions are fraught with peril but as a strategist and portfolio manager I have to make a decision as to whether I want to remain invested. If you believe that the events unfolding in the Ukraine are going to escalate out of control with U.S. or even NATO troops going toe to toe with the Russian Military you should sell stocks and other risk assets immediately.

    I believe Putin saw an opportunity and seized it. If Russia does not move beyond Crimea the end result will be a stalemate and at some point investors will look back and wish they had taken advantage of the opportunity.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Additional disclosure: Image Ukraine from Google and available in public domain

    Mar 03 9:17 AM | Link | Comment!
  • Thomson Reuters (TRI) - Earnings & Products Miss Expectations!

    (NYSE:TRI) 2 Year Chart - Source Reuters

    (click to enlarge)TRI 2 Year - Source ReutersBy David Nelson, CFA

    On Wednesday Thomson Reuters reported earnings that missed consensus. Guidance was also below expectations so it's understandable the stock was hit hard yesterday. Analysts who remain bullish on the company point to their flagship product EIKON, which is supposed to take back market share lost in recent years. The EIKON workstation is similar to a Bloomberg terminal and is meant for professional traders and fund managers like me.

    Let me explain in vivid detail why this product is unlikely to help earnings or revenue in the near term. I've been a long term subscriber of Thomson Reuters products ranging from pure data and news feeds, to workstation software like EIKON. Last week they upgraded to their latest version EIKON 4.

    While software has always been clunky; the rollout of their latest update is a monument to the arrogance of IT departments who don't think the process through or talk to their customers to get feedback. We've all been frustrated from time to time by software vendors who rollout new versions of products, convinced everything they've done was for your own good.

    Remember when Microsoft (NASDAQ:MSFT) took away the window menu from office products like Word and Excel, making it more difficult to navigate from document to document. Or how about when Apple (NASDAQ:AAPL) decided they had a better workflow concept for video editors when they upgraded Final Cut Pro to Final Cut Pro X. Video professionals around the world went bonkers swearing off the product. Editors were quick to abandon ship and switched to their competitor, Adobe's Premiere Pro CS 6.

    32 Bit or 64 Bit

    Thinking into the future, Thomson software engineers designed EIKON 4 to run on Windows 7, 64 bit. To effectively run 64 bit you need lots of Ram (Random Access Memory), typically 4 GB or more. Unfortunately, they forgot to ask themselves; what percentage of our customers are actually running 64 bit? According to PC Magazine users of Windows 7 are split evenly between 32 and 64 bit versions.

    Space ShuttleThe Space Shuttle Didn't Need This Much Memory

    Now by most software standards EIKON is a memory hog. It demands a minimum of 4 GB. We're talking about accessing quotes and creating a few charts; not rocket science. To give you a point of reference, the computer on the original Space Shuttle was powered with just 424 kilobytes of memory. This was upgraded in 1990 to 1 Meg.

    Shuttle Memory Board

    I bring this up because to the best of my knowledge Windows 7, 32 bit can only see 4 GB, no matter how much you install. Obviously, for 32 bit users it would limit the ability to use other software at the same time. So in the blink of an eye, with little thought or planning, Thomson Reuters has managed to enrage a significant portion of their customers including yours truly.

    To their credit, the customer service personal are top notch and willing to go the extra mile to help frustrated clients like me work through what has so far been an impossible upgrade cycle. The problems at Thomson are in the bureaucracy that sits above.

    What it Means for the Business

    I think potential customers may hold off on a purchase of EIKON until the bugs are worked out. Customers who are coming to the end of their contract may re-think their software needs and maybe even go over to the dark side… Bloomberg.

    As you might have guessed, I am in the middle of installing Windows 7, 64 bit on our computers right now. Yeah, I'm sure this will go smoothly.

    #$%^%^&&**((, CFA

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Feb 13 9:05 AM | Link | Comment!
  • Boeing (BA) Ends The Battle But Not The War!

    By David Nelson, CFA

    Seattle - Late Friday, officials of the International Association of Machinists and Aerospace, Boeing's (NYSE:BA) largest union, announced members had voted to accept management's recent offer. The vote brings an end to a bitterly fought standoff not just between the union and management but amongst the union members themselves. In recent months there's been an obvious split between the international and local leadership who rejected immediately management's last proposal.

    Friday's vote was a close one coming in at 51 - 49% in favor of the deal. According to the Wall Street Journal, Ray Conner, chief executive of Boeing's commercial unit, confirmed that the 777X wings will be built in Washington State. The 777X is an upgrade to the popular 777 and offers better fuel efficiency and the ability to carry as many as 400 passengers. Boeing (BA) already has 280 orders for the aircraft which is expected to go into service in 2020. (Click Here for More)

    Disclosure: I am long BA.

    Jan 06 11:44 AM | Link | Comment!
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