Jump to content

New Reality Investing


Uccmal
 Share

Recommended Posts

I would like to keep this apolitical and look at what we see happening in the US today:

 

I'll try to number them:

 

1) Keystone Pipeline gets appoved (late Jan.).  The president elect (PE) has indicated he also wants the US to be energy independent:  Bodes well for northern energy producers - long term.  Also bodes well for energy related infrastructure development.  To some extent I am talking my book here with Enb, Rus (up 10% last week); and my oil holdings.  House leader will owe PE big for this one.

 

2) Bad for renewable developmemt?  Not convinced of this.  To date renewable (solar and wind) has been subsidized but data I have seen show renewable power getting cheaper than coal fired power (wo subsidies)  I know PE got alot of votes from Coal states and promised them some thing amorphous.  No one is going to invest in coal fired power plants knowing the tide can turn in 2 years, or 4 years.  Many of the states including, rather ironically Texas, are going to continue toward Nat. gas, solar and wind.  PE may ignore worldwide environmental talks, but India, China, and basically everywhere else will continue growing in this area.  PE may realize that taking the US out of the game is long term bad from a tech. development perspective.  Again, I am talking my book here.  I hold Algonquin Power and Bep.un which are both building and buying renewables. 

 

3) ACA: Obamacare or whatever.  Well, PE is already backtracking here.  It is interesting to note that a few states are getting close to single payer systems.  Google it if you are interested.  I have no investment thoughts in this area or investments. 

 

4) TPP: This looks dead which is probably a good thing.  NAFTA: Alot of lip service and no action.  Using Magna international as an example.  They operate plants in Mexico, Canada, Kentucky, Louisiana, and Europe.  Aside from Tesla every single car in the world is made from parts that go across borders multiple times as they get built.  Unwinding this sort of thing is not feasible.  Unwinding existing trade deals will only raise costs for US companies.  Stopping more trade deals for now is probably the only course of action.  And of course everything has unintended consequences. Forcing US companies to build more factories in the US, forces other countries to do the same.  So, I see this as a non-starter. 

 

5) Immigration: Not an investment topic.  But affects silicon valley.  Cdn. tech firms are already on the prowl to pick at the USs greatest job producing industry. 

 

Comments, I am reserving my opinion on the PE, or the dominance of Reps in congress.  Please save that for the half dozen other threads.  Thanks. 

 

 

Link to comment
Share on other sites

Good thread. Have been thinking a fair amount about this. One area I'd add is Russian equities. Jim Rogers has been bullish on Russia for a few years. Trump takes a very different approach to Russia, which could lead to improved relations, elimination of sanctions and growth in Russia. I haven't looked at Russia in a few years, but last I looked the valuations were quite good if you could get comfortable there weren't geopolitical risks attached to them.

 

Another big area is corporate taxes in general. As Wilbur Ross pointed out, if Trump gets his tax plan that's a ~30% increase in post-tax net income for a full tax paying corp. Potentially a massive increase in equity value for US companies although I'm not sure how to risk adjust it, especially with no clear plan on spending to at least come closer to a balance.

Link to comment
Share on other sites

Good thread. Have been thinking a fair amount about this. One area I'd add is Russian equities. Jim Rogers has been bullish on Russia for a few years. Trump takes a very different approach to Russia, which could lead to improved relations, elimination of sanctions and growth in Russia. I haven't looked at Russia in a few years, but last I looked the valuations were quite good if you could get comfortable there weren't geopolitical risks attached to them.

 

Another big area is corporate taxes in general. As Wilbur Ross pointed out, if Trump gets his tax plan that's a ~30% increase in post-tax net income for a full tax paying corp. Potentially a massive increase in equity value for US companies although I'm not sure how to risk adjust it, especially with no clear plan on spending to at least come closer to a balance.

 

Before you invest in Russian markets I would suggest reading Bill Browder's book....

 

http://www.nytimes.com/2015/03/22/books/review/bill-browders-red-notice.html?_r=0

Link to comment
Share on other sites

Thanks for starting this topic, Uccmal,

 

With regard to your bullet #2:

 

I expect this to have an impact on my investment in BRK going forward in a material way. BRK will not continue to grow by the same rate by BH Energy investing in US wind turbines and US solar plants.

I think your judgement is in error here. The places that BRK invests in wind and solar have very good fundamentals for those technologies and they're welcomed by the population. I think hey will go on, but yes without the tax credits juicing the return they will probably slow down but not stop.

 

The thing that is missing is that BRK through these utilities owns a lot of power grid. Those grids are in pretty bad shape and will need to be updated/replaced in the future. Could be the close future. In fact the power grid could be part of the Trump infrastructure plan. That's also something that the Democrats can get behind so it could pass quickly and it looks like they're gonna use a public-private partnership. BRK could easily sink 40 billion in that. Think about it as BRK buying 8% treasuries.

 

In addition they have a good understanding of this idea from their purchase of Altalink. I think the infrastructure plan will pass and while others will be running models, Berkshire will be writing cheques.

 

That's the beauty with Berkshire. They're so plugged into these things that when one door closes another one opens.

Link to comment
Share on other sites

 

Higher debt. More money for everyone, including those industries that you might think will not be favored.  Silicone Valley will benefit big time, just like the banks.

 

 

So, I think debt/capital is the only reasonable assumption based on his history.  After that it's just feel-good-speculation. About immigration I think it will be the opposite, he might indeed deport those with criminal records as he noted recently etc. on the other hand, PHDs and highly skilled could get a green card, as they should, and this would be a great boost to the tech industry.

 

 

Link to comment
Share on other sites

Thanks for starting this topic, Uccmal,

 

With regard to your bullet #2:

 

I expect this to have an impact on my investment in BRK going forward in a material way. BRK will not continue to grow by the same rate by BH Energy investing in US wind turbines and US solar plants.

I think your judgement is in error here. The places that BRK invests in wind and solar have very good fundamentals for those technologies and they're welcomed by the population. I think hey will go on, but yes without the tax credits juicing the return they will probably slow down but not stop.

 

The thing that is missing is that BRK through these utilities owns a lot of power grid. Those grids are in pretty bad shape and will need to be updated/replaced in the future. Could be the close future. In fact the power grid could be part of the Trump infrastructure plan. That's also something that the Democrats can get behind so it could pass quickly and it looks like they're gonna use a public-private partnership. BRK could easily sink 40 billion in that. Think about it as BRK buying 8% treasuries.

 

In addition they have a good understanding of this idea from their purchase of Altalink. I think the infrastructure plan will pass and while others will be running models, Berkshire will be writing cheques.

 

That's the beauty with Berkshire. They're so plugged into these things that when one door closes another one opens.

 

Thank you for putting some light on this issue/topic related to BRK, rb. Your post reads resonable to me.

 

Vestas Wind Systems A/S [VWS.CPH] has got a few large orders from BRK. The stock has got hammered post US Presidential Election, down ~16% within the last week.

Link to comment
Share on other sites

"I think your judgement is in error here. The places that BRK invests in wind and solar have very good fundamentals for those technologies and they're welcomed by the population. I think hey will go on, but yes without the tax credits juicing the return they will probably slow down but not stop."

 

You should listen to a replay of Berkshire latest annual meeting and you will get a pretty good understanding from Warren himself that if these credits are removed that most if none of that is viable.

 

Cardboard

Link to comment
Share on other sites

"I think your judgement is in error here. The places that BRK invests in wind and solar have very good fundamentals for those technologies and they're welcomed by the population. I think hey will go on, but yes without the tax credits juicing the return they will probably slow down but not stop."

 

You should listen to a replay of Berkshire latest annual meeting and you will get a pretty good understanding from Warren himself that if these credits are removed that most if none of that is viable.

 

Cardboard

 

I guess, yet, might be the caveat here.  Prices on solar in particular have been, and continue to drop. 

 

Besides, Cant BH Energy invest elsewhere like Brookfield is doing.  There is nothing restricting them to the US. 

 

Question to Buffett's assertion which I didn't listen to:  We know he invests with the long term in mind.  They are already the largest Renewable owner/operator in the US.  Why would he invest in this area in the first place, if he didn't think ot was profitable over the longer term.  In addition, perhaps he expects state subsidies to continue, even in Rep. states for the foreseeable future. 

 

On the Coal versus renewables front:  Even if Trump somehow convinces people to invest in Coal fired power, it isn't going to create mining jobs.  As with other low tech.  manufacturing jobs these are gone forever.  The effect of technology impact on low end jobs will be the same in coal, solar, wind, or nat. gas. 

Link to comment
Share on other sites

Without subsidies, they cannot compete with gas-fired power plants. And solar and wind are not available on-demand unlike biomass and hydro which are also renewables.

 

Cost of solar production will improve but, wind? It is mostly aerodynamics and magnets/generators are already very efficient having existed for decades.

 

Power storage technology will help solar and wind but, that is also another cost to add to the equation.

 

There is also a lot of thing that will happen with energy that people do not see yet. I was reading the other day that they have found a way to chemically transform CO2 into ethane. That should become commercial in maybe a decade.

 

Cardboard

Link to comment
Share on other sites

I would like to keep this apolitical and look at what we see happening in the US today:

 

I'll try to number them:

 

1) Keystone Pipeline gets appoved (late Jan.).  The president elect (PE) has indicated he also wants the US to be energy independent:  Bodes well for northern energy producers - long term.  Also bodes well for energy related infrastructure development.  To some extent I am talking my book here with Enb, Rus (up 10% last week); and my oil holdings.  House leader will owe PE big for this one.

 

I'm not so sure about Keystone. Yes, the gov't will approve the border crossing. But last time the line faced fierce opposition in Nebraska. So that may still be a problem. As a Canadian I love the keystone idea. We need coastal access for our oil to get to export markets. If we can do it over US lands and waters that's perfect.

 

2) Bad for renewable developmemt?  Not convinced of this.  To date renewable (solar and wind) has been subsidized but data I have seen show renewable power getting cheaper than coal fired power (wo subsidies)  I know PE got alot of votes from Coal states and promised them some thing amorphous.  No one is going to invest in coal fired power plants knowing the tide can turn in 2 years, or 4 years.  Many of the states including, rather ironically Texas, are going to continue toward Nat. gas, solar and wind.  PE may ignore worldwide environmental talks, but India, China, and basically everywhere else will continue growing in this area.  PE may realize that taking the US out of the game is long term bad from a tech. development perspective.  Again, I am talking my book here.  I hold Algonquin Power and Bep.un which are both building and buying renewables. 

The idea that coal is coming back is a fantasy. Why would any utility build a 30-50 year coal-fired plant today? Yes the next administration may "dig coal" but what about the one after that, and the one after that, and the one after that? They face a lot of early retirement risk for coal plants. In addition in thermal generation coal doesn't really have a cost advantage over nat gas.

 

In terms or renewable generation we'll see what happens. The US may take a break. But the rest of the world is going to continue to build renewables because it makes sense. China isn't building renewables because they're a bunch of elite liberal environmentalists.

Link to comment
Share on other sites

You might want to look at infrastructure construction (steel, concrete, engineering, recruitment, etc.) - & what happened in China.

 

He's talking about infrastructure (wall, fences, modernization, roads, etc.).

Where do think the very large amount of commodities are coming from? This is fiscal spending, it employs millions of 'blue collar' people, and is explicit recognition that monetary policy has reached its limits (the negative rate BS). It keep the promises, and the QE diversion into infrastructure weakens the banking hold; ultimately setting up for some managed 'failures' - a highly popular outcome.

 

Working people service their loans, and even have a few bucks left to deposit at the end of the month; lowering the systemic risk in the banking system overall. Lower the systemic risk & you can start liquidating the zombie banks, pulling back some of the existing QE support, & recycling it into additional fiscal spend. Much of the fiscal spend ends up being free (it's mostly existing recycled $)- & we get rid of the long standing cancers.

 

The last guy who did something like this was FDR.

This focus on infrastructure is very much along the same lines.

 

SD

 

 

 

 

Link to comment
Share on other sites

No China is building renewables to reduce their reliance on coal, which causes localized pollution issues.  What a strange place.  A totalitarian government that worires about its popularity.  Anyway, I digress. 

 

Keystone: To be honest I haven't followed the politics that deeply, not really caring one way or other.  The oil from my holdings is going somewhere already.  I am neutral, tending negative on developing the oil sands further for all of the reasons commonly cited.  Leaving aside the environmental reasons there is an economic cost to over-concentrating on one industry, as we are seeing right now. 

 

It has always been my opinion that if the States would rather buy O&G from the Arabs, let them go for it.  It costs vastly more in the long run (military costs) than buying Cdn. supply.  Mitch McConnel, for whatever reason appears to really have a hard on to get Keystone approved.

 

 

 

 

Link to comment
Share on other sites

You might want to look at infrastructure construction (steel, concrete, engineering, recruitment, etc.) - & what happened in China.

 

He's talking about infrastructure (wall, fences, modernization, roads, etc.).

Where do think the very large amount of commodities are coming from? This is fiscal spending, it employ millions of 'blue collar' people, and is explicit recognition that monetary policy has reached its limits (the negative rate BS). It keep the promises, and the QE diversion into infrastructure weakens the banking hold; ultimately setting up for some managed 'failures' - a highly popular outcome.

 

Working people service their loans, and even have a few bucks left to deposit at the end of the month; lowering the systemic risk in the banking system overall. Lower the systemic risk & you can start liquidating the zombie banks, pulling back some of the existing QE support, & recycling it into additional fiscal spend. Much of the fiscal spend ends up being free (it's mostly existing recycled $)- & we get rid of the long standing cancers.

 

The last guy who did something like this was FDR.

This focus on infrastructure is very much along the same lines.

 

SD

 

The borrow is getting higher by the day.  They will need alot of private investment to make it happen.

Link to comment
Share on other sites

We'll see what comes of the infrastructure program. The more i read about it, it seems quite tame.

 

1. The republicans may oppose it or pass a scaled down version.

 

2. PE was talking abut 1 trillion over 10 years. That's $100B per year or 0.55% of GDP. Let's say a 1.5 multiple, that makes a 0.8% bump to GDP. If they do PPPs it's gonna be more. However if the economy gets juiced too much and we move too much away from zero bound that multiple goes down. This also assumes that they do this with deficit spending and you don't have cuts elsewhere to pay for it. It's still positive but hardly FDRish

Link to comment
Share on other sites

I think Obama and Democrats might like to take credit for killing coal when in reality they were just spectators while cheap NatGas made coal uneconomical. Trump won votes in coal states saying he's going to bring it back but there's no reason to bring it back, NatGas is objectively better in just about every way, cleaner both in terms of particulates and emissions, it's cheap, and we have a lot of it. NatGas plants can also be designed to be throttled quickly in response to grid needs which integrates perfectly with an increasing percentage of generation from renewables which provide variable amounts of generation. Wind will continue to be built where it's economical, it's already cost competitive with coal and some NatGas plants on an unsubsidized basis. I don't think we'll see the same push for solar under Trump if incentives at the federal level are removed.

Link to comment
Share on other sites

Agreed its still very early days yet, but we threw infrastructure out because its essentially a black swan.

 

Its tipping point is relatively low, there are a lot of pension $ on the sidelines desperate for this type of the cash stream, and we could all use the diversification. Much of the trade fears also dissipate if you're a commodity exporter (Canada/US trade) - and even just 1% of US foreign spend (NATO, wars, commitments) gets them to big $ - very, very quickly.

 

The ability to snowball it is enormous, and it wouldn't take much to start it rolling.

Risk versus return.

 

SD     

Link to comment
Share on other sites

Just to extend this a little further......

 

The current US infrastructure investment being floated is 500M over 10 years. The actual experience though is that big projects routinely go over budget by 2-4x - if only because its unrealistic to accurately predict. Hence a more realistic number is 1-2T in the US alone.

 

But it's not just incremental infrastructure investment in the US. Canada is investing heavily as well, and most would reasonably expect other countries to do much the same thing too. We would suggest that once it starts going, 4-6T worldwide, is a more realistic number. Global FDR type of stimulus - & all going into construction of various types.

 

A lot of money getting recycled, and much of it financed via long term debt. Through most of history whenever this has occurred it has pushed up the yield curve in a big way - because borrowers are forced to bid up for the funds. For just about everyone this would simply mean the return of 'normal' yield curves again, and large segments of industry (insurance, pensions, etc.) returning to long term sustainability. Spend big on infrastructure, and you get both employment - and a way out of the current financial malaise.

 

Banks have been continuously bailed out for 10 years (since the 2006 crisis), and it hasn't worked. Most would agree that it was probably the right thing to do at the time, and it saved the world from enormous misery; but it's now become an addiction. 10 years worth of cumulative QE, bailouts, and industry earnings; and what is there to show for it? - not enough.

 

It's pretty hard to see why the financial hammer wouldn't be dropped - and the bluff called; hence the fear. The recent election evidenced that both the pollsters, and the media, are severely disconnected from their subject audiences. We would suggest that the disconnection in finance is far worse, and that the protest Wall Street marches of 2-3 years ago were very mild - compared to what you would see today.

 

Millions of individuals knew there would be individual consequences to voting for material change, and yet they still did it, in quantity - both in the US & the UK. Life was great until the black swans showed up; now it seems they are all over the place!

 

Talebs antifragility approach would seem appropriate.

 

SD 

         

 

 

Agreed its still very early days yet, but we threw infrastructure out because its essentially a black swan.

 

Its tipping point is relatively low, there are a lot of pension $ on the sidelines desperate for this type of the cash stream, and we could all use the diversification. Much of the trade fears also dissipate if you're a commodity exporter (Canada/US trade) - and even just 1% of US foreign spend (NATO, wars, commitments) gets them to big $ - very, very quickly.

 

The ability to snowball it is enormous, and it wouldn't take much to start it rolling.

Risk versus return.

 

SD   

Link to comment
Share on other sites

  • 4 weeks later...

Without subsidies, they cannot compete with gas-fired power plants. And solar and wind are not available on-demand unlike biomass and hydro which are also renewables.

 

Cost of solar production will improve but, wind? It is mostly aerodynamics and magnets/generators are already very efficient having existed for decades.

 

Power storage technology will help solar and wind but, that is also another cost to add to the equation.

 

There is also a lot of thing that will happen with energy that people do not see yet. I was reading the other day that they have found a way to chemically transform CO2 into ethane. That should become commercial in maybe a decade.

 

Cardboard

 

Don't know how accurate this is, but their unsubsidized cost of energy slide puts solar and wind as almost competitive with conventional sources.

https://www.lazard.com/media/2390/lazards-levelized-cost-of-energy-analysis-90.pdf

Link to comment
Share on other sites

Don't know how accurate this is, but their unsubsidized cost of energy slide puts solar and wind as almost competitive with conventional sources.

https://www.lazard.com/media/2390/lazards-levelized-cost-of-energy-analysis-90.pdf

 

I've come across those Lazard reports before and they don't line up with anything else in the industry when it comes to solar PV.

 

Here's an article explaining why (basically they use a small sample set of data) http://thebreakthrough.org/index.php/voices/energetics/taking-a-look-at-lazards-levelized-cost-estimates

 

Here's the EIA's figures http://www.eia.gov/outlooks/aeo/pdf/electricity_generation.pdf

 

Onshore wind is already competitive on an unsubsidized basis with NatGas and coal making it an attractive replacement for coal plants. As you add more renewables to the grid the issue of variability tends to decrease since it might not be windy in one area while it is in another. NatGas couples well with renewables since many plants can be brought on line quickly and taken offline quickly, something that's more difficult to do with coal and nuclear.

 

Link to comment
Share on other sites

  • 1 month later...

These facts here since Jan 2007 tell us all a lot!  Source; Bespoke Investments Jan 2017

 

For the roughly 2,000 stocks in the Russell 3,000 that were around ten years ago, their median change over this time period has been just 53.7%.  Just under 700 stocks in the index (23%) are up more than 100% over the last ten years, while 90 (3%) are up more than 500%.  There have been a total of 23 “ten-baggers,” or stocks that have gained more than 1,000%.

 

cheers.

 

 

Link to comment
Share on other sites

I remember seeing a similar article and I couldn't find it for the life of me but it talks about the return distribution of stocks for the past ten years and it covers the whole market. It might have been released through bespoke and another firm did research on it. The results were that 64% of firms had positive returns. And 20% of stocks had 100% returns.

Link to comment
Share on other sites

ceskc;  This is the best I can do for your full article request. However I believe you can access full article by opening a 14 day free trial.

 

Best Performing Stocks Since the iPhone Debut

 

Jan 11, 2017

 

 

Get Bespoke’s 2017 Outlook Report with a 30-day free trial to Bespoke’s premium research!  Click here to learn more.

 

Nostalgia was in the air this past Monday since it marked the 10-year anniversary of the iPhone‘s introduction.  If you’d like to re-visit that day when Steve Jobs took the stage in Cupertino, you can view it in full here.  A lot has happened since January 2007.  At that point, President Obama was just a Senator, and the Financial Crisis that would define a generation had begun under the surface but not yet reared its head.  It wasn’t until October of 2007 that global equity markets would peak and begin what would be a 50% drop over the next 18 months.

 

To mark the 10-year anniversary of the iPhone’s introduction, below is a look at the 40 best performing stocks in the Russell 3,000 (current members) since January 9th, 2007.  Before getting to the list, we wanted to point out that of the 3,000 or so stocks currently in the Russell 3,000, a third of them weren’t even in existence ten years ago!  That fact shows just how much things change over what is seemingly a short period of time.

 

For the roughly 2,000 stocks in the Russell 3,000 that were around ten years ago, their median change over this time period has been just 53.7%.  Just under 700 stocks in the index (23%) are up more than 100% over the last ten years, while 90 (3%) are up more than 500%.  There have been a total of 23 “ten-baggers,” or stocks that have gained more than 1,000%.

 

As shown below, Netflix (NFLX) has been the biggest winner over the last ten years with a gain of 3,690%.  On a split-adjusted basis, NFLX was trading at $3.43/share on 1/9/07, and it’s at $129.89 today.  The company had a market cap of roughly $1.6 billion back then, which is up to $55.7 billion today.  Priceline (PCLN) also had a market cap of roughly $1.6 billion back in January 2007, and its market cap is up to $75.8 billion today.  PCLN’s stock price has risen from $44.06 up to $1,525 — a gain of 3,384%.  NFLX and PCLN are the only two index members to gain more than 3,000% over the last ten years.

 

The other major stock that ranks in the top five is Amazon.com (AMZN).  AMZN has been the fourth biggest gainer in the Russell 3,000 over the last ten years, and it has seen the second biggest jump in market cap.  In percentage terms, AMZN’s stock price has gained 2,007%, and its market cap has risen $362.6 billion from roughly $15 billion up to $378.2 billion.

 

Given that we’re conducting this exercise because of the 10-year anniversary of the iPhone, you’re probably wondering how Apple’s (AAPL) stock price has performed over this time period.  While Apple doesn’t rank in the top five, it does show up on our list at #35 with a gain of 801%.  In terms of market cap gains, Apple claims the top spot.  Ten years ago, the company’s market cap stood at $79.54 billion.  Apple currently has a market cap of $626 billion — a ten-year gain of more than half a trillion dollars.  Not too shabby.

 

 

 

 

 

Cheers.

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share

×
×
  • Create New...