Black Swan?

A black swan is an event or occurrence that deviates beyond what is normally expected of a situation and is extremely difficult to predict. Black swan events are typically random and unexpected.
Investopedia

With the market jittery of late, my sense is it’s waiting for another shoe to drop.  If only we knew when and why.  With a decelerating economy looming, greater uncertainty present and anticipated struggles with earnings comps it doesn’t stretch the imagination much to envision additional – or greater – turmoil.

The question becomes: what is the catalyst?  For purposes of this post we can ignore politics.  Having survived the past two years gives us that luxury.  The usual suspects; oil, interest rates or political upheaval are in check.  The economy, if not robust, is no slouch.  If I concur with pundits that postulate we can bounce along at these levels for awhile then I still must make the attempt to identify a black swan.  For this posts’ purpose some economic thing.  One example being 1997’s Asian Contagion.  In the absence of such a trigger I suspect Michael Pento’s analysis is a little dire, but with minimal tailwinds I could make a case for stagnation.

In my spare time  I’ve been performing a cursory analysis on the ETFs I added this year.  Only from the aspect of understanding each company and ending with a determination as to whether I would choose to own the component outright.  The process is a little laborious but results in more detailed knowledge on my part.  Australia and Mexico were a breeze.  Europe is last.  Japan was painful with the keiretsu overlaying business relationships (formal and informal) coupled with subsidiary relationships and interlocking ownership structures.  While my research remains incomplete, I may have found a lurking black swan.

With much of the analytical commentary in the US centered on corporate debt in a rising rate environment, in this vein, how about a growing Japanese banking scandal that, by comparison, makes the Wells Fargo scandal pale in comparison.  In essence, in April Japan’s Suruga Bank (a roughly $3.5B regional bank) came under investigation for fraudulent lending practices, falsified documentation and a laundry list of assorted unscrupulous business dealings.  In September, an independent investigation revealed at least 795 cases of fraud.  Garnering my attention was a fear that some “analysts have warned (this) could generate risks for the entire Japanese banking sector“.  All this has come to a head with the filing of a lawsuit against the founding family this week.

One could speculate this issue is confined to this bank – and the answer could well be yes.  However one of the issues with the Japanese corporate system is the propensity to delay remedial action – basically a holdover from the glory days of the keiretsu.  The Suruga scandal has the potential to spread into Shinzo Abe’s government and the BOJ.  Not as direct participants but as a negative reflection of their policies.

My eyes will remain on this as we enter the new year as if Japan stumbles the ramifications on interest rates in the US could be interesting as an inflow of currency to one of the world’s remaining ‘safe-havens’ could result in some artificial – and likely temporary – swings in yield curve.

Have a Happy New Year!

 

 

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Crazy Free

I decided to pause my 3Rs series to review one particular event of this past week.  No, not the political spectrum (guilty pleas/verdicts in the US and a new PM in Australia) but the bloodbath incurred in the discount broker space following JP Morgan’s announcement of the commencement of a free trade platform.  In the event you missed it, the Tuesday morning market shudder (per Seeking Alpha) was:

Online brokers slump in premarket trading after JPMorgan (NYSE:JPM) says it’s introducing a mobile investing app bundled with free or discounted trades.

TD Ameritrade (NASDAQ:AMTD) slides 6.5%, Charles Schwab (NYSE:SCHW) -4.9%,  E*Trade (NASDAQ:ETFC-4.5%, Interactive Brokers (NASDAQ:IBKR-3.5%.

JPMorgan +0.7% in premarket trading.

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Moral Investing

Making the headlines this past week was the atrocious scene along our border.  Being an event driven investor, I had to at least take a look at the situation to – at a minimum – determine my exposure and whether strategy adjustments are  necessary.

I’m not a prude by any stretch of the imagination but (outside of ETFs) have never invested in tobacco stocks.  I have minimal exposure to wine and spirits.  While I’m not casting aspersions on those that do, I figure there are more than enough alternatives that better fit my preferences.

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Johnny-come-latelies

Generally I refrain from back-to-back posts with similar topics but decided to make an exception this week as the moving parts have kicked into high gear.  My post last week addressed my uneasiness with cryptocurrency as well as my interest in the underlying blockchain technology.  It appears that my view has some support as two blockchain ETFs debuted on January 17th (BLOK and BLCN) and one January 25th (LEGR).  This should be followed by KOIN next week.  Horizons and Harvest (HBLK) also have ETF applications pending.  Grenadier penned a piece on Seeking Alpha that did some analysis on the first two.  Four of LEGR’s top five holdings are included in either one or both of the originals so it will probably be similar.  David Snowball highlights this sentiment in his piece There’s no idea so dumb that it won’t attract a dozen ETFs stating, “…there are no publicly traded companies that specialize in blockchain; there are mostly companies with a dozen other lines of business that have some sort of efforts going into blockchain.”  This is 100% correct.

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‘Tis The Season

It’s getting to be that time of the year and since I don’t think the grandkid reads this thing, I figured I’d share one of the presents she’ll be getting.  Just to review, each year since she came to live with us she has received shares in a company as a gift. This gift has been purchased in a company DRIP, established as a Custodial Account of which I’m the custodian. Generally, the company is one in which she can relate, i.e., Trix was her favorite cereal as a kid hence the General Mills stock.

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Pure Randomness

Every now and again events are thrown our direction which necessitate a change.  Being one who abhors change, I tend to procrastinate until the absolute last minute.  I knew the drive in my laptop was on its’ last legs a year ago when I bought a new one.  Last week it bit the dust.  I did perform regular backups so data loss was minimal.  What loss exists is not due to Wanna Cry but their evil twin, Micosoft (MSFT).  Though I have an Office license, my use (legally) of an upgraded version resulted in the inability to perform a backward migration.  It appears my best recourse is to purchase an upgrade.  My frugal nature has an issue with this solution (being held hostage?).  Meanwhile, seeing if Google fills the void.  I did add a sheet to my Dividends spreadsheet (Div Dates) which – assuming I get the hang of conditional formatting – has the potential of automating my watch list.

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Recent Buy – AKO.B

ako

Keeping with my Coca-Cola bottler strategy, yesterday I added a new holding to my portfolio.  Embotelladora Andina S.A. is based in Chile with territory covering Brazil, Argentina, Paraguay in addition to Chile.  Their product line includes Coca-Cola products in addition to bottling and distributing outside brands including Amstel, Dos Equis (XX), Heineken and others.  They have an integrated operation, meaning they manufacture the bottles, cases and caps used in their bottling operation.

Andina has two share classes, the A shares carry greater voting power while the B shares pay a higher dividend.  As I don’t expect to accumulate enough shares to impact the board, I chose the higher dividend.  The shares are traded on the NYSE as an ADR administered by Bank of New York Mellon (BK), another of my holdings.  The ADR ratio is 6 shares of Andina-B (Chilean exchange) to 1 AKO.B (NYSE).

A dividend is paid almost quarterly (Feb, Jun, Sep, Nov) but is variable as the cycle is Provisorio/Adicional.  The company’s goal is to pay approximately 35% of earnings to shareholders.  The TTM for the ADR is $.70 which translates into a current yield of 2.88% at my $24.25 purchase price.  The forward (12 month) yield would be about 3.1% depending on actual declarations and the future exchange rate.

A also added to my TD holdings making it a full satellite position (1.5% of portfolio dividends) due to weakness (can you say Wells Fargo?).