What are you buying today?

[gokou3]

Topicus

 

Although it’s likely going lower in the short term seems like a pretty good deal.

 

I am interested in TOI, but wonder if you notice this section in page 14 of the prospectus which mentions a EUR$200M drawdown of the credit facility prior to the completion of spin-off?  Maybe I understood it wrong, but that would make the EV even higher than implied in the 2020Q3 financials.  38x EV/LTM FCF @$59 share price.

[balaparavi]

Full 10% new Position in Shinoken Group Co Ltd. 8909 (Japan)

Did you buy the ADR shares (SHIOF) or the ones trading in Japan?

[alpha]

 

Also, Seattle recently banned use of natural gas for new commercial and apartment buildings taller than three stories and replacement heating systems in older buildings: https://www.seattletimes.com/seattle-news/seattle-city-council-passes-measure-to-end-most-natural-gas-use-in-commercial-buildings-and-some-apartments/

 

I wouldn't be surprised if Oregon and Washington states or other NW cities follow with some type of restriction.

 

Wow that's insane! I didn't believe you until I read the article, hehe

[Fahrweid]

Full 10% new Position in Shinoken Group Co Ltd. 8909 (Japan)

Did you buy the ADR shares (SHIOF) or the ones trading in Japan?

 

I bought the ones in japan. (8909)

[willie2013]

Bought APHA/Sold TLRY short

[thepupil]

Yea, seems delightfully boring way to make 5-7%/year, quasi bond / widows and orphan type stock. Why is it down 40% in the past year and at 2010 prices. This is much more than XLU.

 

I’m assuming it’s a “natural gas is going away” sell-off, but is there something more

 

so just glancing at the financials over 2010-2019 years:

 

Revenue / share: $30--->$25

Operating income: $6--->$4.8

NI                      : $2.7-->$2.4

Divvy                0.43 / q to 0.48 / q

 

it doesn't seem to be growing at all, whereas utilities index (and of course Berkshire Energy) are actually growing.

 

with an additional 10 mins of work it seems like the big underperformance is warranted.

 

Any thoughts Castanza?

[no_free_lunch]

More FFH.TO.  It went from a 1% to 10% position over past few weeks.  It is getting kind of stupid now but maybe I am missing something.  There are underlying securities are doing so well, even BB while down from the highs is more than a double from where it was last time book was reported.  Even if they did 0 hedging on BB FFH is cheap cheap cheap.

[Castanza]

Yea, seems delightfully boring way to make 5-7%/year, quasi bond / widows and orphan type stock. Why is it down 40% in the past year and at 2010 prices. This is much more than XLU.

 

I’m assuming it’s a “natural gas is going away” sell-off, but is there something more

 

so just glancing at the financials over 2010-2019 years:

 

Revenue / share: $30--->$25

Operating income: $6--->$4.8

NI                      : $2.7-->$2.4

Divvy                0.43 / q to 0.48 / q

 

it doesn't seem to be growing at all, whereas utilities index (and of course Berkshire Energy) are actually growing.

 

with an additional 10 mins of work it seems like the big underperformance is warranted.

 

Any thoughts Castanza?

 

Sorry, should have prefaced that this was a watch position. The 10 year low and RNG approval this July (Oregon SB98) caught my attention, along with their move into water utilities. But as LearningMachine pointed out, the share dilution (1%) yearly since 2013 (as far back as I looked) is unsettling. I think the affects of Seattle banning nat gas in certain new construction are still unknown. 

 

@LearningMachine, where did you find the info on interest rates and their lack of protection if you don't mind sharing.

 

This area of the country is interesting regarding new energy regulations and hopefully it presents some opportunities. I agree that this is not great at current prices. Might revisit if this continues to go lower though.

 

Latest slide deck https://s23.q4cdn.com/611156738/files/doc_presentations/2020/Sept-IR-Deck_Final.pdf?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link

[cameronfen]

Topicus

 

Although it’s likely going lower in the short term seems like a pretty good deal.

 

I am interested in TOI, but wonder if you notice this section in page 14 of the prospectus which mentions a EUR$200M drawdown of the credit facility prior to the completion of spin-off?  Maybe I understood it wrong, but that would make the EV even higher than implied in the 2020Q3 financials.  38x EV/LTM FCF @$59 share price.

 

I did not notice that.  What is your FCF number at LTM? 

 

I think their Dec 2019 quarter FCF is relatively anemic, I get around 32x FCF after adjusting for the debt and doing LTM (net debt, preferred, and the dividend you mentioned).  The number I get is 27x when I do 9 months CF annualized.  But maybe I did something wrong. 

[thepupil]

@LearningMachine, where did you find the info on interest rates and their lack of protection if you don't mind sharing.

 

LearningMachine is somewhat obsessed with the risk of rolling over debt at higher coupons and has a much different than market view of interest rates.

 

I think most would look at the debt stack here and conclude the opposite. NWN's lowest coupon is 2.82% and highest coupon is 9.0%. Its spreads range from 86 - 150 bps and prices on the bonds range from $101 to $144 because of the well above market coupons. Maturities are well laddered. About 60% matures in 10 years or more.

 

The coupons over the next few years are 9%, 3.1%, 3.5%, 5.6%, 7.7%, 6.5% , 7.0%, 3.2% , 7.0% (that gets you to 2027). I would wager with 90% probability that interest cost will decrease for this AA rated regulated utility company, if not significantly. I admittedly don't know how passing on interest cost/savings to customers works at utilites

 

There is a remote chance he is right and these are below market when they roll, but this is a tail macro scenario that applies to all companies with debt that isn't super long term.

[LearningMachine]

LearningMachine is somewhat obsessed with the risk of rolling over debt at higher coupons and has a much different than market view of interest rates.

 

This is not a fully accurate statement of my view.  A more accurate statement would be that I would like to make sure I'm covered for the probability that inflation/interest-rates will sneak up on us by making sure debt maturities are much longer term. 

 

If the probability doesn't come through, it should still be a reasonable investment.  If probability comes through, it should be a reasonable investment then also.

[thepupil]

this company has a WA maturity of 16.5 years and a weighted average coupon of 4.5% and is a low spread IG issuer.

 

the weighted average coupon for debt expiring in the next 10 years is 4.9%.

 

I stand by my characterization of your macro view.

[LearningMachine]

@LearningMachine, where did you find the info on interest rates and their lack of protection if you don't mind sharing.

 

Castanza, I found the maturity schedule in their annual report, page 109: https://s23.q4cdn.com/611156738/files/annual/716f1951-3453-912b-2656-5c75ca7f5fa0.PDF.

 

In today's environment of low interest rates, utilities should be able to have much longer term maturity at low interest rates to protect the shareholders.

[LearningMachine]

this company has a WA maturity of 16.5 years and a weighted average coupon of 4.5% and is a low spread IG issuer.

 

If I look at page 109 of their annual report, I get about 55% of debt due within 10 years and a weighted maturity of 13.29 years.

 

Please see https://s23.q4cdn.com/611156738/files/annual/716f1951-3453-912b-2656-5c75ca7f5fa0.PDF.

[LearningMachine]

I stand by my characterization of your macro view.

 

Borrowing words from 3rd Circuit Judge Stephanos Bibas, saying it so "does not make it so" :-).

 

I am just a stickler for accuracy in my point of view because I truly don't make investments based on figuring out how I can pay a higher coupon.

 

I feel it is very important to be accurate in our statements especially if we are putting words in other people's mouths. 

[Every Banana Counts]

MKL. Any take on company culture as many of the Markel’s sell out of their holdings? Lots of selling going on. Looks like a good deal at these prices. Thanks.

[thepupil]

I'm just pulling it off bloomberg.

 

I think we can both agree that rising rates/inflation is not good for owning utility equity which is a low growth long duration asset.

 

But I reiterate that if you see the rate rollover risk with this company as being a dealbreaker, you will see this risk with almost any company. that's your preferred way to invest and I that's perfectly fine, but I'll feel a need to contradict it when you cite it as a reason for not looking at something, particularly when it looks like the exact opposite (ie the company has an opportunity to decrease its cost of debt as high coupons mature, ie the 9% of 2021 issued in 1991 are refi'd and become 3.25%'s of 2050).

 

If the curve shifts 300 bps up, they'll probably still decrease their WA coupon over the next 5 years. If you think the curve shifts more, that's a macro tail scenario. all portfolios of risk assets and bonds would likely suffer from that. I'm not saying that won't happen, but it'd hurt the vast majortiy of risk assets in a big way.

 

 

[Cigarbutt]

TLT, ETF long term Treasury Bond

Seems like an asymmetric situation at this point; with a mental stop-loss if..

[SafetyinNumbers]

TLT, ETF long term Treasury Bond

Seems like an asymmetric situation at this point; with a mental stop-loss if..

 

Do you mind explaining, Cigarbutt?

 

I'm more of a macrotourist than anything else.

 

Thanks!

[spartansaver]

TLT, ETF long term Treasury Bond

Seems like an asymmetric situation at this point; with a mental stop-loss if..

 

Do you mind explaining, Cigarbutt?

 

I'm more of a macrotourist than anything else.

 

Thanks!

 

I’m curious as well. I took the other side of this and bought very far out of the money puts.

[Cigarbutt]

TLT, ETF long term Treasury Bond

Seems like an asymmetric situation at this point; with a mental stop-loss if..

Do you mind explaining...

I'm more of a macrotourist than anything else.

I’m curious as well. I took the other side of this and bought very far out of the money puts.

When starting to internally manage excess savings 20 years ago, in order to assess publicly traded options, the goal was to assemble a portfolio of about 10 holdings (with most funds in the top three). That’s still the ultimate goal. Apologies for this macro part that contaminates and perhaps corrupts this board but will try to answer the question. 20 years ago, if somebody would have mentioned the possibility to go long on the 30-yr Treasuries with yields at 1.90-1.95%, i would have ignored immediately, something that the reader may do as well now, as the long term fundamental reasoning is irrational and the position is based on how surreal the situation can go.

 

Since the GFC, this has been a recurrent and profitable opportunistic venture (on margin for the first few years) and, during the last phase (2019 to end of February 2020) which i thought was the last puff, i mentioned here: “i hope to never meet again circumstances indicating that investing in long term risk-free bonds would make sense.” There you go.

 

The consensus view now is that the economic recovery is underway with 'reflation' helping. It seems though that there is wide underappreciation (opinion) about how VERY unusual the present monetary and fiscal pictures are (example: the deficit THIS year in the US will be (what is expected now) at least 20 to 25% of GDP). We are going through (at least from a certain perspective) one of the greatest centrally-planned experiments.

 

 

To make a long story short, think of MV=PY. It appears that the massive debt overhang (absent MMT) will cause interest rates to fall (contrary to popular wisdom), no matter how high M is propped up.

 

During the last profit puff, muscleman asked a similar question and i used a rocket science analogy and he likely thought i was stupid and irrelevant (he was probably right) but now the rocket trademark belongs to a different crowd (see above) who are the embodiment of primitive animal spirits and who have figured out what really counts.

 

So now, I need to use something else. What comes to mind is the Frank-Starling law. It’s well explained by Wikipedia but don’t waste time on this. It’s a theoretical concept that, somehow, can be useful when split-second decisions are necessary to keep someone alive. The idea is that, to increase cardiac (economic) output, one can increase the amount of fluid (money) in the circulation and/or can increase the amount of fluid pumped by the heart per beat (it’s called inotropy and is equivalent to lower interest rates for the economy). However, the law implicitly implies that the longer-term underlying outcome is strongly correlated to the fundamentals. Increasing liquidity and contractions, at some point and non-linearly, results in acute failure. Flat lines don’t point to inflation.

 

 

The basic question: Is the greatest bull market in ‘risk-free’ bonds over? i bet not quite, especially in this non-linear territory. Today, I’m spending some time, for fun, on an idea recently mentioned on this board; it’s basically a company involved in shredding documents and it’s so much more interesting than the macro stuff..

https://www.macrotrends.net/2521/30-year-treasury-bond-rate-yield-chart

i became aware of the potential opportunity in long term US government bonds when i indirectly benefited with Fairfax who, during the GFC, sold their long term Treasury bonds at a time when credit spreads exploded in other fixed income areas and the evolution of long term risk-free yields has been fascinating since then.

 

BTW spartansaver (in the unlikely event that you made it this far in this post), i strongly disagree that we’re on the opposite side of the ‘trade’. So, we’ll have to disagree to agree and all roads (may) lead to Rome.

 

Warning: this thesis is extremely contrarian. Moody’s released yesterday: “Prices Rise Here, There and Everywhere”. These guys are extremely bright although they were somewhat behind the ball before the housing b****e.

[thepupil]

yea, I'm adding to duration, bought a 2050 zero @ $55 / 2% just now for a very small portion of my parents portfolio. I try to replicate the duration of a decent bond allocation w/ less than 10% of the portfolio in order to maximize convexity and keep a big slug of cash around, so this means zero's and quasi perpetuals. Right now have about 6% in century bonds of universities (MIT Caltech Bowdoin) and some shorter Harvards/Princetons and am going to average into duration as it sells off w/ 30 year zero's. that 6% probably roughly has duration of 30 ish so 2 pts of duration on the whole portfolio. Total bond index has duration of about 7 so that my portfolio of zero's and centuries should have the duraiton of about a 28% bond allocation that's diversified across the curve. there's a curve bet in there of course, but I'm okay with that. I want the most convexity, least re-investment risk and most deflationary punch possible. combine this with a prepayable 30 yr fixed mortgage and your left long rate vol and convexity (which they just took out at 2 7/8%)

[compoundinglife]

TLT, ETF long term Treasury Bond

Seems like an asymmetric situation at this point; with a mental stop-loss if..

Do you mind explaining...

I'm more of a macrotourist than anything else.

I’m curious as well. I took the other side of this and bought very far out of the money puts.

When starting to internally manage excess savings 20 years ago, in order to assess publicly traded options, the goal was to assemble a portfolio of about 10 holdings (with most funds in the top three). That’s still the ultimate goal. Apologies for this macro part that contaminates and perhaps corrupts this board but will try to answer the question. 20 years ago, if somebody would have mentioned the possibility to go long on the 30-yr Treasuries with yields at 1.90-1.95%, i would have ignored immediately, something that the reader may do as well now, as the long term fundamental reasoning is irrational and the position is based on how surreal the situation can go.

 

Since the GFC, this has been a recurrent and profitable opportunistic venture (on margin for the first few years) and, during the last phase (2019 to end of February 2020) which i thought was the last puff, i mentioned here: “i hope to never meet again circumstances indicating that investing in long term risk-free bonds would make sense.” There you go.

 

The consensus view now is that the economic recovery is underway with 'reflation' helping. It seems though that there is wide underappreciation (opinion) about how VERY unusual the present monetary and fiscal pictures are (example: the deficit THIS year in the US will be (what is expected now) at least 20 to 25% of GDP). We are going through (at least from a certain perspective) one of the greatest centrally-planned experiments.

 

 

To make a long story short, think of MV=PY. It appears that the massive debt overhang (absent MMT) will cause interest rates to fall (contrary to popular wisdom), no matter how high M is propped up.

 

During the last profit puff, muscleman asked a similar question and i used a rocket science analogy and he likely thought i was stupid and irrelevant (he was probably right) but now the rocket trademark belongs to a different crowd (see above) who are the embodiment of primitive animal spirits and who have figured out what really counts.

 

So now, I need to use something else. What comes to mind is the Frank-Starling law. It’s well explained by Wikipedia but don’t waste time on this. It’s a theoretical concept that, somehow, can be useful when split-second decisions are necessary to keep someone alive. The idea is that, to increase cardiac (economic) output, one can increase the amount of fluid (money) in the circulation and/or can increase the amount of fluid pumped by the heart per beat (it’s called inotropy and is equivalent to lower interest rates for the economy). However, the law implicitly implies that the longer-term underlying outcome is strongly correlated to the fundamentals. Increasing liquidity and contractions, at some point and non-linearly, results in acute failure. Flat lines don’t point to inflation.

 

 

The basic question: Is the greatest bull market in ‘risk-free’ bonds over? i bet not quite, especially in this non-linear territory. Today, I’m spending some time, for fun, on an idea recently mentioned on this board; it’s basically a company involved in shredding documents and it’s so much more interesting than the macro stuff..

https://www.macrotrends.net/2521/30-year-treasury-bond-rate-yield-chart

i became aware of the potential opportunity in long term US government bonds when i indirectly benefited with Fairfax who, during the GFC, sold their long term Treasury bonds at a time when credit spreads exploded in other fixed income areas and the evolution of long term risk-free yields has been fascinating since then.

 

BTW spartansaver (in the unlikely event that you made it this far in this post), i strongly disagree that we’re on the opposite side of the ‘trade’. So, we’ll have to disagree to agree and all roads (may) lead to Rome.

 

Warning: this thesis is extremely contrarian. Moody’s released yesterday: “Prices Rise Here, There and Everywhere”. These guys are extremely bright although they were somewhat behind the ball before the housing b****e.

 

Thanks for sharing. I agree that you and spartansaver are closer to being on the same side of the trade. I occasionally look at buying OTM calls or doing call spreads on TLT as hedge. Seems like a potentially interesting alternative to puts on something like SPY. Because there are potentially situations where both equities and Ts do well. But in the event of big moves down on equities you should make money. Anecdotally TLT options seemed to often be cheaper but more imperfect hedge. But I definitely get outside of my circle on this topic so I haven’t pulled the trigger in any meaningful way.

[LC]

Why TLT and not traditional protection such as GLD?

[wabuffo]

I believe that one has to think in terms of the consolidated US Federal government debt mix as the sum of:

(1) currency in circulation + (2) bank reserves + (3) US Treasury bonds owned by the public - (4) US Treasury bonds owned by the Fed. 

 

Some things that are going to happen this year:

1) US Treasury spending will subside as we get stimulus behind us. 

2) In addition, US Treasury debt issuance over and above that spending level will decline even more than that as the US Treasury runs down its TGA account at the Fed in time from the current $1.6t down to $800b or below as per the plan released by Yellen's Treasury dept.  So spending will exceed borrowing by $800b.

3) the Fed's continued QE is therefore a Federal govt debt management policy that will continue to push the US Federal consolidated govt debt mix more towards the short end, in interest bearing reserves that can't escape the banking system.

 

I don't see how that allows the long end of the Treasury yield curve to continue to rise over the coming year and beyond.  In fact, I think we may see zero long-term yields before we see 3-4%.

 

wabuffo