More of the Same …

Basically I took last week off.  While I pride myself in posting weekly, there was little new to reflect on in the business world.  Some earnings were good and when they weren’t the trade war was the culprit. The Fed cut rates but the White House wanted more, ostensibly because Europe’s were lower relatively.  So now Trump’s self-proclaimed “greatest economy in the history of our country” wants to compete with others in a race to the bottom? There are plenty of signals indicating troubles ahead, yet for every one I find problematic another exists with a contrarian view.  Then when all else fails to divert attention away from the clouds forming on the economic horizon, the President amps up his racist banter to ensure the focus is on antics over reality.

So I took a week off from posting to revitalize.  To clear my head of the endless back and forth. To dig a little deeper into my research on some of the oddities that appear regardless of the political view that one ascribes to.  One example being the workplace raids in Mississippi rounding up undocumented individuals. Once I got past the fact that all these plants were not publicly traded my business interest waned as there is minimal direct impact to investors such as ourselves.  The question that continues to be asked by left of center media is, “Which employers will be charged?”. The answer is probably NONE. The reasons are twofold, 1) HR functions (in at least 6 of the seven) were outsourced to a third party, and 2) the Government’s E-Verify system was used.  Plausible deniability is the buzzword of the day unless documented attempts to circumvent the process occurred. The real question should be, “What is Homeland Security doing to improve the verification system?”

The one item that left me scratching my head was if the impact of the underlying consequences was identified – or even considered.  With low unemployment, these are the types of jobs that are typically shunned by most legal workers. Higher wages may make the difference which would result in higher consumer prices.  The second consideration is according to the Mississippi Poultry Association, the feed used for the birds is a mix of corn and soybean. The state may be licking their wounds as well since their Development Authority contributed $1.5 million in federal community development money to improve a building that Pearl River Foods leases from Leake County. The county also provided $170,000 for infrastructure improvements.  As I see it, a campaign promise kept may impact the CPI, reduce soybean demand even further (following the loss of the Chinese market) and embarrass a Trump-allied governor by highlighting poor oversight of “corporate welfare”. But my dividend stream should be unimpeded.

However, as the dog days of summer are upon us, this is the time I like to reflect on the portfolio progress thus far and identify any adjustments necessary as we move towards year end.  This continues to be difficult as during this presidency the only certainty has been volatility usually caused by tweet or inconsistent positions. During times of uncertainty, my fallback view traditionally has been transportation.  But for every analysis like Wolf Street reflecting on the production backlog decreasing, there are other – not so dire measures – such as port utilization. I will say one of holdings (Volvo) has reflected some weakness in North America. Perhaps some of the answer lies in tariff front running and taxes or perhaps this time has no historical parallel. So I continue to be cautious while playing some of the dips – all the while remaining on the strategy that has not let me down over the years.

I may decide to take another week off unless the market gets even crazier!

Randomness For July

Typically I gain inspiration from the news or other bloggers – or a combination thereof. When a thought – or concept – materializes my research kicks in to validate (or invalidate) the idea. Unlike others, my approach doesn’t follow a given model nor does it lend itself to a generic screening process. This isn’t to imply I ignore PE ratios, Dividend Growth Rates, Dividend Coverage, et.al., because I don’t. It’s just that outside the core 36 holdings I want to see a story, a compelling reason or something that makes me scratch my head and think.

Hidden in plain sight this week were a few that fit this category, so without further introduction, I present these for your consideration.

Bottling/Snacks Skirmish?

Pepsi announced the acquisition of South Africa’s Pioneer Food Group. I believe this intensifies the battle between the two giants and provides Pepsi a leg up in the snack segment, adds some bottling and expands their distribution capabilities. Conversely, Coke has pretty much divested their bottlers with the exception of Africa. So the question becomes, “What’s up with Africa?” and which one holds the answer to this riddle. Category: scratching my head

Watch List Addition

A friend of mine sent me a link to the Australian version of 60 minutes with an interesting (but non-standard) treatment for stroke victims. There are many more questions than answers with this treatment, most notably sustainability, yet the initial findings hold some promise. Ever the sucker for a speculative play in the realm of strokes (remember my Nexeon investment – (currently tardy in their filings)), perhaps a small investment may bear fruit. The drug in question is Etanercept and the company is Amgen. Bonus points for AMGN paying a dividend. Category: Good Story

Political Thought

We’ll delve into the political arena a little as the Democrats have initiated an opening salvo illustrating to the world they might be able to walk and chew gum simultaneously. This effort is in the form of a Senate bill provocatively titled, “Stop Wall Street Looting Act of 2019“. This bill aims to stem some of the more egregious acts of private equity firms when they take companies private. Assuming this gets through the proverbial roadblock in Mitch McConnell and the unrelenting lobbyists, I have a one minor concern (outside the name) that should be addressed in order for bipartisan support to be obtained. Section 309 is applicable to workers and places a higher priority on pension funding, which is well and good. The issue I have is in the charge to bankruptcy judges to consider job retention in a liquidation (sale) event. If I thought I could profit via productivity gains (technology) at the expense of labor, I would have no incentive to prevent full on bankruptcy – waiting to buy the pieces after the fact. Category: Compelling Reason (probable GOP inaction to avoid debate)

With these thoughts, I hope the week ahead is good for you!

Things Making Me Go Hmm

Loose reference to a segment on The Arsenio Hall Show, 1989-1994

A handful of areas caught my attention this past week, some of which captured my whimsical thinking so much that it occurred to me that our president may actually have a game plan. Before I roll that scenario, let me start with the Boeing saga.

The Max Issue

As it will be awhile before the dust settles and the corner is turned, shareholders are likely in for choppy ride. My guess is the Jim Cramer Chipotle advice is applicable to this situation, “It takes 18 months from the last incident to get the American people to forget“. As Boeing previously had a solid reputation (outside supplier negotiations), there’s little doubt, given time, they’ll recover. The nagging question in my mind is, “What about their subs?”, the three largest being Spirit AeroSystems (SPR – ~50%), Triumph Group (TGI – 31%) and Hexcel (HXL – 25%) with several others dependent on Boeing for about 10% of their sales.

While some have pulled guidance, looking at Spirit shows a ‘sweetheart’ arrangement with a guaranteed production take threshold. Even so, Wichita, Kansas is feeling a little pain as SPR has cut hours by 20% and eliminated most contractors. The possible hmm counterpoint: Trump’s recent efforts to prod the Fed to reduce rates to weaken the USD.

Ongoing Farm Woes

A couple of weeks ago I touched on the plight of Wisconsin dairy farmers. This week, farming issues – specifically lending – crossed the wires. A Reuters study concluded farm lending declined 17.5% by the thirty largest banks between December 2015 and March 2019. Perhaps they’ve identified a bubble or perhaps diversifying risk. While keeping an eye on developments, my portfolio of community banks isn’t overly concerned as most of their loans are USDA carrying a 95% government guarantee. I think the current largest downside would be depressed merger premiums in this space. The possible hmm counterpoint: The federal debt limit may be reached sooner than anticipated, perhaps in part, due to increased credits to farmers to counteract tariff retribution?

Game Plan?

Low interest rates essentially delays the day of reckoning for out of control federal deficits. A weaker USD benefits exporters to the detriment of importers, but has the potential to reduce the trade deficit. These two issues, coupled with the fairly robust economy have the ability to provide a tailwind to the incumbent’s reelection prospects. The possible hmm counterpoints: Possible implementation of a surcharge based on the USD strength in the Petrodollar world, additional tariff retaliation.

Just some random thoughts to start your week!

Preliminary 1H Results

My apologies, but first half results will have a one week delay due to some dividends not crediting on Friday. These are primarily Canadian held in my taxable account – I’m thinking it’s a tax processing issue as the Canadian stocks in my IRA credited as normal. I do know the S&P beat me for the month but I’m slightly ahead for the year. Beyond that … there’s always next week.

This week, the President attended the G20 and had the anticipated meeting with Xi Jinping. The preliminary reporting by Eunice Yoon, CNBC’s Beijing correspondent was: (June 29, 2019 tweet)

  • By my tally, so far China gets:
    • -no new tariffs
    • -access to US tech for Huawei
    • -better visa treatments for Chinese students
    • -truce on tradewar (resumption of talks)
  • US gets:
    • -bigger purchases for farmers

My initial take was that China came out ahead due to the fact that their pork production has issues with a swine flu epidemic – meaning I think they used a weakness to their advantage. They probably had limited options. The Daily Beast concurs (although a little more stridently). But the futures market appears to be rallying – perhaps because it wasn’t worse? As Monday dawns here I’ll be looking at this a little closer.

Meanwhile, I’ll (finally) be making some moves in July, selling three issues – primarily dividend cut related. Since one of my core holdings is being acquired, a restructure of my top 36 is also in order. So my expectation is more than normal activity is on tap with a slight decrease in the number of my holdings (not the value) as well.

With it being a holiday shortened trading week in the US, I hope you enjoy and have a safe 4th!

Musings – June 22 version

Monday morning delivered the news of a merger announcement between two of my banks. It’s not often I get to play both sides of a deal, so I have to enjoy this one. PB was a hold in my portfolio representing about 1.7% where LTXB was a buy having risen to 1.8% on its’ way to a 3% maximum. My confidence was so bullish that LTXB was my one entrant in Roadmap 2 Retire‘s 2019 Contest. My confidence was inspired by Kevin Hanigan’s (LTXB President & CEO) response on the Q2 2018 Earnings call (July 18, 2018) response in the Q&A on the M&A topic, “We are trying to position the franchise to be the prettiest girl at the dance, whether we’re a buyer or a seller. And I think we’ll soon be a whole lot prettier, if not the prettiest girl at the dance.

Pretty they became as PB is paying 0.528 shares and $6.28 cash for each LTXB share. I plan to vote in favor of the transaction (on both sides), pocket the cash and sell the new shares – retaining the old. Moral to the story – you never know the gem you’ll find embedded in earnings calls.


My initial take with Facebook’s Libra Cryptocurrency is that it’s intriguing, plausible but comes with contradictions. Now – similar to the Mueller report – I’m still digesting the details, but the first two to jump out at me were:

  • Envisioned both as a Stablecoin (tied to a basket of fiat currencies) and a viable alternative to the unbanked masses, is to a degree, an oxymoron as I doubt the majority of the unbanked are versed in currency exchange fluctuations which could have either a positive or negative impact to their wealth.
  • The white paper addresses a goal of social goodness through ethical actors, yet a cursory review of the Founding Members reveals the following:
    • PayU (part of Naspers which had a controversial move from South Africa to the Netherlands – socially responsible?)
    • One founder is Thrive Capital – a VC firm run by Joshua Kushner (Jared’s brother), which would be a potential question mark worthy of further investigation

My interest lies more in the unnamed banks which will be holding all these low cost deposits, and I’m sure there will be more to follow …


The final point this week is on tariffs. Unless a country is self-sufficient, trade is not a zero sum game. There will be surpluses here and deficits there, the goal being all is basically even when viewed on a multilateral basis. My thinking is that the president has been one-upped in the trade war he started. If a measure of greatness is the wealth of a country, perhaps the campaign slogan should be “Making America Irrelevant Again“. China’s reaction (in the long game) to the tit-for-tat brinkmanship has been to reduce tariffs on other country’s goods when retaliating against US tariffs. Good luck getting these markets back …

My Updated Crypto View

Occasionally I use this space for further elaboration on topics that recently garnered my attention. I spent the better part of this past week on one such beast thanks to Caleb over at Buy, Hold Long. He recently added a You Tube channel to his site and the topic on crypto diversification got my attention (as well as a few views). I can’t say my opinion was changed (it wasn’t) as a review of my original thesis reflects (by chance) I pegged the top of the crypto market (almost). His approach though had me reflecting on the similarities to DGI strategies.

The BHL analysis essentially takes the top 100 currencies by market cap to determine the most profitable investing approach. One of the two Crypto ETFs awaiting SEC approval uses a similar methodology, albeit with the top ten. Some of the questions I posed to BHL are indeed reflected in the Bitwise ETF Trust‘s S-1. For instance, an inflation adjusted formula is used and trade suspensions and hard forks are addressed. Private keys and cold storage (security) have been anticipated and rebalances are monthly. The biggest difference between BHL’s Top Ten and Bitwise is that BHL is equal weight and Bitwise is more market cap (with some constraints) weighted. Additionally, Bitwise will carry a 2-3% fee.

There are some intricacies needing to be fleshed out notably in the KYC and FASB/IFRS space which may result in crypto purists losing faith primarily due to the potential loss of any remaining anonymity. Yet some (like me) may come around thanks to the ease of negotiating multiple wallets, exchanges, and yes, diversity. Until then, I’ll keep my head in the sand waiting for the day US investors have a legitimate crypto ETF alternative.

My final concern with the BHL study (date bias) can not be proven in my cursory review, as my question also reflected date bias. I can state the broader model outperformed as it did in BHL’s although with lower gains. Second was the Top Ten. I do think BHL may be onto something and encourage you to take a look at his efforts!

Earnings Season (again)

Once again, earnings season is upon us and the one aspect that rubs me the wrong way is the inevitable comparison of expectations to actuals. This, for the most part, is a grade on how well an analyst anticipated the twists and turns of a particular quarter to provide a gradable prediction. Fortune telling at its finest! For its’ part, Zacks Investment Research has created a business out of the compilation and distribution of this data. But to what end?

Let’s review one example of this season, DGI darling Caterpillar (CAT). The release by Zacks was:

Deere & Company (DEFree Report) reported second-quarter fiscal 2019 (ended Apr 28, 2019) adjusted earnings of $3.52 per share, missing the Zacks Consensus Estimate of $3.58 by a margin of 2%. However, the reported figure recorded an improvement of 12% from the prior-year quarter’s adjusted earnings per share of $3.14.


Ongoing concerns over the impact of the escalating trade war between the United States and China on U.S. exports of key commodities, weakening agricultural market and delayed planting season in much of North America are resulted in farmer’s getting cautious about their equipment purchases. Deere has this trimmed fiscal 2019 guidance. The company’s shares fell 5% in pre-market trading.

https://www.zacks.com/stock/news/415679/deere-de-q2-earnings-lag-estimates-trims-fy19-guidance?art_rec=earnings-earnings-earnings_analysis-ID04-txt-415679

The key here is the Consensus Estimate. Subsequent events are that CAT is one of the companies in the cross hairs of the escalating trade spat. Contrast this with the headlines from the company’s earnings call:

Caterpillar ups dividend by 20%, raises guidance
May 2, 2019 7:48 AM ET
Caterpillar (NYSE:CAT) has authorized an increase to its quarterly cash dividend of 20% to $1.03 per share of common stock, payable August 20, 2019, to shareholders of record at the close of business on July 22, 2019.


“Caterpillar expects to increase the dividend in each of the following four years by at least a high single-digit percentage. With its remaining free cash flow, the company intends to repurchase shares on a more consistent basis, with the goal of at least offsetting dilution in market downturns,” according to a press release.


Later today, Caterpillar’s executive leadership team will describe its plans to grow services. It intends to double Machine, Energy & Transportation services sales to about $28B by 2026, from a 2016 baseline of about $14B.


Updated outlook for 2019: EPS of $12.06-$13.06 (vs. previous guidance of $11.75-$12.75). Other 2019 assumptions include: Restructuring costs of about $100M-$200M and capex of $1.3B-$1.5B.


CAT +0.8% premarket

https://seekingalpha.com/news/3457913-caterpillar-ups-dividend-20-percent-raises-guidance

Personally, I’ve never owned CAT primarily due the the volatility of their underlying customer base, i.e., agriculture and construction being in traditional feast or famine business cycles. But if I were an owner, unless there’s any indication of trouble brewing, I would probably place my faith in management over the talking heads. Otherwise, how can one rationalize their investment decision.

It’s not only Zacks. Larry Swedroe wrote an article in 2013 on this issue as well, proving the old adage, “the more things change, the more they stay the same”.

I guess the real question is in regard to the average investor and their ability to perform adequate due diligence as opposed to blindly following the ravings of the charlatan du jour. If the will – or ability – is lacking, an ETF is probably a better alternative to the whims of most ‘professionals’.

Thoughts and comments are always welcome!