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Fiscal Stimulus Coming to the US?

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Image Shown: The Trump Administration is reportedly considering pushing for fiscal stimulus to offset the likely slowdown in US economic activity during the first half of 2020, which is arguably why equity markets are looking to rebound on Tuesday, March 10, after a harrowing trading session on Monday, March 9. By Callum Turcan US equity markets (SPY) started up strongly initially on Tuesday, March 10, likely due to reports coming out that the Trump Administration was considering recommending payroll tax cuts, paid leave, and special loans to small businesses to offset the negative impacts of the novel coronavirus (‘COVID-19’) epidemic. There are over 560 reported cases of COVID-19 in the US as of this writing, and unfortunately, that includes roughly … Read more

Oil Prices Collapse, Reiterating 2,350-2,750 S&P 500 Target Range; Credit Crunch Looming?

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Image Source: Value Trap: Theory of Universal Valuation From Value Trap: “The banking sector was not the only sector that faced considerable selling pressure during the Financial Crisis of the late 2000s, of course. Other companies that required funding to maintain their business operations faced severe liquidity risk, or a situation where refinancing, or rolling over debt, might be difficult to do on fair terms, making such financing prohibitive in some cases. Those that faced outsize debt maturities during the most severe months of the credit crunch faced a real threat of Chapter 11 restructuring had the lending environment completely seized. In thinking about share prices as a range of probable fair value outcomes, equity prices tend to face pressure as … Read more

ALERT: Re-establishing “Crash Protection”

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ALERT: Re-establishing “Crash Protection” — —  From Value Trap: Theory of Universal Valuation:  — “According to some estimates, fundamental traders, or those trading on firm-specific fundamentals, account for just 10% of trading on the exchanges today. Passive and quantitative investing, or price-agnostic trading, accounts for 6 times as much. Prices are set on the marginal trade, not on the amount of assets under management, and if most market participants aren’t trading on underlying business value, this in turn, can cause widespread dislocations in prices versus reasonably estimated intrinsic values (dislocations that may never fully be reconciled even over long periods of time). In such a scenario, the capital-raising function of markets could become significantly less attractive. What CEO would want the … Read more

A ~0.1% Probability Since 1896

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Image Source: Wikipedia Commons   By Brian Nelson, CFA It was mid-June 2015, and our team released our case on why the midstream MLP space would collapse. To us, it just made sense. We’ve been practicing enterprise valuation for a long time, and to this day, we’ve updated over 20,000+ discounted cash flow models. I used to head up the methodology and valuation infrastructure of a department of over 100 analysts across several continents and all sectors when I used to work at Morningstar. Baptism by fire as they say. This was about 10 years ago now. Since our call in mid-June 2015 through March 2, 2020, on a price basis, the S&P 500 (SPY) has advanced 46%, while the Alerian MLP … Read more

Fed Cuts 50 Basis Points, Expect More Market Volatility Ahead

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Image Source: FOMC  The emergency 50-basis point Fed rate cut announced March 3 was largely expected by the marketplace in light of growing economic concerns due to COVID-19, but it does nothing to immunize against COVID-19 and little to stabilize the situation. We continue to monitor the situation closely, and we expect ongoing volatility in the coming days and months as the situation with COVID-19 remains fluid. Having moved to defensive positions in both the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio in January and having capitalized on the “crash protection” put, we are preparing for our next move. For now, we’re watching and waiting, and we encourage readers that have not yet picked up their copy of … Read more

COVID-19 Crisis Intensifies

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Image Source: CDC. Coronavirus Disease 2019 (COVID-19).  Our dearest members: — The world is being challenged today by what some including Bill Gates believe might be a “once-in-a-century pathogen.” We do not know the eventual outcome, whether the impact of this illness ends up being as profound as the Spanish Influenza of 1918-1919 (which inflicted a death toll in the tens of millions), but we maintain our view the markets have yet to come to grips with the impact of COVID-19 on economic activity and potential ramifications on the global economy and the banking system.  — What is currently a “biological” crisis may turn into an all-out global financial crisis, one that could end up worse than the 2008/2009 mortgage meltdown. Instead … Read more

Has the Stock Market Crash Begun?

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Image: CDC. Transmission electron microscopic image of an isolate from the first U.S. case of COVID-19, formerly known as 2019-nCoV. The spherical viral particles, colorized blue, contain cross-section through the viral genome, seen as black dots. Dear members: This article is our fourth update on COVID-19. The previous three installments can be found here (Feb 22), here (Feb 7) and here (Jan 31). We trust you and yours are well during this global crisis. It’s hard to turn on the television these days without hearing about COVID-19, a novel coronavirus and respiratory illness that continues to spread from person to person around the world. COVID-19 is deadly, and particularly deadly among those 60 years of age and older and those … Read more

Berkshire Reports 2019 Earnings

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By Callum Turcan Berkshire Hathaway Inc (BRK.A) (BRK.B) reported fourth quarter and full-year results on Saturday February 22, and we appreciate the firm’s performance across most of its business lines, keeping in mind that losses at its insurance-underwriting business during the fourth quarter weakened its company-wide performance. That being said, the insurance business can be volatile at times, which is why we appreciate Berkshire’s large railroad, utility, consumer goods, and other business segments. On the topic of Berkshire’s insurance-related exposure to the ongoing COVID-19 epidemic (which has since spread from China (FXI, MCHI, KWEB) to the rest of the world, shutting down economies in South Korea (EWY), Italy (EWI), and elsewhere), insurance firms fundamentally altered the structure of their policies after the … Read more

ALERT: Adding Market Crash ‘Protection,’ Removing MSFT, BKNG

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Image source: Centers for Disease Control and Prevention.  ALERT: Adding Market Crash ‘Protection,’ Removing MSFT, BKNG — Changes to newsletter portfolios — We’re adding out-of-the-money put options to both the Dividend Growth Newsletter portfolio and Best Ideas Newsletter portfolio. — We’re removing Microsoft from the Dividend Growth Newsletter portfolio. — We’re removing Booking Holdings from the Best Ideas Newsletter portfolio. — By Brian Nelson, CFA — We’re making some moves in the newsletter portfolios today.  — The Dow Jones Industrial Average (DIA) is currently indicated down 900+ points in pre-market trading during the session Monday, February 24. We laid out a thesis where the US markets could experience a “crash,” and we encourage you to read that take here, “Is a … Read more

Is a Stock Market Crash Coming? — Coronavirus Update and P/E Ratios

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Image Source: World Health Organization, Coronavirus disease 2019 (COVID-19), Situation Report — 32 We don’t think this is the environment to put new capital to work, and we remain highly cautious of what COVID-19 means for global economic growth not just in the first quarter of 2020 but for the rest of this year (maybe longer). Right now, the US markets are not really factoring in anything related to COVID-19, and perhaps may be adjusting to China’s stimulus in artificially propping up the markets as if the outbreak is somehow a “positive thing.” With the S&P 500 trading at 19.0 forward earnings estimates–estimates that are likely too high given the evidence we are seeing with respect to a slowdown due … Read more