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- Real rates have declined almost everywhere in the developed world, the savings glut doesn't turn into an investment glut.
- The result is excess capacity, slow growth and underperforming economies. How can this be turned around?
- If desired savings and investment can equate only at deeply negative real rate, higher inflation targets are one logical solution to get there, but not one without cost or risk.
- One of the risk is that we'll finally get the long predicted currency debasement.
Japanese Shares Are Still A Buy
- We think that Japanese shares are still attractive, for a number of reasons.
- They are not expensive, haven't done much this year, profits are good, big institutions are buying and the government is hell bent of getting Japan out of its deflationary funk.
- The main risk to us is that the recent tax hike might have done more damage to the reflationary effort than first hoped.
Envy Has Got Nothing To Do With It
Fri, Sep. 5 • 262 Comments
- Evidence is mounting that rising inequality is producing negative economic effects.
- These effects range from producing insufficient demand, financial instability, a decline in societal cohesion, trust and upward mobility.
- Those who are worried by these developments are not necessarily motivated by envy, nor do they want to abolish capitalism.
- What is necessary is a dispassionate cost-benefit analysis of the rise in inequality, which is what we'll try below.
22nd Century: Cigarettes Without Nicotine, How Much Are They Worth?
- 22nd Century Group owns unique IP that enables it to produce cigarettes with low or very low nicotine levels.
- It is now allowed to sell these in the US under the Master Settlement Agreement, so domestic sales will start. The first distribution deal is already in place.
- The company also has significant opportunities overseas via sales, joint ventures and license agreements.
- Over time, regulatory changes will likely enable the company to exploit its capabilities more, but this will take time.
From Value Creation To Value Extraction
Tue, Sep. 2 • 26 Comments
- When the SEC greatly facilitated corporate share buybacks and executive pay was tied to the stock price, the elements were in place for management to game the system.
- Stock markets became vehicles for massive extraction, rather than funding, of corporations as these embarked on enormous share buybacks which boosted share prices and executive compensation.
- While this has been the major fuel behind an epic stock market rally, the system isn't without significant cost.
What If Central Banks Aren't Responsible For Asset Bubbles?
Editors' Pick • Tue, Sep. 2 • 30 Comments
- Many assume central banks are the main culprit for creating asset bubbles by running too loose monetary policy.
- However, central banks are not in control of longer-term interest rates and these have been on a downward trajectory for a couple of decades. We look at what's behind this.
- The fact that central banks aren't the main culprit creating asset bubbles doesn't mean they are helpless in preventing (or at least moderating) them.
- But that comes at a significant cost which so far few central banks are willing to assume.
Japan's Lost Decades Revisited
- Japan's experiment with Abeconomics remains widely misunderstood.
- It is modelled on an earlier successful Japanese reflation attempt in the 1930s.
- Since the eurozone is plagued by similar ills which threaten the stability of the world economy, the experiment has special relevance here.
Risk Is Returning, Time To Sit On The Fence
- We see risks to stocks increasing, it's time to get more cautious.
- The Ukrainian situation seems to escalate with the eurozone economy already in big trouble, but consumption growth in the US came to a halt and QE will follow, stock buybacks.
- After the big rallies in stocks and bonds, time to bet against the euro and on a spike in the VIX, whilst being more cautious overall.
Revolt In The Eurozone?
- The present path of policies in the eurozone is not sustainable for economic nor for political reasons.
- A move toward complete monetary union is politically unfeasible and the prospect of countries bolting from the policy constraints is real.
- We believe the ground is more fertile for policy changes not only because of the above, but also because the German economy is no longer immune from the eurozone woes.
- Mario Draghi seems to prepare the ground for a more aggressive monetary policy, European shares could benefit and the euro will fall further.
Intrusion Rally Still Has Legs
- Intrusion (INTZ) is a little known security company with several interesting products.
- TraceCop is a stable cash flow generating product that has a unique database which makes the product difficult to dislodge from the market.
- Growth opportunities lie in its new product Savant, the sale of which goes largely through a big channel partner selling it under their own name and ramping up efforts.
- Not widely known is that Savant beat a much bigger competitor to a substantial order, sign of market acceptance.
The Japanification Of Europe
- The eurozone is resembling Japan's lost decades ever closer on a host of metrics, including demographics, growth, inflation, yields and debts. In some respects, the eurozone crisis actually resembles the Great Depression of the 1930s.
- If policy makers do not respond to this crisis, things are likely to get worse rather than better.
- Japan responded with new policy initiatives, getting it out of deflation; its stocks remain a better bet until the ECB wakes up.
The Coming Solar Capex Boom
- Demand for solar energy keeps on rising briskly, after steep price falls.
- Prices have stabilized and companies recovered some of their profit margins.
- For growth to continue, companies need to significantly expand capex, which has interesting implications for certain stocks.
- If capex doesn't increase enough, prices could actually increase.
Secular Stagnation Effects On Financial Markets
Wed, Aug. 20 • 20 Comments
- There is a lot of confusion what secular stagnation really means; here is a quick introduction and scheme.
- We look at what impact secular stagnation has on asset prices.
- Secular stagnation has likely been beneficial for both bonds and stocks, but at the cost of greater financial instability.
Solar + Storage Is Close To An Inflection Point
- Solar energy has already achieved grid parity in a number of locations, but problems with its intermittent nature remain.
- Energy storage will greatly diminish these remaining problems, so solar + storage is becoming a big investment opportunity.
- We survey the landscape and the investment implications.
Supply-Side Versus Keynesian Economics
- In the battle of economic ideas, one that has been raging for nearly four decades is that between supply-siders and Keynesians.
- While we think some supply-side measures can be useful, one really has to be specific as to the kind of measures and expected effects, it's all in the details.
- A general supply-side approach seems a little out of place as a recipe to combat what is a distinctly Keynesian crisis.
Phoenix New Media Shares Are Undervalued
- The shares sold off after Q2 figures but we only see healthy growth.
- Debt free, solid growth, quality media reputation and close ties to one of the best media brands in China.
- The shares are too cheap, especially taking the whopping cash position into consideration.
The Bond Markets Vs. Peter Schiff
- Some market observers like Peter Schiff have warned us that many markets and even the whole economy are kept up by asset purchases by the Fed.
- So we should expect the recovery to stall, the dollar, stocks and bonds to fall when the Fed stops these purchases.
- Not only is this not happening, some of these markets are actually up, like the bond market. So who is right, bonds or Peter Schiff?
SunPower Shares Are Still Very Attractive
- SunPower shares have been on a tear the last couple of years.
- Shares supported by significant competitive advantage, innovations, strong market growth and stable ASPs.
- The shares have sold off on Q2 results but this provides a new buying opportunity.
Is The Fed Falling Behind The Curve?
- The nature of the 2008/9 crisis was different from previous crisis, and the nature of the recovery also differed.
- Apart from explaining the tepid nature of the recovery itself, it also shows the difficulties in interpreting the economy.
- These difficulties complicate the timing of policy changes by the Fed and significantly increase the risk that the Fed is falling behind the curve.
Ellie Mae Breaks Out Of Multi-Year Resistance
- Shares in Ellie Mae (ELLI) have finally broken out from multi-year resistance.
- This on stellar results in a very difficult market.
- The company is very well positioned to profit even more when mortgage volume will increase next year.
Sell The Euro
- The eurozone is stuck into low or even negative growth on the border of deflation.
- Yet the ECB balance sheet has shrunk, this will not last as the risks are increasing.
- Risks are a deflationary shock from the Russia crisis and tightening US monetary policy.
- The euro will also suffer from a flight into the dollar as a result of its safe haven status in times of international crisis.
Panic Selling In Destiny Media Is Unwarranted
- With the introduction of the security pack, Destiny's streaming media solution is finally ready for launch in the first out of two dozen verticals.
- Other problems, like a work around of ISP throttling, are in the works, as well as customization for other market verticals.
- All this has taken significantly longer than many people hoped and/or expected, and the stock has been sold off way too much, helped by incorrect info which needs correcting.
Panic Selling Turns Into Panic Buying In Sphere 3D
- Shares in Sphere 3D sold off on valuation concerns.
- While these valuation concerns are justified, they're also one-sided and backward looking and susceptible to surprises.
- One such surprise arrived on Monday from take-over target Overland, suggesting the ever falling reveunes is coming to an end.
InvenSense Will Be Range Bound
- InvenSense is a very well run company.
- Positive forces are market growth, good execution leading to market share gains.
- But these are partly offset by the size of the required investments and price erosion.
- We think therefore that InvenSense will be range bound for the forseeable future.
Has Destiny Media's Clipstream Product Failed?
- That is what an article today argued, we argue that this provides a particularly one-sided picture of Destiny Media in general, and Clipstream in particular.
- PlayMPE, Destiny's other product, is the de-facto standard in sending pre-release music to customers and it's usage is fast growing.
- Clipstream, the product for streaming media, hasn't properly launched as it's being taylored for different verticals in conjunction with users, it addresses a big and fast growing market opportunity.
- You will never find out the many advantages of Clipstream by reading Keubiko's articles, while some rather irrelevant disadvantages are played up or unjustly ascribed to the technology.
Destiny's Shares Can Still Double
- When Destiny's streaming media product Clipstream was launched, it wasn't ready and the share price took a hit.
- Problems with ISP throttling video streams for some users and extensive tailoring the product to different categories of users is what caused the holdup.
- But as these issues are getting solved one by one, we still think there is a bright future for this company.
- From the levels here, we think the shares can double and recoup their losses by year-end.
Risk Is Back, It's The Euro, Stupid!
- All quiet on the Southern front? Not really, the euro induced destruction machine is still grinding.
- It's important for investors to grasp exactly how this works, so here is a primer.
- What are the main risks the situation derails? We'll discuss three.
The Virtual Reality Race Is On
- VR headsets are finally emerging as a mass-market consumer product.
- The possible applications are sheer endless and VR seems set to become a big market.
- There are three early contenders on the hardware side, but the money is likely to be in the software side.
Hard Money, Soft Money And Asset Bubbles
Fri, May. 23 • 92 Comments
- Should we raise interest rates to curb possible asset price bubbles?
- Answers depend on who you ask. "Hard money" people say yes, "soft money" people say no.
- So we'll look at the costs, benefits, and alternatives.
Sphere 3D Taking On The Software Virtualization World?
- Sphere 3D promises it has a revolutionary product with the Glassware 2.0 virtualization platform.
- The acquisition of Overland could provide it with the critical mass to propel this product into the market.
- But the shares have already run up a lot and the company isn't without critics.
3 Stocks On The Ropes Offer Big Value
- While the market indexes are holding up, many stocks are in bear market territory.
- We think some of the stocks that have been sold off heavily are due for a bounce.
- We see fundamental value in FENG, XXII and SZYM at these sold-off levels.
Big Oil Under Serious Threat
- Oil majors face serious challenges, for decades, resource nationalization has kept them out of many of the cheapest fields.
- They're struggling to replace existing reserves and production with new reserves and production.
- Climate change could present them with a staggering $28 trillion bill.