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After The Veil Of QE Is Lifted...
Oct. 24, 2014 • 31 Comments
- There are many critics of QE, and indeed it does have limited real effects and produces some risks.
- However, now that the veil of QE is being lifted, what is revealed is a rather ugly world in which a host of deflationary forces conspire to take definite root.
- The US has, for now, managed to escape the most severe effects of these, but we wonder for how long, and other areas in the world economy are already perilously.
To The Fed's Critics: Deflation, Rather Than Inflation Was Always The Bigger Risk
Oct. 16, 2014 • 36 Comments
- In 2010, a host of people wrote an open letter to the Fed warning against the inflationary risks of unconventional monetary policy.
- Recently it turned out that none of these signatories repented.
- We'll argue that they got their risk assessment inside-out and explain why deflation was always the much bigger risk.
Europe Is Coming Apart
Oct. 14, 2014 • 63 Comments
- While it seemed like the ECB had saved the eurozone from imploding a few years ago with Draghi's "whatever it takes," underneath, tensions have remained.
- While there are some small pockets of improvements (Ireland), mostly, the situation has kept deteriorating- in Italy and France, but also in Germany itself.
- This isn't a surprise. Just like in the 1930s, a currency union is simply too constraining for it to work.
- Ultimately, the choice is for Germany, whether they accept the things necessary to give the euro at least a chance, things that go deeply against their economic beliefs.
- Or they should leave the euro. If they keep dithering more, markets or people in the streets will make the choice for them, that ain't going to be pretty.
Falling Oil Price And Energy Stocks
- Falling oil prices have decimated energy stocks.
- For some, like those producing shale oil, this seems warranted as lower oil price is a direct threat to the viability of many.
- But the selloff in alternative energy names, equally violent, provides an opportunity.
Secular Stagnation In... Germany?
- Germany has been held up by many as an economic success story and a recipe for others to follow.
- But the success is faltering of late, producing a raft of bad economic figures.
- A closer look at what's going on reveals that even doing all the right things doesn't guarantee escape from the forces of secular stagnation, quite the contrary.
Cenveo Share Price Slide Isn't Warranted
- Shares in Cenveo slid lower from $3.80 in July to $2.40 now, almost in a straight decline, taking the shares into deeply oversold levels.
- We couldn't find many reasons for that, Q2 figures were somewhat disappointing, but these were marred by a host of one-offs.
- Management is convinced they're still on track to make full year guidance and they seem to have a reasonable case. The steep sell-off is unwarranted if these expectations materialize.
Germany's Eurozone Recipe
- Germany has been the lone economic success story in the eurozone, but should other eurozone countries follow the German model?
- It's invariably argued that the German success is based on fiscal discipline and structural reforms.
- As usual, the real picture is a good deal more complex.
To Raise Or Not To Raise...
- A primer on the arguments pro and contra tightening monetary policy.
- Those who are in favor fear asset bubbles, rising wages and want to protect income from savers.
- Those who are against argue that rising rates risks the recovery, inflation is low, rates would be low in the absence of Fed expansionary policies and there is still considerable.
Sep. 25, 2014 • 43 Comments
- The blitz most of the central banks in advanced nations have unleashed on the world is actually the least effective, and the most risky, way to stimulate economies.
- Its main transmission channel is to stuff money into banks in order to entice households to borrow more at exactly the time when they're least likely to respond.
- There has to be a better way.
Bill Fleckenstein Does Misunderstand Monetary Policy
Sep. 22, 2014 • 150 Comments
- Notable Fed critic and hedge fund manager Bill Fleckenstein sticks to his gums.
- But Fleckenstein's position depends on a prediction that hasn't yet materialized.
- So we think CNBC's Futures Now host Jackie DeAngelis asked a few poignant questions, questions which Fleckenstein hasn't really answered.
The Purest Play In The Cannabis Wave And It Trades On The NYSE
- Having unique IP that lets the company regulate nicotine levels of tobacco genetically, 22nd Century Group (XXII) acquires licenses in technology that can do the same for HTC levels in hemp.
- In a stroke, it becomes the only NYSE listed company in the cannabis space, a fast growing market and the technology opens up several interesting revenue streams.
- But it's not just a commodity cannabis play, it has unique IP giving it a competitive advantage that is difficult to match, just like in the cigarette business.
Turn The Lose-Lose Economic War With Russia Into Trading Profits
- While riding a wave of domestic popularity, Putin has made a bad gamble for Russia.
- Instead of developing an 21st century economy by stimulating value-added industries and human capital, he got stuck on 20th century concepts like sphere's of influence.
- The resulting sanctions will hurt Russia and the West, but this isn't a situation Russia can win.
- The situation nevertheless provides some interesting short-term trading opportunities.
- 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
Sep. 5, 2014 • 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
Sep. 2, 2014 • 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 • Sep. 2, 2014 • 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
Aug. 20, 2014 • 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.