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Op-Ed: Bail Out Boeing, No Other Publicly Traded Companies

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Image: Boeing B-17E Fortress 41-2599 “Tugboat Annie”; took part in the Battle of Midway in Jun ’42; later ditched at sea on 16 Jan 43. Source. Dear Uncle Sam: Please stop bailing out the competition of small business. We need a changing of the guard. Let capitalism work. By Brian Nelson, CFA Let’s get this out of the way first: The U.S. government is going to bail out everybody, and that’s just how it’s going to be. It’s what we’ve become, a Bailout Nation. However, let me give you a perspective from a business owner in the financial industry. Valuentum is an investment research publisher, and while we’re not a financial advisor or broker, our team competes indirectly with many … Read more

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

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

Boeing Down 15%, Turbulence Still Ahead

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Image: Boeing’s shares have faced a perfect storm of negatives. We’re still not interested. By Brian Nelson, CFA I couldn’t have told you in any clearer terms in our January 23 note about my thoughts on Boeing, “Why *NOW* Do You Care About Boeing’s Stock” — “In no, way shape or form should you *now* (January 23) be interested in Boeing’s stock.” Here were my concluding thoughts in that note: I’ve written about working on resetting investors’ mental models, and getting investors to use our research in a forward-looking capacity. What I’m saying is that now (January 23) is not the time to evaluate our work on Boeing. Many months ago was the time to have had the Boeing “conversation.” If … 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

Buffett Makes Another “Unforced Error” in Airlines

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Image Source: Value Trap: Theory of Universal Valuation By Callum Turcan The commercial passenger airline industry is nearly impossible, to downright impossible, to generate meaningful shareholder value in. Specifically as it relates to the US, since the Airline Deregulation Act of 1978 (which among other things allowed airlines to set their own routes without always needing to seek regulatory approval which in turn greatly increased competition, lowered fares, and saw a boom in travelers and miles traveled) various airlines have gone under (such as Pan Am in 1991 and Delta Air Lines (DAL) in 2005 along with others) as competitive advantages once created by government barriers no longer existed. This is true globally as well, as rising competition from private … 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