D's DD Jan. 2024

[ducati916]

a different explanation might be

land is an asset , it is tangible and clearly defined , gold is both an asset and a currency because it can be transported to a different owner relatively easily , gold can be used as a popular medium of settlement across jurisdictions

now a currency is only a medium of exchange ( both parties trust ) cash , diamonds , pearls , gold , some cryptos

now some believed US treasuries were a reserve asset thinking the US would never scorch somebody who lent them billions,trillions of dollars worth of goods , that thinking is starting to change

my father used to tell me , 'if you have to buy your friends , you probably don't have any ( friends )

Mr divs,

It really comes down to: gold is no-one's liability.

jog on
duc

 

[divs4ever]

that as well , but other tangible commodities can fill that definition as well ( pearls, diamonds , silver etc etc )

it is going to be a nightmare when all the derivatives and debt instruments unwind

 

[ducati916]

Oil News:

Friday, January 12, 2024

The escalation of tensions in the Red Sea, culminating in the largest US/UK attack on Houthi positions since the start of Operation Prosperity Guardian, has prompted multiple tankers to divert from the Suez Canal and Danish shipping firm Torm joined the ranks of European companies avoiding Red Sea transits. For the first time in 2024, ICE Brent futures have traded above the $80 per barrel mark. As the shipping industry is tilting towards a blanket ban on all transits through the Bab el Mandeb Strait, the upside in oil (and even more so for gas) is far from over.

US and UK Launch Attack on Houthi Positions. The militaries of the United States and the United Kingdom carried out joint strikes against Houthi militant targets in Yemen, targeting radars as well as missile and drone-launching sites, prompting Saudi Arabia to call for restraint in the Red Sea area.

Iran Seizes Oil Tanker In Oman’s Waters. Iran seized a Marshall Islands-flagged oil tanker carrying Iraqi crude in the Gulf of Oman, in retribution for the US seizure of the same tanker a year ago when it was (then called Suez Rajan) carrying 1 million barrels of Iranian crude, adding to geopolitical risks in oil.

Surging Freight Shuts US Arb to Asia. The cost of chartering a VLCC from the United States to Asia jumped to more than $10 million this week, up 25% week-on-week, making WTI delivered to China 4 per barrel more expensive than Dubai, shutting the eastbound arbitrage for US light grades for now.

Chesapeake-Southwestern Merger Turns Official. Ending months of intense speculation, US gas producer Chesapeake Energy (NASDAQ:CHK) agreed to buy its shale peers Southwestern Energy (NYSE:SWN) in an all-stock transaction valued at $7.4 billion, making it the largest American gas producer.

Libya Protestors Warn of Larger Impact. Turmoil in Libya might proliferate beyond the shut-in El Sharara field as protesters across the North African country have threatened to shut down two oil and gas facilities in Mellitah near the capital city of Tripoli, issuing a 72-hour ultimatum that ends Friday.

ExxonMobil Eyes Algeria Expansion. US oil major ExxonMobil (NYSE:XOM) has been in advanced talks with Algeria’s national oil company Sonatrach to enter into new oil and gas exploration projects in the country, following in the footsteps of Occidental (NYSE:OXY) that so far was the only US firm there.

Norway’s Gas Exports Hit Record in December. Norwegian exports of natural gas via pipelines to Europe hit an all-time high in December, reaching 11.1 bcm thanks to increased capacity at the country’s processing plants and rebounding strongly after the summer’s turnaround-heavy supply weakness.

Canada’s Oil Sands Churn Out Record Volumes. In anticipation of the TMX pipeline starting up, oil producers ramped up Albertan output to a record high in November, surpassing the 4 million b/d mark for the first time in history and up 336,000 b/d on the month, also depressing WCS prices to -$20 per barrel below WTI.

Following Lithium Slump, Market Turns to Hedging. The recent price slump in lithium has aided exchange-traded futures contracts of the transition metal as the CME lithium futures saw volumes traded skyrocket to 20,307 metric tonnes in 2023 from a mere 468 metric tonnes in 2022.

French Major Wants More of Namibia’s Oil. France’s oil champion TotalEnergies (NYSE:TTE) has agreed to buy the stakes of UK-based explorer Impact Oil in Namibia’s blocks 2913B and 2912, 10.5% and 9.39% respectively, seeking to maximize its ownership of the multi-billion-barrel Venus discovery in the latter block.

LME Stocks Get Swamped by Russian Aluminium. The share of available aluminum stocks of Russian origin in London Metal Exchange-approved warehouses increased to 90.4% in December, up 12 percentage points from November, a problem for LME after the UK’s December 15 sanctions.

Civil War Jeopardizes Ecuador’s Oil Industry. As gang violence took over the streets of Ecuador, the country’s national oil producer Petroecuador boosted security measures around its production sites as the previous CEO Eduardo Miranda resigned, keeping production unchanged at 490,000 b/d.

Mongolia Eyes China’s Coal Market. Having doubled in 2023, China’s imports of Mongolian coking coal are set to rise further thanks to an expanding railroad network connecting the Asian country to its southern neighbor, with analysts expecting flows to add 10% in 2024 from the current annual tally of 50 million tonnes.



So liquidity is loose, liquidity is an issue and on top of any growing deficits etc, $9T to rollover. What could possibly go wrong?

Market near ATH. LOL.

Mr flippe-floppe-flye:



jog on
duc

 

[ducati916]

Last week:



And yet, those ultra small nuclear reactors had their contracts cancelled and just don't look viable moving forward. Major reactors remain a go. Just takes an incredible amount of capital and time to complete.




NG makes for fun trading.





So already buying in anticipation of an Eth. ETF. LOL.



Now this was taken from the Oil News:



US oil exports are Permian basin oil. Fracked. When this slows down, it takes a long time to get going again.

OPEC+ again are attacking US shale oil. Offering a discount to US shale. US shale needs a certain price to make it economic to pump. If it's not pumped, then it creates an issue when it is re-opened for pumping.

US shale was devastated when oil went (-$30/barrel). OPEC was the big winner.

This time is no different.

Adding insult to injury, but a really devious strategy, the Saudi's are floating a Bond issue priced in USD to cover the losses in cutting the POO.

LOL. They are sucking up USD liquidity. If you are buying their oil bond, you are not buying UST. Very crafty.

Whichever fuc*wit at the US Treasury decided to weaponise the USD against Putin et al, is being handed his redundancy papers about now.

I'll dig up the evidence for this during the week for those that still harbour a belief that the US is winning this war.

jog on
duc

 

[ducati916]

US markets closed for MLK day.

From Mr Gundlach in x2 posts:



Continue to post #2

jog on
duc

 

[ducati916]

Post #2



Full presentation:

Overall the tenor of his presentation is that (a) recession is highly likely, (b) recessions increase deficits, (c) interest payments are already consuming a significant portion of tax and a further increase in debt is unsustainable, (d) stock market earnings are likely to disappoint, (e) market therefore is overpriced.

For institutional sized investors there are opportunities in credit.

Moving away from Mr Gundlach.

The energy conundrum remains the primary under-appreciated risk. The US is predicated on cheap(ish) oil. That fact does not escape its enemies: Russia, China and increasingly the Arab states.

What follows is a timeline of how this strategy has played out over a few years:



OPEC+ is now firmly opposed to US interests, which in this case = shale oil, as shale oil takes (their) market share. The Saudi's can pump oil for something less than $5/barrel.

So with shipping rates moving much higher, US shale is not economic to Asia. Up step the Saudi's, cutting their price and taking China, the country with by far the highest growth rate in energy demand and cutting out US shale.

US shale needs +/- $60/barrel to pump oil. Falling prices are the last thing US shale wants/needs.

When if shale pumping is curtailed, it is very difficult to get it going again.

Cutting prices into market weakness is likely (short term) to bring oil lower.

The Saudi's in a move worthy of Machivelli, sold USD Bonds, which will remove demand that Yellen and the US Treasury desperately need to soak up $10 - $15 Trillion in UST issue coming down the pike.

Due to the Treasury having to fund itself, the Fed will have to monetise. Those bonds that the Saudi's just sold, with the level of inflation that will be driven, will become essentially free money.

The overall strategy seems to be break shale, then once shale is broken, jack prices by 50%, 100%, whatever and crush the US.

The correct response would be to nationalise the Permian. Pump at maximum capacity. Store the oil, minimal exports if any and use that energy to build back the industrial base in the US.

Chances of that happening? 0%.

jog on
duc

 

[ducati916]

Quick before work:

Rosenberg: https://themarket.ch/interview/now-...e-profits-and-thank-your-lucky-stars-ld.10391

Hodl: https://dailyhodl.com/2024/01/14/jp...000-as-number-of-troubled-loans-erupt-report/

Ackman: taking his eye off the ball? https://www.vox.com/2024/1/13/24032...harvard-plagiarism-business-insider-explained

Business boom? https://www.apricitas.io/p/americas-new-business-boom

Oil News:

India’s state-owned refiners are considering resuming imports of Venezuelan barrels after the country’s private refiners started buying last month, with ONGC Videsh waiting for loading dates in February.

- An investor in Venezuela since 2008, ONGC Videsh has more than $600 million in dividends due, which it plans to convert into heavy sour Merey cargoes, despite its differentials strengthening to -$8 per barrel to Dated.

- Venezuela has been producing 800,000 b/d of crude since US sanctions were lifted in October, becoming a market dominated by three main buyers – US, India, and China – ending years of Chinese prevalence in Venezuela.

- According to Kpler data, India’s largest refiner Reliance purchased two VLCCs from Venezuela in December, followed up by a further two cargoes in January, making it the largest buyer globally on a company level.

Market Movers

- US investment giant BlackRock (NYSE:BLK) agreed to buy Global Infrastructure Partners for 12.5 billion, boosting its infrastructure assets to $150 billion and adding a sizable renewables portfolio.

- Spain’s oil major Repsol (BME:REP) is facing a 1 billion lawsuit after a group of 34,000 alleged victims took it to court over an oil spill at its Pampilla refinery next to the capital city of Lima.

- US offshore-focused oil producer Talos Energy (NYSE:TALO) struck a deal to acquire privately held producer QuarterNorth Energy in a $1.29 billion cash and stock deal, boosting its presence in Mexico.

Tuesday, January 16, 2024

Continued attacks in the Red Sea and the U.S. cold snap have been making headlines this week, both indicating a more bullish outlook for oil as ICE Brent continues to hover around $79 per barrel. With up to 500,000 b/d of oil production temporarily shut in across the United States, supply disruptions in the Atlantic Basin might be offsetting the bearish narrative of increasing product stocks. As EIA figures on the United States will only be made available Thursday, smaller macro events such as China’s no-change Central Bank meeting are poised to become the main bearish market narratives.

Houthis Strike US-Owned Bulk Tanker. Houthi forces struck the US-owned dry bulk tanker Gibraltar Eagle with an anti-ship ballistic missile as it sailed some 100 miles off the Gulf of Aden, claiming the attack was done as retaliation for US strikes on Yemen’s Hodeidah airport earlier this week.

Cold Snap Lifts Power and Natural Gas Prices. The expected 4% drop in US natural gas output due to the extreme freeze taking over the central and eastern parts of the country lifted Pacific Northwest power prices to $1,075/MWh, the highest on record, whilst Waha gas prices soared to $17/mmBtu.

Bakken Production Freezes Up. The extreme cold rampaging through the US Midwest has led to a 425,000 b/d decline in oil production from the Bakken shale as operators shut in wells, whilst gas output in the same basin is down almost 50% to 1.1 billion cubic feet per day.

Nigeria Tenders Its Revamped Refinery. Nigeria’s state-owned oil company NNPC has tendered for an operator of its 210,000 b/d Port Harcourt refinery, calling on “reputable operators” to help meet the nation’s fuel supply, aiming to restart the plant towards the end of Q1 2024.

White House Sanctions Iran Traders. The US Treasury expanded sanctions on Iran-linked entities as it placed two Hong Kong and UAE-based companies and four tankers they operate on its sanctions list for allegedly shipping Iranian crude for the benefit of Iran’s Islamic Revolutionary Guard Corps.

Zinc Prices Buoyed by European Closures. Zinc prices increased by 4% this week to $2,615/mt after Trafigura-controlled metal producer Nyrstar announced that it would place its Budel zinc smelter in the Netherlands on care and maintenance due to high energy costs and weaker regional demand.

Kerry Steps Down as US Climate Envoy. The US climate envoy John Kerry is planning to step down as the top climate diplomate over the upcoming weeks, according to media reports, with his departure coinciding with that of his Chinese counterpart Xie Zhenhua, right after the COP28 summit ended.

TMX Pipeline Clears Key Regulatory Hurdle. The Canada Energy Regulator approved a route change proposed by the operator of the 590,000 b/d Trans Mountain expansion pipeline, clearing the last regulatory barrier before TMX starts seeking nominations for line filling, expected to happen in Q2.

Libya Eyes 2024 Licensing Round Despite Protests. Brushing aside the 300,000 b/d Sharara field still being down due to protests, Libya is preparing to launch its first upstream licensing round since 2007, aiming to boost oil production to 2 million b/d within the next five years.

Baghdad Wants Kurdish Firms to Produce Less. As Baghdad seeks to adhere to its 2024 OPEC+ production targets, it is increasingly pressuring the Kurdish Regional Government to curb crude output as recently restarted projects ramped up supply to more than 200,000 b/d.

Court Clears Australia’s Key Gas Project. Australian gas major Santos (ASX:STO) can continue with the construction of a subsea pipeline that is vital for its $4.3 billion Barossa gas project following a three-month hiatus thanks to a court decision that dismissed a claim from indigenous groups.

Biden Administration Lays Out New Methane Rules. The US Environmental Protection Agency proposed new rules for methane emissions, introducing a financial penalty of 900 per metric tonne above a specified amount, expected to raise $750 million this year across 2,000 oil and gas facilities.

Chinese EV Giant Taps Brazil’s Lithium Supply. The largest EV carmaker globally, China’s BYD (SHE:002594) has been holding talks with Brazil’s Sigma Lithium over a potential lithium supply agreement, joint venture, or even outright acquisition, seeking to build EVs in Brazil from mid-2024.



USD



This bears close watching if you are long stocks. A strong USD causes volatility and losses in the UST market. Not what is required with UST rollovers etc.

While stocks go up on news of rate cuts and USD goes down (with help from Treasury & China) delays in rate cuts happening will have the reverse effect.

The CRE issue: an actual issue or just a non-issue?

Difficult to really know. Bank balance sheets are opaque at the best of times. JPM is the de facto agent for the US Treasury, so, even more opaque than a normal bank.

jog on
duc

 

[Value Hunter]

Obviously someone doing the same thing on the Japanese market and starting at its peak ,into blue ships there Nissan, Fujitsu, Sony, Sanyo etc all very reliable strong companies..much more than our so called blue chips, would have been in the red for what 3 decades?...
Looking at the market (which one? ASX, NYSE, in the last 50y or so do not give us certitudes, just assumptions.
Just saying that black swans are actually very common.
If there is a lesson in my short life and let's say 30y, it is actually rare to not have major upheavals with financial effects in a decade

I disagree. If somebody started investing in the Japanese market at its peak by dollar cost averaging every month and reinvesting the dividends overall from that point until today they still would have generated a positive return (due to buying many of the shares at lower prices on the way down) and the return would likely be higher than what they would have received in Japan by putting cash in the bank or into government or corporate bonds. The only way to lose would have been to put all of your money into the market at the peak and then not added more money after.

 

[divs4ever]

I disagree. If somebody started investing in the Japanese market at its peak by dollar cost averaging every month and reinvesting the dividends overall from that point until today they still would have generated a positive return (due to buying many of the shares at lower prices on the way down) and the return would likely be higher than what they would have received in Japan by putting cash in the bank or into government or corporate bonds. The only way to lose would have been to put all of your money into the market at the peak and then not added more money after.

i avoid the Japanese market ( via indirect exposure ) as much as possible , since i only started investing in 2011

but 'averaging down ' has worked for me some times ( other times it has been a disaster )

my core concern is that the BoJ buys a large amount of Japan-focused ETFs effectively ( but indirectly ) propping up the share prices of the major listed companies , now to Japan's credit they do this openly ( it would not surprise me if other Central Banks did the same covertly)

Japan is fighting against it's own demographics , can it find a solution ( say lots of robot workers ) or will it finally succumb to decades of kicking the can down the road

 

[Value Hunter]

In terms of efficient market hypothesis in modern times some have chosen to divide it into "strong form Efficient Market Theory" which basically says that markets are perfectly efficient and "weak form efficient market theory" which posits that markets are mostly efficient most of the time meaning that in the long run the vast majority (over 95%) of active investors will under-perform a passive indexing strategy once higher costs (such as higher taxes and brokerage and fees, etc) are taken into account.

Strong form is ludicrous and has clearly long been discredited althugh I agree with the weak form theory in that basically only the top few percent of investors are skilled enough to outperform the market over the long-term. Skill does exist and it is possible to beat the market over the long-term because of the less than perfect efficiency of the market, but skill is much rarer than most people assume.

Furthermore the returns of fund managers, hedge funds etc is even worse than what it seems firstly due to survivorship bias and secondly due to the size impediment. If you look at managed fund, etc with a stellar track record the track record is based on returns without taking into account funds under management so during the 30 year track record the highest returns came when the fund was only managing $30 million dollars whereas now the fund is managing $30 billion dollars its getting much lower returns (with the exceptions of activist investing and market manipulation large size is generally the enemy of high returns). This means that the actual returns received by the investors on average is much lower than the funds return since inception.

Although I do not have solid evidence to back it up if I had to guess I feel that somebody must be in the top 3 or 4% of investors in terms of skill, etc over the long-term to outperform the market.

I think in general retail investors are at a information disadvantage (full time analysts generally will know more about a company than you will) as well as a control disadvantage (if an institutional investors owns enough shares in a company they can influence its decision making something a retail investor can never do). However retail investors can still outperform institutional investors if they play to their strengths which are:

-Size/liquidity: retail investors can enter or exit small and micro-cap stocks much more easily and quicker without affecting the price like large institutions would do. This means you can enter or exit small stocks faster than they can and you can buy stocks that they cannot even buy at all due to the small size.
-Flexibility: Many funds have rigid mandates which constrain their flexibility including maximum concentration limits per stock or sector, ethical considerations which prohibit investment in certain types of companies, time constraints as investments have to go through a slow committee style reporting and decision making process.
-Time horizon: Most fund managers, hedge funds etc have quarterly reporting on their performance and if they have one or two bad years clients will start withdrawing funds this results in them engaging in short-termism and making decisions which are suboptimal on a long-term timeframe. As a retail investor you are only accountable to yourself and can take a long-term view when investing without the pressure if worrying about quarterly and annual performance figures.

I believe that retail investors who disregard all of the above and decide to go the short-term trading route have much lower odds of success (you can still win but its exponentially harder) due to the fact that they are competing directly with algorithmic traders who can front run everyone, etc on top of the fact that costs tend to be higher (more brokerage and taxes, etc) under a short-term strategy.

So in my opinion the optimal strategy as a retail investor to outperform the market based on the above is:
-Invest with a long-term time horizon ideally holding stocks for 5 - 10 years or longer when appropriate.
-Have a concentrated portfolio to maximize the impact of good ideas (which are rare). This means at an absolute maximum 10 stocks and they should not be evenly weighted meaning concentration is higher still.
-Be heavily overweight in small and micro-cap stocks.

 

[ducati916]

Where the internet is: https://www.forkingpaths.co/p/the-hidden-world-of-undersea-cables

Going back to when Nixon closed the gold window and replaced it with the UST becoming the reserve asset, the US was the #1 military power. The promise being to OPEC: you recycle USD paid for oil into UST and we will protect you.

That may well have been part of the decision to forsake the US and move to BRICS on 2 January 2024.



Enemies would most certainly be aware.



USD. This is (for stocks) the MOST important chart to watch:



UST rates will key off of USD strength/weakness due to the NIIP position of the US.








Obviously liquidity issues are bubbling in the background again.



As the RRP winds down, where does this money go?




Mr flippe-floppe-flye will undoubtably flippe-floppe before the day is out.

The question is: does the USD rally (bounce) have any legs?

This is a question for the chartists to earn their stripes.

I am thinking yes, with added volatility. Which could be why the Fed is considering a taper of the QT taper...to add back some liquidity.

jog on
duc

 

[ducati916]

In terms of efficient market hypothesis in modern times some have chosen to divide it into "strong form Efficient Market Theory" which basically says that markets are perfectly efficient and "weak form efficient market theory" which posits that markets are mostly efficient most of the time meaning that in the long run the vast majority (over 95%) of active investors will under-perform a passive indexing strategy once higher costs (such as higher taxes and brokerage and fees, etc) are taken into account.

Strong form is ludicrous and has clearly long been discredited althugh I agree with the weak form theory in that basically only the top few percent of investors are skilled enough to outperform the market over the long-term. Skill does exist and it is possible to beat the market over the long-term because of the less than perfect efficiency of the market, but skill is much rarer than most people assume.

Furthermore the returns of fund managers, hedge funds etc is even worse than what it seems firstly due to survivorship bias and secondly due to the size impediment. If you look at managed fund, etc with a stellar track record the track record is based on returns without taking into account funds under management so during the 30 year track record the highest returns came when the fund was only managing $30 million dollars whereas now the fund is managing $30 billion dollars its getting much lower returns (with the exceptions of activist investing and market manipulation large size is generally the enemy of high returns). This means that the actual returns received by the investors on average is much lower than the funds return since inception.

Although I do not have solid evidence to back it up if I had to guess I feel that somebody must be in the top 3 or 4% of investors in terms of skill, etc over the long-term to outperform the market.

I think in general retail investors are at a information disadvantage (full time analysts generally will know more about a company than you will) as well as a control disadvantage (if an institutional investors owns enough shares in a company they can influence its decision making something a retail investor can never do). However retail investors can still outperform institutional investors if they play to their strengths which are:

-Size/liquidity: retail investors can enter or exit small and micro-cap stocks much more easily and quicker without affecting the price like large institutions would do. This means you can enter or exit small stocks faster than they can and you can buy stocks that they cannot even buy at all due to the small size.
-Flexibility: Many funds have rigid mandates which constrain their flexibility including maximum concentration limits per stock or sector, ethical considerations which prohibit investment in certain types of companies, time constraints as investments have to go through a slow committee style reporting and decision making process.
-Time horizon: Most fund managers, hedge funds etc have quarterly reporting on their performance and if they have one or two bad years clients will start withdrawing funds this results in them engaging in short-termism and making decisions which are suboptimal on a long-term timeframe. As a retail investor you are only accountable to yourself and can take a long-term view when investing without the pressure if worrying about quarterly and annual performance figures.

I believe that retail investors who disregard all of the above and decide to go the short-term trading route have much lower odds of success (you can still win but its exponentially harder) due to the fact that they are competing directly with algorithmic traders who can front run everyone, etc on top of the fact that costs tend to be higher (more brokerage and taxes, etc) under a short-term strategy.

So in my opinion the optimal strategy as a retail investor to outperform the market based on the above is:
-Invest with a long-term time horizon ideally holding stocks for 5 - 10 years or longer when appropriate.
-Have a concentrated portfolio to maximize the impact of good ideas (which are rare). This means at an absolute maximum 10 stocks and they should not be evenly weighted meaning concentration is higher still.
-Be heavily overweight in small and micro-cap stocks.

I have highlighted a few of your thoughts.

On the one hand, your position is that very few investors/traders can beat the market. To beat fund managers (who may/may not beat the market) play to strengths.

Your conclusion: buy a concentrated portfolio.

This seems at odds with your general position, particularly given your belief in semi strong efficient markets.

How then does your average investor, using the 'good ideas' approach (Peter Lynch?) outperform with 10 stocks. Mr Lynch had hundreds if not thousands of stocks.

Buffett is (probably) the most concentrated in terms of portfolio numbers, but he has a nuanced methodology.

A concentrated portfolio, in the hands of your average investor, is IMO, destined for underperformance if not outright disaster.

However if you can expand on the 'good ideas' methodology, I'm all ears.

jog on
duc

 

[Value Hunter]

I have highlighted a few of your thoughts.

On the one hand, your position is that very few investors/traders can beat the market. To beat fund managers (who may/may not beat the market) play to strengths.

Your conclusion: buy a concentrated portfolio.

This seems at odds with your general position, particularly given your belief in semi strong efficient markets.

How then does your average investor, using the 'good ideas' approach (Peter Lynch?) outperform with 10 stocks. Mr Lynch had hundreds if not thousands of stocks.

Buffett is (probably) the most concentrated in terms of portfolio numbers, but he has a nuanced methodology.

A concentrated portfolio, in the hands of your average investor, is IMO, destined for underperformance if not outright disaster.

However if you can expand on the 'good ideas' methodology, I'm all ears.

jog on
duc

The difference between most retail investors and a fund manager such as Peter Lynch is that Peter Lynch managed a lurge fund and had a vast number of analysts working for him and therefore vast research fire power which retail investors do not have. Not to mention access to company management and also the time and funds to conduct more thorough research, for example when he bought stock in La Quinta Motor Inns he went and stayed at a number of their motels as a customer to experience the company from the customers perspective. How many retail investors could afford to do that for hundreds of companies?

Also Peter Lynch was somewhat forced to own a lot of stocks and he wrote about it in his books. One reason is that SEC regulation stipulates that a funds classified as diversified fund which I believe the funds he managed were classified as such according to investopedia have the following criteria "A 75-5-10 diversified management investment company will have 75% of its assets in other issuers and cash, no more than 5% of assets in any one company, and no more than 10% ownership of any company's outstanding voting stock."

In addition liquidity/float and control/takeover regulations are an issue in smaller stocks. Peter Lynch liked owning small companies because of the potential for higher growth. For example If you can only buy 10% of a company's shares due to rules and also lack of liquidity and lets say the company is a $300 million market cap company. That means you can buy $30 million of shares. If you are running a $30 billion dollar fund that is only 1% of your funds under management.

If you read his books he actually recommended retail investors not to widely diversify as he was forced to do. He actually wrote in his books somewhere (I have to try and dig up the quote) about retail investors should be owning not more than 10 stocks because they would not have the time to keep informed about the companies. Also after he retired from being a fund manager in his personal portfolio I believe he had a much more concentrated portfolio. Also he suggested retail investors should invest where they have an edge for example if you work for a company or one of its competitors you likely understand a lot of things about the company that a typical analyst might not especially if its not a widely followed stock.

I believe that amateur investors should stick to companies that are simple to understand and wherever possible invest where they have an edge. Be concentrated and buy and hold for long periods of time.

Here is an old video clip of Peter Lynch talking about diversification.

 

[Value Hunter]

Also if you read Peter Lynch even though at times his fund owned over 1000 stocks many of the stocks were inconsequential positions because he said that he often liked to buy a few thousand shares in companies he was researching to force himself to follow the story more closely. In his managed funds even though there may have been up to 1400 stocks the top 100 positions were probably 80 - 90% of the fund.

Also even among famous investors Peter Lynch was truly outstanding and exceptional in generating such high returns while being diversified. Typically only top performing quant funds can achieve such high returns while being diversified. Usually even a highly skilled professional investor when using an approach of wide diversification can outperform the market by a decent margin over the long term but usually top at at around a maximum of 17 or 18% returns net of fees and expenses. If you look at the track records of guys like Benjamin Graham, Walter Schloss, Tom Knapp, etc you can see that.

 

[ducati916]

The denouement is fast approaching.

jog on
duc

 

[ducati916]

I believe that amateur investors should stick to companies that are (1) simple to understand and wherever possible invest where (2) they have an edge. Be (3) concentrated and buy and (4) hold for long periods of time.

1. As per your previous advice, small companies would probably be easier to 'understand'. What exactly do you seek to understand? Their financials? The 'story'? Or something else?

2. What would constitute an edge in this context? If you have some secret edge that you do not want to disclose, that's fine just respond 'secret edge'. Assuming however that you are willing to discuss an edge in this context, what would be some possibilities?

3. The issue with concentration is this: if you are wrong, it's really bad. If you are right, well yes, definitely the way to go. Just holding the massive winners to exclusion of all the trash sounds rather fanciful. Now of course Buffett is rather concentrated, but his advice to the 'average investor' is hold the market (SPY ETF). That certainly avoids credit risk and simply exposes you to market risk. I would say that your average investor does not correctly price credit risk. Essentially you are advocating a portfolio of concentrated credit risk.

4. Again, everyone's definition of 'long periods of time' is going to be different. What do you consider a 'long period of time'?

jog on
duc

 

[Value Hunter]

1. As per your previous advice, small companies would probably be easier to 'understand'. What exactly do you seek to understand? Their financials? The 'story'? Or something else?

2. What would constitute an edge in this context? If you have some secret edge that you do not want to disclose, that's fine just respond 'secret edge'. Assuming however that you are willing to discuss an edge in this context, what would be some possibilities?

3. The issue with concentration is this: if you are wrong, it's really bad. If you are right, well yes, definitely the way to go. Just holding the massive winners to exclusion of all the trash sounds rather fanciful. Now of course Buffett is rather concentrated, but his advice to the 'average investor' is hold the market (SPY ETF). That certainly avoids credit risk and simply exposes you to market risk. I would say that your average investor does not correctly price credit risk. Essentially you are advocating a portfolio of concentrated credit risk.

4. Again, everyone's definition of 'long periods of time' is going to be different. What do you consider a 'long period of time'?

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duc

1) Easy to understand both refers to financials and story. For example who could have understood the financials of Enron? If a company is making ten acquisitions per year and has a massive derivatives book and every year has "one-off/abnormal" expenses then you probably have little chance of understanding what is actually going on. In terms of story a company like Amcor is much simpler to understand than Macquarie group. Macquarie group has many business divisions some of which have hugely volatile earnings, it has lots of debt and a massive derivatives book. You are much more likely to understand what is happening at Amcor than Macqaurie group.

2) When I say edge I am not talking about anything proprietary. I just mean that often analysts/professionals are not product/industry experts. Occasionally they will be sometimes you will find an analyst who was an engineer previously etc but more often than not they are financial experts rather than product/industry experts.

Therefore for example somebody who works as a software engineer or an enterprise software salesperson can understand when a company releases a new enterprise software how well it is likely to be received by customers better than an average wall street analyst might. Or if you are looking to invest in a startup biotech company and you work as a researcher in a biotech company you have more odds of assessing the risks and likelihood of success of a new drug development than a wall street analyst who is merely relying on other experts. Somebody who works in a car dealership may have some idea of the likelihood of success of a newly released vehicle model based on initial sales and customer feedback before it shows up in the quarterly financials.

For a concrete example I know somebody who works in high level IT positions (e.g. enterprise architect etc) for a long time and I remember even 10 years ago he was telling me that IBM enterprise software solutions sucked and that they were just running their business based on marketing and former reputation and that there were far superior software solutions out there. He was working at a major bank and got approval from senior management to institute a company wide ban on any further purchases or IBM products or services. Meanwhile in 2011 Berkshire Hathaway invested in IBM and was subsequently proven wrong (the stock has gone nowhere since they invested in 2011). When I asked him at the time about is IBM a stock worth looking at given Berkshire Hathaway had purchased stock in the company in 2011 he said he would stay away from IBM shares.

3) What do you define as credit risk? To me credit risk is the risk of bankruptcy (or at least permanent impairment/loss due to a weak balance sheet or massive dilution). If you are talking about companies listed on a major stock market that are generating profits than bankruptcies are relatively infrequent and doubly so for larger companies. That is why cases like Babcock and Brown, Allco, ABC Learning, Ansett, HIH, One Tell and One Steel are so memorable because they are infrequent. Sure if you are investing in a local coffee shop or junk bonds than bankruptcy is a high risk factor but if you are investing in a company that has at least say a $100 million market capitalization and is profitable on avergae the banruptcy risk is reasonably low.

Of course you will have some losers that is why a long term holding period is essential, so that big winners offset the losers. Even if you are only right 50% of the time you can still make money because in a 10 year time period you might have one or 2 stocks that are for example 10 baggers but the most you can lose on a stock (if bought without borrowed money) is what you invested. For example lets say you own 5 stocks at 20% weighting each. And each stock is a $20,000 investment for a total portfolio of $100,000. After 10 years if you did your job okay it might look something like this:

1) stock 1 is a 12 bagger and the initial $20,000 is now $240,000
2) stock 2 is a 3 bagger and the initial $20,000 is now $60,000
3) stock 3 is flat and the initial $20,000 is still $20,000
4) stock 4 is down 20% and the initial $20,000 is now $16,000
5) stock 5 is down 80% and the initial $20,000 is now $4000.

Note how in the example the portfolio ended up a lot more concentrated than it started. That is a feature not a bug. As Peter Lynch said you don't want to be cutting the flowers and watering the weeds. The common demoniator amongst successful investment (as opposed to day trading) systems is letting your winners run.

So you invested $100,000 and after 10 years you have $340,000 meanwhile for example the market (with dividends reinvested) doubled in that period turning $100,000 into $200,000. Therefore your excess return on top of the market return is $140,000. This is the concept of a concentrated portfolio so that you get maximum impact from the winners.

4) A long period of time I define as a minimum of 5 years. Ideally it should be at least 7 - 10 years or longer. My biggest stock position is currently in Credit Corp Group (ASX code: CCP). I started buying shares in 2008 and have added to my position over the years and have never sold a single share. Its now 2024. That is an example of long-term investment. The company like most companies has good years and bad years but it has generated a profit and paid a dividend every single year since listing on the ASX in late 2000. This is the essence of long-term investing.

 

[ducati916]

On BTC: https://www.kiplinger.com/slideshow...e-top-10-stocks-of-the-past-decade/index.html

Which I disagree with in part. The inability to confiscate is only one part of the 'intrinsic' value. The second, more valuable is whether the asset is anyone else's LIABILITY. Gold is not. BTC however is. BTC liability is to the network/miners who validate and transact. If they fallover for any reason, all that remains is a memory.

Oil News:

Friday, January 19, 2024

As the wider Middle Eastern conflict now has Pakistan and Iran exchanging missile attacks, further boosting geopolitical risk, the cold snap in the US has shut in a significant portion of Bakken output, the first US supply disruption in many months. As well as these supply concerns, improving demand sentiment is also adding to upward pressure on oil prices. The IEA lifted its 2024 demand figure for the third time in a row, to 1.24 million b/d, helping Brent get within arm’s reach of the $80 per barrel mark before falling back slightly toward the $79 mark.

OPEC Sees Oil Demand Growth Slowdown in 2025. Publishing its first monthly market report for this year, OPEC revealed that it expects global oil demand growth to slow down to 1.85 million b/d, leaving its 2024 demand increase unchanged at 2.25 million b/d.

Albemarle Cuts Expenses as Lithium Prices Plunge. The US firm Albemarle (NYSE:ALB), the world’s largest lithium producer, announced wide-ranging staff cuts as well as the deferral of several key investment projects, most notably its North Carolina lithium processing plant.

Shell Rekindles North Sea Gas Romance. On the back of Shell’s (LON:SHEL) U-turn on fossil fuel investment, the UK-based energy major has approved the development of the Victory gas field in the North Sea, 47 years after its discovery, aiming to produce 150 MMCf per day by 2026.

Cold Snap Halves North Dakota Output. Approximately 650,000-700,000 b/d of North Dakota’s oil production has been offline due to the cold blast, but state regulatory authorities said most of the output will be resumed within the next 4-7 days once the wind chills subside.

China Expands into Tight Gas Production. China’s state-owned oil major Sinopec (SHA:600028) said it had discovered 133 billion m3 of tight gas in the southwest Sichuan basin, marking another huge low-permeability gas find in the country’s southwestern regions.

Norway Boosts Offshore Licensing Activity. Norway awarded 62 offshore oil and gas exploration licenses in the country’s most recent annual APA auction, with Equinor (NYSE:EQNR) participating in 39 licenses and Aker BP clinching 27 stakes in 27 licenses.

US Targets Russian Crude Shippers. The US Treasury imposed sanctions on a UAE-based shipping company Hennesea Shipping for allegedly violating the $60 per barrel price cap with one of its tankers HS Atlantica, marking the first OFAC sanctioning move of 2024.

Rising Inventories Pressure Nickel Prices. The worst performer amongst base metals in 2023, nickel prices are set for further declines soon as three-month LME quotes currently trend around $16,050/mt, driven by the doubling of LME-warranted stocks in Q4, a consequence of continuously increasing supply.

TotalEnergies Not Taking Any Arctic LNG. French energy major TotalEnergies (NYSE:TTE) initiated a force majeure process on Arctic LNG 2, Russia’s latest LNG plant in which it owns 10%, saying it will not take any liquefied gas from the Novatek-led project in 2024.

Diverting Tankers Boost Fuel Demand in New Spots. As hundreds of tankers diverted from the Red Sea to the Cape of Good Hope, adding 10-15 days to the voyage, ship bunkering demand has been booming in Mauritius, South Africa, and the Canary Islands with bunker prices jumping 15% on the month.

Paraguay Seeks to End Drilling Cold Streak. Paraguay is hoping that the Tapir-1 exploration well, the 54th well spudded in Paraguay after 53 previously unsuccessful attempts to discover hydrocarbons in the country, will finally result in an oil find, replicating Argentina’s success.

Saudi Arabia Buys into Gulf’s Oil Exchange. Tadawul Group, the operator of Saudi Arabia’s stock exchange, has struck a deal with the Dubai exchange DME to buy 32.6% of DME Holdings and rebrand the exchange as GME, Gulf Mercantile Exchange.

Windy Winter Helps German Power Prices. A huge Atlantic storm is set to sweep across northern Europe next week, with wind power generation expected to reach an all-time high of 57,949 MW on Monday, capping TTF natural gas prices at €28-29 per MWh ($10/mmBtu).



ORRP are moving to soak up the short term Bills being issued by the Treasury. This is why Yellen stopped the issue at the long end where there was no demand.

Once the ORRP falls to zero, what happens when the Treasury continues to issue new and rolling over debt? Who is the next sucker at the table?



The 2019 RRP blow-up was caused by bank reserves falling too low and banks then hoarding cash, withdrawing from the Repo market. Currently reserves are healthy. This is due in part to the arbitrage between BTFP and holding reserves at the Fed. Borrow from the BTFP and deposit that loan as a Fed reserve, pocket the spread. Free money. This ends. However it will be replaced with the 'old' Standing Repo Facility brought back again.

Is this a big deal?



Well yes it is. The Fed is trying to break two windows with one stone.








Which is why it is so important to have a constantly rising stockmarket. All the big payers are paid in significant amounts of stock options that gain value (cashed in) in a rising market. A falling market is no good.

Ran out of chart space: SPY very, very close to an ATH. Will it make it? Probably. The problem? The Magnificent 7 account for a significant portion of that performance. Not a good thing.

jog on
duc

 

[ducati916]

jog on
duc

 

[ducati916]

Part 2



jog on
duc