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Sandy Lighthouse
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Self employed for 35 years in construction. PHD from school of hard knocks. Tend to have a macro macro perspective.
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  • Where Are The Economy And Markets Headed 3-19-15?

    Where is the US economy at? Things will never be like the good old days of '95 - '05 because of a massive debt overhang, demographics, and the last "low hanging fruit" stage of the industrial revolution (the info tech revolution) being at a mature stage.

    But, with that in mind, things are going to be OK for the next five years. Low oil and commodity prices and the economic sweet spot of the commodity super-cycle set the stage for the US economy to hit top gear. Granted, the new top gear won't be even close to what it once was, but it's as good as things will get.

    Where are markets at? Stocks and junk bonds are at bubble tops, driven by the Fed's policies of low interest rates and quantitative easing. Market players have leveraged up and taken irrational risks to increase returns. If and when the Fed starts increasing rates, watch out!

    Even if the Fed doesn't increase interest rates, watch out! Because things are already spinning out of control and breaking apart. FX rates are rapidly resetting, undermining the assumptions that form the foundation of a huge number of bonds worldwide. The drop in commodity prices (particularly oil) has put everything associated with them, from sovereign debt to venture capital, into extreme risk territory. My personal opinion is that this process is hitting critical mass as I write this.

    So what are the investment implications if I am correct? Identify market bubbles, and look for ways to short them. Tech has been my primary area of investment for 25 years, and IMHO, is in a classic bubble right now. Private equity is throwing money at anything digital and hoping it sticks. IPO's are priced past perfection, then get a first day bump of 60%. Public companies that have consistently lost money and may always lose money (anything "cloud" or "social" for instance) have valuations as if they will start printing money tomorrow. Also, I'm not strong on my understanding of biotech, but it sure has gone up a lot.

    But shorting may not be the real opportunity here. Shorting is problematic at best, mainly due to the necessity of perfect timing. If I'm right, and critical mass is reached, and high leverage investments unwind, the real opportunity will be to then pick up assets on the cheap. Because over-leveraged investors will be selling like the world is ending, as the headlines will probably be proclaiming. But as I noted at the beginning, the US economy may still be just fine, as it was in 2002 after the tech wreck. This will be a judgment to be made at the time, but the pieces are in place right now for this to be a possibility. If all this transpires and we replay 2002, then the next leg up might set up a 2007 replay down the road.

    Maybe critical mass for a market decline will not be reached. There could be a rolling sector correction as an ongoing process: precious metals and other commodities, 3-D printing stocks, oil, then other bubbles. The opportunity would not be as large, but the underlying soundness of the U.S. economy would be the basis of support for going long.

    This article is not investment advice. It is highly speculative in nature, and based on the opinions of a nobody. You would have to be crazy to invest on the basis of the opinions I have expressed.

    Mar 19 2:39 PM | Link | Comment!
  • The Size Of Apple's Electric Vehicle Ambitions Could Be Staggering
    • Competing directly with the existing automotive industry is a losing battle that doesn't play to Apple's strengths.
    • Building an on-demand transportation ecosystem that integrates hardware and software would leverage Apple's core competencies and financial might.
    • Think driver-less "cloud cars" on-demand transportation in major metropolitan areas world wide, that leverages BEV strengths and minimizes BEV weakness's. Think Uber + Google + Tesla= Apple.

    Trying to compete with the established automotive industry on their terms is a losing battle in general, but particularly when considering the weaknesses of Battery Electric Vehicles (BEV's):

    1. Range-weight trade-offs. The bigger the range increasing battery the heavier the vehicle and the greater the cost and lower the efficiency. Tesla (NASDAQ:TSLA) model S 60kwh weighs about 4450# compared to about 3200# curb weight for Honda (NYSE:HMC) Accords. BMW (BMW.DE) is going the smaller battery, lighter weight (about 2800#) and shorter range route with its I3.

    2. BEV costs. Tesla is having problems selling large volumes of 208 mile EPA range estimate Model S' 60KWhr cars partly because of high sales prices (about $70,000 not including some government subsidies). The 81mile EPA range estimate BMW i-3 retails for about $41,000 dollars, not including subsidies. Compare that to roughly $24,000 for a Toyota (NYSE:TM) Prius or $17,000 for a Honda Civic that have no "range anxiety" issues, and gasoline under $3/gallon.

    3. Charging infrastructure costs. Building out charging stations to cover vast geographic areas to provide comparable coverage to that of gas stations is a massively expensive proposition no matter how many partners are involved. It's also a "chicken and egg" problem. Private home charging stations cost several thousand dollars to install.

    4. BEV "refueling" time (30 minutes +) versus gasoline.

    5. Entrenched competition: GM (NYSE:GM), BMW (BMW.DE), Nissan (OTCPK:NSANY), Tesla , and miscellaneous Chinese manufacturers.

    This doesn't sound like anybody's idea of fun or trying to make a profit to me. Is Apple (NASDAQ:AAPL) that desperate to find new markets? Are they that idealistic to commit massive sums of money toward an altruistic goal? Have they run out of innovative ideas?

    In 1996 Steve Jobs said " Picasso had a saying; 'good artists copy, great artists steal' - and we have been shameless about stealing great ideas." Maybe Apple is thinking of stealing Google's (NASDAQ:GOOG) self-driving car idea. Of course the devil is in the details for self-driving cars: software and sensors have to accommodate one off situations like construction zones, private driveways and garages, stop light outages, etc. Not to mention the need to accurately map every road, stop sign, and pothole in the freaking universe.

    But wait a minute. If you're going to steal, steal big. Uber and Lyft are smoking hot for a reason: they have the realistic possibility of reducing the cost of on-demand transportation to substantially below the cost of private vehicle ownership while reducing congestion, pollution, and wasted infrastructure like parking lots and garages. Current issues like labor costs will eventually be eliminated by self driving cars. The long term goal is, as Uber says, " transportation as reliable as running water, everywhere for everyone".

    So I'm Tim Cook and company looking for the next big thing, ideally even bigger than the mobile internet. I've got hundreds of millions of cash stashed around the globe, expertise second to none in managing global supply chains, and deep experience in integrating hardware and software into closed ecosystems. Nobody else can claim all these attributes. Not Google, not Uber or Lyft, not Tesla or BMW etc.

    Here's the plan. Create a worldwide urban transportation system where Apple controls the entire ecosystem. Design and contract manufacture driver-less BEV's for an on-demand transportation service. Waste not an ounce of effort or cost on building public charging stations or retail outlets. Perpetually driver-less-car-map only the urban areas you serve, while transporting the public. Build massive solar farms (as you have before) to power your transportation system as icing on the cake.

    You solve or reduce all five BEV problems listed above, the software problems associated with self-driving vehicles, and the labor problems associated with on-demand transportation. BEV range problems are solved by only serving urban areas. Your ecosystem integrates lighter vehicles with smaller batteries with high utilization rates garaged and charged in data crunched ideal locations at demand driven times, controlled by your central software and accessed by apps on smartphones.

    All aspects of vehicle design from interiors to exteriors to paint colors to battery size and chemistry to software, are optimized to serve one purpose and one purpose only: "transportation as reliable as running water, everywhere for everyone". Look out Google, Tesla, Detroit, and Uber. Look out world. Tim Cook is behind the wheel, and he's putting the pedal to the metal.

    This article is largely based on speculation, and is not investment advice. It would be crazy to base investment decisions on the speculative opinions of a nobody like me.

    Tags: AAPL, TSLA
    Feb 23 11:04 AM | Link | Comment!
  • Where Is The World Economy Headed?

    The economies of all the nations of the world are more inter-linked than they have ever been before- nothing happens in isolation. First I will state my opinion of where we have been, then where we may be headed.

    For at least the last seventy years the US economy has been the big dog of the world's economies. Whatever happened here pretty much dictated what happened in other modern western economies as well as third world economies. This is still true today. Demographic trends have been and will continue to be favorable for the US, largely because of immigration. There will be demographic bumps, such as the retirement of the baby boomers, but the longer trend is still positive.

    While China has emerged as a major economic power, it is highly dependent on American markets to consume what it produces. China has a powerful economic pull over many countries that supply it raw materials. Demographic trends have been favorable for China up until now, but will start to deteriorate in several years. China has paid a huge environmental price for it's industrialisation. The US effectively exported the pollution costs of modern society to China, which is now at a breaking point.

    Japan's economy has been stagnant for the last thirty years, largely as a result of demographics, which will continue to deteriorate going forward.

    Europe's demographics have and will continue to dictate a stagnant economy. Socialist policy in Europe is also a major headwind for economic growth.

    Third world economies are largely based on resource extraction and cheap labor. They are completely at the mercy of the US, Europe, and China.

    Starting in about 1983, interest rates began a long term decline in the US (with the world as a whole following) that culminated in a massive worldwide credit bubble that popped in 2008.

    Also beginning in the early 1980's, the information age- tech revolution got under way, culminating in the invention and worldwide deployment of the internet. I believe the information age represents one of the last steps of the industrial revolution that began in the mid 1800's, and kicked into high gear with the advent of petroleum extraction and utilisation.

    The low hanging fruit of cheap resource extraction, rapid technological advancement, and worldwide population growth, has been picked. The going gets tougher from here. On top of that, we are in the midst of a worldwide credit contraction. The Fed's quantitative easing programs had marginal benefit, being more effective psychologically than economically. The shale oil boom had much more to do with our recent economic recovery than monetary policy. The downside of artificially low interest rates is starting to manifest itself in asset bubbles that are popping.

    Germany's more conservative monetary policy has gotten a lot of bad press for stagnating the EU, but has been sounder long term policy than the US Fed's. The EU's problems are more based on fiscal policy and demographics, and won't be solved by EU QE.

    China's period of rapid growth is ending. The structural problems of a command economy are starting to emerge.

    Third world economies had their day in the sun with the influx of capital brought on by the commodity super-cycle, but are now in the throes of low commodity prices compounded by high debt levels.

    So the crux of the matter is : can the US economy pick up enough steam to pull along the rest of the world? Tough question.

    First off, low oil prices are absolutely a plus. Cheap energy spurred on the entire industrial revolution.

    Second, technological advancement looks iffy to me. Yes, things will move forward, but not at the rate they once did. And increasingly, technology will eliminate low knowledge jobs and continue to widen the wealth gap. While the Nasdaq used to thrive by disrupting legacy industry, it will become more a matter of cannibalizing itself.

    Third, employment as a percentage of working age population is still terrible, and hasn't and won't support wage growth. That pretty much dooms the housing market, formerly one of the main drivers of the US economy.

    The Fed's economic policies were never all that effective. Fiscal policy such as massive public infrastructure investment would be beneficial, but is unlikely in a grid-locked congress. Further asset bubbles caused by low interest rates will be a big problem going forward.

    So the US economy looks sideways at best in the future to me. The worldwide economy looks poor, with populism, and social unrest being a major risk. Deflation looks like a real risk at home and abroad. Equities have milked the most that can be expected out of low interest rates. Earnings growth prospects look poor with a rising dollar and shaky economic prospects in the rest of the world.

    Disclaimer: You would be crazy to make investment decisions based on the opinions of a nobody like me.

    Feb 03 11:28 PM | Link | Comment!
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