Comment of the Day
Video commentary for June 29th 2022
A link to today';s video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: value is not what it seems as long as liquidity is tightening, oil pulls back, Treasuries steady, equities soft, gold steady, Dollar firm, EU gas breaks out on rising geopolitical tensions.
Lawyers, Guns and Money
Thanks to a subscriber for this edition of Grant’s Almost Daily. Here is a section:
The prospect of a bruising stretch for the pension industry at large colors the migration into the deeper end of the risk swimming pool. An analysis from Moody’s Investors Service last Wednesday projects a systemwide 12.2% loss over the 12 months through June 30, far below the assumed 6.8% return target. That shortfall would leave assets sufficient to cover 6.9 years of retirement benefits, down from 8.3 years in mid-2021 and the lowest figure since at least 2016.
Moreover, the ratings agency noted that “a persistent environment of high inflation would likely drive up wages for active employees and cost-of-living adjustments for retirees, increasing future pension obligations and governments' budget outlays.” State-directed efforts to contain raging price pressures may prove less-than-effective, as California Governor Gavin Newsom announced plans to distribute $1,050 direct stimulus checks to 23 million local residents “who are grappling with global inflation and rising prices of everything from gas to groceries,” his office declared.
Nothing a bit more leverage and alternative assets can’t fix.
My view - The success of the FANGMANT shares is well understood. They benefitted from their all-in bets on 4G connectivity, and their market cap appreciation was amplified by the ballooning interest in ETF investing which concentrated flows in the largest names.
It is much harder to monitor the size of the private markets because they are unlisted by definition. The one thing we can be sure of is private markets have exploded in size since 2008. Their performance has been amplified by the exceptionally low interest environment.
MicroStrategy Buys $10M Bitcoin in Middle of Crypto's Big Chill
This article from Bloomberg may be of interest to subscribers. Here is a section:
As of June 28, the company holds about 129,699 Bitcoin bought for about $3.98 billion, or $30,664 per coin, according to the filing.
The Tysons Corner, Virginia-based enterprise software maker is expected to reveal a significant financial hit when it releases its second quarter 10-Q this summer, given its enormous exposure to the bellwether token, which has more than halved in value this year.
My view - With an enterprise value of $4.3 billion almost the entire notional value of MicroStrategy is tied to an unprofitable bitcoin position. It is far from the only company to be underwater on its bitcoin purchases.
Email of the day on real yields
Could you please explain how the Fed US Treasury H15 Constant Maturity 10 Yr Real Yield (H15X10YR Index) is calculated?
My view - Thank you for this question which others may have an interest in. A lot of the answer can be found by comparing the chart of the constant maturity real yield with the TIPS chart.
The only difference I can see is that the constant maturity imputes an accurate bond yield with exactly 10-years to mature even when there is no bond that matches that exact maturity. I am growing progressively more distrustful of these kinds of measures which rely on TIPS. It's a very small market and the Federal Reserve is very active in it so it is unlikely to give an accurate depiction of what the real yield in fact is.
Social-Media Companies Face Regulatory Risk in California for Harming Children
This note may be of interest to subscribers. Here is a section:
A bill passed Tuesday by California's Senate Judiciary Committee could allow government attorneys in the state to sue social-media companies such as Meta Platforms, TikTok and Snap for the use of any design or feature that would cause children to become addicted to their platforms. This could have implications for these companies' regulatory and legal risk-management profile as they would have to pay a civil penalty of up to $25,000 per violation or up to $250,000 for a knowing and willful violation. Some 90% of teens aged 13 to 17 in the U.S have used social media, according to The American Academy of Child and Adolescent Psychiatry, which estimates that, on average, they are online almost nine hours a day, not including time for homework.
My view - The user interface for social media apps is heavily curated to ensure it is addictive. That’s equally applicable to both adults and children. Therefore, it is reasonable to think there are going to be a large number of lawyers salivating at the chance to attack cash rich companies.
Eoin's personal portfolio: commodity short initiated, investment position sold June 23rd 2022
One of the questions subscribers as most often is how to find details of my open trades. To make it easier I will simply repost the latest summary daily until there is a change.