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Jake Huneycutt
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Jake Huneycutt is a Portfolio Manager, Investment Author, and Entrepreneur. From 2009 to 2014, he provided long / short SMAs for high net worth individuals generating 18.2% gross annual returns compared to 13.0% returns for the S&P500. He did this on a shoestring budget and with lower... More
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Huneycutt Capital + Research
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The Contrarian Value Investor
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  • Economic Thoughts, July 2015

    A few quick economic thoughts for July 2015:

    (1) China's crashing stock market is the least surprising thing in the world. However, the idea that it will impact the US economy significantly is inaccurate IMO. The collapse of the Japanese Asset Bubble in the early 90s had very little impact on the US economy and this is analogous to that.

    (2) Greece's problems are no surprise either. Once again, don't expect it to have much impact globally. The bigger story IMO is that the Italian government is being propped up by the European Central Bank and that will result in declining long-term growth in Europe.

    (3) The biggest threat to the American economy right now: Donald Trump. No exaggeration. Trumps wants to start a trade war with Mexico and China that will likely be a total disaster. Trump's policies are very similar to those that led to the Great Depression. The scary thing is that he's surging in the polls.

    (4) In spite of all the negatives globally, I'm starting to find some very attractive investments again --- mostly in the energy sector. Not that dissimilar from 1999 when a lot of energy and mining related stocks were dirt cheap in spite of the overall market being grossly inflated.

    (5) The perception of risk in the US financial sector is greatly exaggerated. If anything, US housing prices are still subdued right now as a result of Dodd-Frank. Moreover, almost all the major US banks are significanlty better capitalized in 2015 than in 2007. I view the US financial sector as one of the safer areas to hide right now; the exact opposite scenario as the one we saw before the last crash.

    Jul 10 2:21 PM | Link | 1 Comment
  • The UK Elections: A Union Divided

    The UK Parliamentary elections are being held today and it's one of the most interesting UK elections I can recall in my lifetime. It's one of the more difficult elections to predict, as well; the increasing elements of regionalism are pushing the UK towards a coalition system.

    Some thoughts on the election and contemporary currents in the UK:

    (1) David Cameron has arguably had one of the more successful terms as Prime Minister. The UK economy has fared much better than its continental peers and Cameron's coalition deserves some of the credit. Nevertheless, Cameron faces a significant chance he'll lose re-election as Prime Minister.

    (2) The Scots are set to overwhelming vote for the Scottish Nationalist Party. It's main mission is Scottish independence. This is strange because the Scots just rejected Scottish independence a few months ago. Ultimately, I feel like the UK would be better off without Scotland. Scottish socialism is a significant drag on England and London. I say this as a man with deep Scottish heritage and whose family celebrated its "Scottishness." I love Scotland but its contemporary politics are delusional and dysfunctional.

    (3) There's a possibility that this election leads to no governing coalition. The Conservatives are unlikely to have a majority and most of the minor parties are more likely to align with Labour. Labour is reluctant to align itself with the SNP, which will alienate its core English constituencies. The Liberal Democrats will likely be king-makers, but it's possible that even they are unable to create a majority with either party.

    (4) The left-leaning, but free market-oriented, Economist endorsed David Cameron for re-election. This speaks volumes on the direction of Labour. The Economist almost always favor center-left politicians. Their Conservative endorsement is a rebuke of Labour's creeping shift back towards socialism.

    (5) A Labour victory would have negative repercussions in my view. The UK and France have taken divergent paths since the election of Margaret Thatcher and the UK has been the clear winner. In the 1990s, Labour shifted to become a more middle-of-the-road party. Now, it's moving back towards its socialist brethren in continental Europe. Moreover, any coalition with the SNP would likely include calls for very radical economic reforms that could weaken the UK economy.

    (6) FiveThirtyEight has made its predictions on the UK election. It currently shows the Conservatives as likely to win a plurality of the seats. However, it also shows that a potential Labour-SNP coalition would hold more seats than a Conservative-Liberal Democrat coalition. If FiveThirtyEight is right, I have to think that Ed Milliband will be the UK's next Prime Minister.

    (7) Personally, I think the best solution to a "divided union" in the UK is further devolution. Not only should we see more devolution in Scotland, but England, Wales, and Northern Ireland, as well. But as most of us know, what's "best" is rarely what happens.

    That's I have on the UK. As to whether it will impact the markets, my answer is that it always does in the long-term, but the short-term impact is normally small. However, there is a possibility that a Labour-SNP alliance could result in a bit of a short-term hit, as well.

    May 07 8:50 AM | Link | Comment!
  • Analyzing The Presidential Betting Markets

    I'm not a gambler by nature. As an investor, I'm always looking for scenarios where the odds are greatly in my favor. Gambling, on the other hand, often means making bets where the odds are rigged against you.

    That said, I do follow the betting markets. With a lot of sporting events, I follow the line to get a sense of public perception. I also follow political events. Political events are much tougher to set odds for than sporting events and for that reason, I find political betting markets intriguing.

    The last political event I followed closely was the papal election, which resulted in Francis I becoming the new Pope. Francis was initially considered a bit of a long-shot, so someone out there cashed in big on that.

    Now, I'm watching the 2016 Presidential election odds. Before I say anything else, I'll point out I have no intention to make any bets whatsoever. To be perfectly honest, I'm not even sure if it's legal here in the US. But I still find the odds intriguing because they seem way off in many cases.

    You can go to Paddy Power to see the latest odds for yourself, but here's the rundown on the US Presidential odds as of today (April 13, 2015):

    Hillary Clinton, 11-to-10

    Jeb Bush, 4-to-1

    Scott Walker, 9-to-1

    Marco Rubio, 11-to-1

    Chris Christie, 11-to-1

    Mitt Romney, 16-to-1

    Ben Carson, 16-to-1

    Rand Paul, 16-to-1

    Martin O'Malley, 25-to-1

    Elizabeth Warren, 28-to-1

    Ted Cruz, 33-to-1

    Joe Biden, 33-to-1

    Andrew Cuomo, 40-to-1

    Bobby Jindal, 40-to-1

    Mike Huckabee, 50-to-1

    Jim Webb, 50-to-1

    Carly Fiorina, 66-to-1

    Now for my analysis.


    On the overvalued side, I'm going with Hillary Clinton, Marco Rubio, and Chris Christie. I'll also note that Mitt Romney at 16-to-1 is bizarre given that Romney has already announced he's not running.

    Hillary. Hillary is the odds-on favorite to win the Democratic Party nomination. However, there's pretty much no upside to her at 11-to-10. Based on recent polling, I suspect that she's no more than even-money to win the general election assuming she wins the Democratic nomination. Indeed, she's only slightly ahead in most recent general election polls in spite of the much weaker name recognition of the GOP candidates. Given this, 11-to-10 probably makes sense if we know with 100% certainty she wins the Democratic nomination. But we don't know that. In fact, I'd still only put her as an 80% favorite to win the nomination. It's a bad betting line because there's virtually no upside. Maybe at 15-to-10 it would make more sense.

    Rubio. Rubio at 11-to-1 seems overvalued to me. The problem for Rubio is that Jeb Bush has already entered the race and there's a huge overlap with the two candidates for fundraising. In essence, Bush has already crowded out Rubio. For this reason, I suspect that Rubio's campaign will struggle and he will bow out early.

    Christie. In 2012, I thought Christie would've had a good shot at winning the GOP nomination. In 2016, I think he'll have a much tougher go. His popularity is waning, particularly among the Republican base. While he's a good fund-raiser, I question where his support is going to come from. He's also hurt by Bush's entry into the race. I see him as a long-shot at this point.

    Romney. This is a no-brainer. How is Romney 16-to-1 when he's already announced he's not running? Unless Romney gets picked in some sort of bizarre compromise convention (the odds of which are probably about 1,000 to 1), he's not winning. Since Paddy Power caters more to the European crowd than the American crowd, perhaps this is merely a suckers' bet for Europeans that don't follow American politics closely.


    Carly Fiorina. Fiorina may be a long-shot to win the GOP nomination, but I get a sense that she will end up running one of the best campaigns this cycle. It won't be enough to win in all likelihood, but she's greatly underestimated at 66-to-1.

    Scott Walker. Right now, I feel like the GOP nomination is a 3-way race. That could change once we get further into the cycle, but it's looking like a Walker-Bush-Paul competition in the early stages. Of the three, I view Walker as the favorite. At 9-to-1, he's undervalued.

    Rand Paul. Here's the thing --- Rand Paul is polling better against Hillary Clinton than any other Republican candidate. He's a bit of a non-traditional candidate, but he's a non-traditional candidate with a strong base of support, and he potential has the broadest base of all the candidates. I'm not predicting he'll win the nomination, but he's undervalued at 16-to-1. I believe the odds for Walker, Bush, and Paul should all be somewhat close.

    Martin O'Malley. Hillary is the odds-on favorite to win the Democratic Party nomination. Yet, she has a lot of baggage and the e-mail scandal will end up doing more damage than many realize. Does this means she's beatable in the Democratic Primary? Still probably a long-shot, but if she falters, O'Malley suddenly could go from 25-to-1 to something closer to 8-to-1. As I said, I'm not a gambler, and I don't plan on betting on any of this, but it would be a decent value pick.

    About Right

    I'll put Bush, Carson, Cruz, Biden, and Webb into this category.


    I don't have any grand conclusions here. This is just a for-fun exercise. I could be totally wrong about all of this, but I'll take a look back at it at the end of 2016.

    I've tried to be objective as possible here. This is not an indication of support or opposition to any candidates; just a statement on the odds of winning. And a test of my political predicative powers. Fwiw, I suspect my political predicative powers are much weaker than my equity analysis powers.

    For a more expert take, you can visit Larry Sabato's Crystal Ball.

    Sabato on Democratic nomination.

    Sabato on Republican nomination.

    Apr 13 2:21 PM | Link | 1 Comment
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