Brian Nelson

Extreme Volatility and Crisis Economics

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Image: The Dow Jones has now registered 8 consecutive trading days with a 4% move in either direction, from March 9 through March 18. This is the most volatile time in history, a streak that is longer than the 5 consecutive days registered in November 1929 (Great Depression), 4 consecutive days in 1987 (Crash of 1987), and 4 consecutive days in 2008 (Great Financial Crisis). From Value Trap: “There may be just one other period in history that had more price-agnostic trading than today, and that may be the period pre-dating the publication of John Burr Williams’ work The Theory of Investment Value, or roughly 1928-1940. This was the most sustainably volatile period in stock market history, as measured by … Read more

Banking Entities: The Technicals Tell the Story

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Image: The Financial Select Sector SPDR ETF has experienced a tremendous amount of pain in recent weeks. From Value Trap: “It’s likely we will have another financial crisis at some point in the future, the magnitude and duration of which are the only questions. My primary reason for this view is not to be a doomsayer, but rests on the human emotions of greed and fear and the nature of a banking entity’s business model, which does not hold a 100% reserve against deposits. Our good friend George Bailey, played by actor Jimmy Stewart, in the movie It’s a Wonderful Life knew this very well when he tried to discourage Bedford Falls residents from making a “run” on the beloved … Read more

US Considering $1 Trillion (Or More) Fiscal Stimulus Program

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Image Source: Frank Boston By Callum Turcan A lot has changed in a short period of time since we published our first note covering the potential for a major US fiscal stimulus program back on March 10 (link here). Due to the sheer amount of pummeling the stock and credit markets have taken over the past few weeks, along with consumer, business, and investor confidence at-large (we’ll get a better read on that over time), it seems that both Democrats and Republicans are now more open to a major fiscal stimulus program than before. The ‘Survey of Consumers’ conducted by the University of Michigan notes the ‘Index of Consumer Sentiment’ fell from 101.0 in February 2020 down to 95.9 in … Read more

Top Ten Ideas for Consideration Amid COVID-19

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Image: Key metrics of ten of the top ideas investors might start considering given the massive declines in the equity markets of late. Source: Valuentum calculations, SEC Filings, Yahoo! Finance, Morningstar.  By Callum Turcan The novel coronavirus (‘COVID-19’) pandemic continues to sweep the world, and governments are shutting down business activity, driving most of the global economy to a screeching halt. In such an environment, we don’t think investors should go bottom-fishing on some of the worst businesses that have been beaten up the most during this crisis, but rather, we think this crisis is giving investors the opportunity to consider positions in some of the strongest companies out there. In this members-only article, we cover ten high quality, “moaty” names … Read more

Oracle’s Strategic Shift is Starting to Bear Fruit

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Image Source: Oracle Corporation – Third Quarter Fiscal 2020 Earnings Press Release By Callum Turcan On March 12, Dividend Growth Newsletter portfolio holding Oracle Corporation (ORCL) reported earnings for the third quarter of fiscal 2020 (period ended February 29, 2020) which handily beat consensus expectations on the both the top- and bottom-lines. Growing subscription revenues at its cloud-based businesses were key to generating this outperformance, and most importantly in our view, Oracle showcased that its outlook is improving as it shifts away from old and stale IT infrastructure offerings (i.e. enterprise data application management) and towards the IT infrastructure of the 21st Century (cloud-based services i.e. software-as-a-service and infrastructure-as-a-service). Shares of ORCL yield ~2.1% as of this writing and our fair … Read more

Dollar General Holding Up Relatively Well in the Face of COVID-19

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Image Shown: Shares of Dollar General Corporation, a holding in our Best Ideas Newsletter portfolio, have aggressively outperformed the S&P 500 Index over the past year as of the end of the normal trading session on March 12. By Callum Turcan Retail firms, particularly companies that sell consumer staples products, have held up relatively well during the ongoing rout in global equities (including in the US). The novel coronavirus (‘COVID-19’) pandemic is the “black swan” event that could potentially tip the global economy towards recession, in our view, but please note this pandemic was the straw that broke the camel’s back, not the single source of this potential downside (rising non-financial corporate debt levels, slowing industrial activity, large national budget … Read more

Buybacks and Wealth Destruction

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Buybacks and Wealth Destruction — — From Value Trap: “According to S&P Dow Jones Indices, S&P 500 stock buybacks alone totaled $519.4 billion in 2017, $536.4 billion in 2016, and $572.2 billion in 2015. In 2018, announced buybacks hit $1.1 trillion. Given all the global wealth that has been accumulated through the 21st century, it may seem hard to believe that another Great Depression is even possible. However, in the event of a structural shock to the marketplace where aggregate enterprise values for companies are fundamentally reset lower, the vast amount of cash spent on buybacks would only make matters worse. The money that had been spent on buybacks could have been distributed to shareholders in the form of a dividend or even … Read more

Fed Cuts 100 Basis Points, Launches More QE

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“Now, stocks and other assets are being sold, some indiscriminately. It is truly becoming a stock pickers market as opposed to a quant-led and index-led market. It takes a different kind of bravery to buy on massive down days and one must have conviction in their research that the company will not go away if massive downside scenarios do in fact emerge.” – Matthew Warren. In this piece, we cover our assessment of what the global markets might be facing in a bull-case, base-case, and bear-case scenario. Our base case is a substantial recession in the US and a financial crisis of some unknown magnitude. By Matthew Warren The tremendous (mostly downside) volatility in all asset markets globally during the … Read more

Panic Buying of Consumer Goods and Its Impact on Discounted Cash Flow Valuation

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Image:Image: Sam’s Club (Crystal Lake, IL), March 14. Water and toilet paper continue to be completely sold out at most big box retailers as COVID-19 panic buying of consumer goods continues to spread. Fear-induced purchases in the US have also helped drive up investor sentiment toward consumer staples names with a large domestic presence. We caution, however, that near-term earnings bumps emanating from “stockpiling” have little impact on a company’s intrinsic value, which is derived more from normalized conditions, and in most cases, the panic buying of consumer goods is merely pulling demand forward. “You know what’s disappearing from the supermarket shelves? Toilet paper…There’s an acute shortage of toilet paper in the United States.” – Johnny Carson, in 1973, causing … Read more

Dow Fell 9.99%, Worst Point Drop in History, More Nibbling?

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Dow Fell 9.99%, Worst Point Drop in History, More Nibbling? — Image: On March 12, 2020, the Dow Jones Industrial Average fell 2,353 points, the most in its history, and the most in percentage terms since Black Monday in 1987. The Dow Jones Industrial Average fell 9.99% March 12, 2020, to 21,200.62. — From Value Trap: During the dark days of 2008 and 2009…where widespread and indiscriminate selling was prevalent, correlations among stock sectors rose considerably. According to data from Morningstar, average daily correlation over the trailing six months between individual stocks increased to 0.66 at the end of 2011 from just 0.10 in 1994. The average sector correlation for monthly returns on the S&P 500 index was 0.84 during the Financial Crisis … Read more