Month: January 2022

Authored by Bill Blain via MorningPorridge.com,

“The four most dangerous words in politics; doesn’t she look tired?”

Dismiss FOMO and Speculation! The markets will focus on fundamentals in 2022 – which means taking a long hard look at everything we think we know, and figuring out what ain’t necessarily so. Amazon is a case in point – just how deep is its moat, and what might revelations of an internal toxic culture do to its price?

Oh, these markets…. Desist from fear. The ying of a Hawkish Fed is balanced by yang of Tesla’s record results… (or maybe it’s the other way round!). Worry not about the in, out, whirl-it-all-about sharp spikey vol lines on the index charts. No one can predict the madness of crowds in periods of turmoil, or guess how the stock market voting machine is going to weight the votes each day.

What I can tell you is; a) as the market’s underlying base shifts, the crowds’ mood is changing, b) this is a critical moment to be making long term calls about assets and investments, and c) do so before the market makes these decisions for you……

This is the time to understand exactly how the game has changed from 2021 to 2022: Focused value plays are replacing optimistic FOMO speculative crack-fuelled hype.

While some are still praying ARK will really return 40% per annum, or that Bitcon is real, they should wake up to a slap of reality. Instead of listening to what wildly euphoric prophets of disruption claim has been revealed to them, think about real profits, competition, business niche, management, and dividends. I’m factoring them all into decisions on what assets I should be holding as the market changes and learns to copes with inflation, higher rates, bond market pain and the new, new reality..

It’s time to get brutal on some nonsense we’ve started believing over recent years.

The more I think about, there are aspects of my own personal portfolio – which I can’t possibly comment about here….. unlikely to make as much a contribution to my pension as I once hoped.  And to cap it all… this morning I am delighted to note my Coinbase account of crypto-crap is most definitively in the red zone – exactly as predicted.

But, let me start this morning’s lesson in Markets with a story…

45 years ago Oracle was founded by Larry Ellison and chums, developing databases for the CIA among others. It doesn’t matter how successful it was, or how profitable it became. The point is – Oracle was the New New Thing. (Great book by Michael Lewis.) It went public in 1986 about the same time I was getting into Investment banking. It was generally considered a good if somewhat aggressive firm leading the data revolution. It suffered a few hiccups. Yet, by 2000 its stock price had soared over 50,000%, making its’ founders unspeakably wealthy, peaking at £46.31. Then it crashed 80% to $8 – entirely due to guilt through association during the dot.com burst.

It was over 15 years before Oracle hit the mid-40s level again, revisiting it again in 2020 on the March Covid crash. It basically flatlined for 20-years! Then it soared – with everything else on the recovery bubble. It’s now down 22% from its Dec peak of £103 as it experiences what has become the second major second tech reversal – the disruptive-tech crash. Oracle survives, will thrive, and remains a relatively solid mature business. And it will do so no matter what its stock price does.

From Oracle’s low in 2002 to its peak in December 2021, it rose 750%. Not bad. In the same 20 year time frame, successive New, New Things got the market’s attention.  Amazon soared 25,000%, while Tesla, a third generation New New Thing, rose 21,000% to its peak in 2021.

Put the Oracle example in context: how a strong tech business can sustain an 80% price correction, and remain a strong tech business, but on a different, realistic and more modest valuation basis…..

And then think about Amazon. Everyone loves Amazon.

It’s the World’s no 1 retailer, top cloud services firm in AWS, and strong contender in the streaming space via Prime….

Will Nutting, a well-respected market maverick, does not love Amazon. He notes 59 out of the 59 Sell Side Market Analysts who cover the stock have a Buy recommendation on the stock – which should be a screaming groupthink indication. The stock is down 25% over the last 6 months. And it’s still a screaming buy? My colleague at Shard, Julian Wheeler is equally sceptical – he thinks the world is shifting fast, and Amazon will be one of the firms ultimately left behind.

And… I just assumed Amazon was a superb company.

From the way recycling bins fill up with Amazon boxes it much be punching above the bell. Its dominance and strength is based upon its unmatched logistics infrastructure around the globe. AWS has pioneered data to make itself the leading provider of data and cloud services. It’s reinvented the art of retail. It’s also plumbed new depths in the dark arts of tax efficiency, and what’s not to like about that when it comes to business efficiency.. (Well.. lots really if you believe in ESG.)

Yet for all Jeff Bezos (now out the company) does in space… his legacy isn’t a firm generating much in the way of profits after paying for its massive workforce, its equity-based compensation, and its business finance leases. Irrelevant.. It’s generated growth.. lots of it. Not making a profit in a negative yield environment might be smart – why make profits when rates are so low and money so plentiful? Much better to plough revenues into the business, improving its unassailable position, building competitive defences and widening its business moat…..  Surely? (Right up to the point money becomes scarce again..)

No prizes for guessing what I’m going to suggest next.

Maybe its defences aint so strong, or its moat particularly deep. Its big, but big wasn’t a great metric when it came to dinosaurs, or building castles in the age before artillery. Amazon is not the only firm that can deliver stuff. It has no monopoly on the sale of tat. Other countries have spawned lookey-likeys that do it just as well or better. The cloud is a cut-throat space – and although Amazon leads today, it’s in competition not just with some of the largest most aggressive firms but is in a space where innovation leaves few barriers to new firms entry. As for streaming – the competition is widening and evolving – Prime could well become an also-ran.

Maybe.. maybe.. Amazon is not the New New Thing any more.. Maybe.. it’s in a vulnerable space where its multiple business niches are under threat? Maybe nimbler young firms will  hunt it down as global tech services evolves.. (Or maybe Cloud services are already mature?)

The current hype around Amazon reminds me of Marks & Spencer’s 30 years ago when it dominated the high street. Today M&S struggles like everyone else and is a shadow of its former status. As the rot set in, the analysts defended their on-going buy valuations with talk of which divisions it could sell, or where it could raise prices, or sell more of its own goods, or the value of a clothing retailer becoming a supermarket with less than average designs.

I won’t go into the detailed accounting and business based analysis Will Nutting has done to inform his negative view on Amazon – if you want to see his logic, I’ll be happy to put you in touch with him. Just ask.

I could cite the alternative view from Morgan Stanley where the analyst reckons its going higher based on boosting sales and improving margins in grocery, accessories, and furniture, increasing the number of own-brand (Fulfilled by Amazon) products (which are basically cheap China knock-offs), or hiking fees on its premium streaming service. Yet, none of these “reasons” for the stock to go higher are innovation-led.

Instead, my increasing doubts on Amazon continue with the evolutionary theme. The problem with Amazon isn’t so much its competitive edge, but why its competitive edge is blunting. A firm’s management is the critical ingredient.

And then my colleague Julian sent me this article: Burnt Out Amazon Employees Are Embracing the Great Resignation.

It struck a chord after I’d met a very senior Amazon exec at a Christmas event. She was an unhappy lady – she may already have resigned. The culture was breaking her. She called Amazon toxic, dogmatic and impossible to change, with a rot ingrained in every aspect and level of the firm’s management. While it boasts about wanting to hire the best and most experienced people, it brings them on board but rather than listen to them, forces them to do it the Amazon way. She summed up Amazon’s problem: it’s a company led by data, but data can’t inform it how to use its’ people the best way. It lacks sympatico with its workforce. It’s become too big.

It’s a firm where God sits by the right hand of the senior-most executives – who are worshipped accordingly. If you read some recent HR press releases about internal promotions to the most senior ranks – they are full of stories of Amazon lifers who’ve climbed the pole, got wealthy and now race cars as much as they develop the firm. Turnover is immense – apparently if you have been at Amazon for 2 years, you’ve been there longer than 78% of your colleagues.

(If these stories strike a chord, its probably because exactly the same things happened in investment banking years ago…)

The problem is a firm like Amazon is the proverbial supertanker – very difficult to turn around. It suffers from inertia. They can still hire at junior levels – who would not want AWS on their CV, but it will take years to resolve its senior staffing problems – which won’t be helped as its stock-based reward culture sours in line with the stock price. Ingrained intransigence won’t help the firm focus on the competition or to avoid its moat being filled-over. For techies and data wizards, I’m told AWS is still exciting because it still leads.. buts its increasingly slow to innovate.

At the end of the day… all companies run the risk of becoming bureaucracies for good or bad reasons. What then matters is their culture and ability to dig their way out.

The increasing noise about the toxic internal culture at Amazon should raise 2 immediate fears about:

• Reducing its ability to constantly reinvent itself, and compromising its ability to face down the competition across its businesses,

• Raising increasing Social and Governance questions from investors – or at least it should as every large investor on the planet now claims to be fully ESG aware and compliant.

At the end of the day companies succeed when they are well managed. Richard Branson once said something like: “if you want customers to experience great service, treat your staff well.”

I suspect there is a triple whammy of competition, corporate intransigence, and investor disengagement headed Amazon’s way. Watch that space. And wonder what the next New New Thing might be…

Melvin Capital Management made Wall Street history in January 2021 when its massive bet against GameStop and several other ‘meme stocks’ (although that sobriquet had yet to be coined) blew up in its face, saddling the fund with nearly $7 billion in losses. Its LPs were extremely miffed, and fund manager Gabe Plotkin later claimed to have been bombarded with mean-spirited messages (including threats) from strangers angry about his firm’s wager.

But somehow, Plotkin’s sudden turn in the limelight ended in salvation: his mentor Steve Cohen put up hundreds of millions of dollars to save Melvin from insolvency. And Citadel’s hedge fund business pumped in another $2 billion, giving Plotkin a chance to try and win back his losses. Unfortunately, this is proving much more difficult than Plotkin and the firm – which still has $12.5 billion AUM – had expected.

After Melvin lost billions on its disastrous shorts, it decided to open some long positions for some badly needed diversification. Still, Melvin’s post-GME short performance wasn’t exactly spectacular, and in August, Citadel withdrew $500MM from its $2 billion loan after its position turned just barely positive. At the time, we suggested that it might be time to short Melvin’s longs: “Will late August be just as memorable for shorting Melvin’s longs?”

Turns out, we were on to something with that: Per a WSJ report published Friday, Melvin is now down 17% YTD as its positions have gotten caught up in the brutal market rout that has placed small caps in bear market territory and the S&P 500 not far behind.

Jan 2021: Melvin Capital down 55% because it is short

Jan 2022: Melvin Capital down 17% because it is long pic.twitter.com/Uy8EQOssbO

— zerohedge (@zerohedge) January 28, 2022

The 17% loss comes on top of a 39.3% drop last year. Melvin managed to erase a portion of its meme stock losses, but not nearly enough to cover even half of those losses. And now, for the second year in a row, the firm is about to post a double-digit (percentage-wise) loss in January for the second year in a row.

Of course, Melvin is hardly alone. This has been a catastrophic month for the “smart money”. Plotkin and Melvin will forever be associated with WSB’s preferred narrative – that the firm is part of a cabal of evil capitalists bent on destroying companies like GME and AMC for their own personal profit. But he’s no longer the paramount Wall Street villain – that position has been usurped by Cathie Wood and her massive ARKK losses.

According to WSJ, Plotkin has told friends he’s constantly trying to ignore the massive tally of winnings he must earn before he can start charging performance fees again. At the very least, he has his winnings from the years 2014 to 2020, when he returned an average of 30% annually riding the nearly decade-long bull market engineered by the Federal Reserve in the wake of the financial crisis.

Of course, it’s much easier to produce alpha in a torrid bull market. It becomes much more difficult when the entire market is in free fall.

It’s hard to believe, but WSJ claims that Plotkin still has some admirers on Wall Street, who regarded Melvin as “especially gifted” at shorting (that is, before they took on what must have been one of the worst shorts in the history of the American securities markets). Steve Cohen himself has said that among the hundreds of portfolio managers who had worked for him, Plotkin was one of the most ” disciplined and process-oriented” – whatever that means.

This praise isn’t just talk for the press. Cohen and Citadel’s Ken Griffin have put their money where their mouths are: in the wake of Melvin’s GME losses, they agreed to inject a combined $2.75 billion into Melvin in exchange for a large chunk of the firm’s revenues over the next three years.

The deal is redolent of when a loanshark offers to “stake” a skilled poker player in exchange for a share in their winnings. Except usually the loan sharks aren’t on the hook for the borrower’s losses.

For the most part, Melvin’s LPs have agreed to keep their money with the firm. Between February andDecember, Melvin notched a 33.2% return which beat most other funds. But the firm’s winnings weren’t nearly enough to cover the massive losses it had to eat after closing its GME short, which it said it was out of by Jan. 26.

But if the firm doesn’t find a new way to make money in an environment where markets are heading down, not up, LPs are likely to lose their patience.

Speaking on a podcast hosted by his personal trainer, Plotkin described the GME losses as “humbling”.

“One of the great things about, whether it’s sports or the stock market, you’re knocked down a lot,” he said. “I mean, it’s tough. You’re going to go through some good times and some bad times. It’s a very humbling game.”

That sounds nice. We’re sure the experience would be great grist for Plotkin’s post-Wall Street career as a motivational speaker.

According to the most recent filings available, Melvin’s biggest long position was a reopening play: live-music giant Live Nation. But the public won’t know how the January market rout impacted Melvin’s portfolio until mid-May.

Authored by Paul Joseph Watson via Summit News,

Comedian Adam Carolla slammed the media over their demand that Joe Rogan be censored for pushing “misinformation,” asking them, “What have you guys been right about?”

Fox News host Sean Hannity asked Carolla why people demanding for Rogan to be censored couldn’t just choose not to listen to him.

“Basically we’ve decided there’s one lane you can be in when it comes to COVID and if you get outside of that lane, you need to be shut down,” the comedian responded.

Carolla said that it was ironic how traditionally anti-establishment figures like rockers and artists were now doing the bidding of the establishment.

Comedian @adamcarolla defends Joe Rogan: “Think about what all these idiots are saying. They’re worried about misinformation … What have you guys been right about? I’d put Joe Rogan’s batting average up against CNN’s batting average any day of the week.” 🔥🔥 pic.twitter.com/6NkVQXHUX3

— Scott Morefield (@SKMorefield) January 28, 2022

“Their job is to push back against the man and Neil Young should know the man isn’t Joe Rogan, the man is Dr. Fauci, the man is Governor Gavin Newsom, the man is the CDC, the man is the WHO, the man is Biden,” said Carolla.

“That’s who the man is, you’re an old rocker, you’re supposed to push back against the man – Joe Rogan is pushing back against the man and you’re pushing back against Joe Rogan,” he added.

Carolla then made a mockery of legacy media outlets and shows like The View constantly complaining about COVID “misinformation.”

“What have you guys been right about?” he asked.

“You closed the beaches down, you closed the schools down, cloth masks were gonna save us all, the vaccine was gonna be effective, natural immunity wasn’t effective – what have you been right about?”

The comedian then asserted that he would be confident in putting Joe Rogan’s batting average up against CNN’s batting average “any day of the week,” referring to CNN’s infamous dismissal of Ivermectin as horse dewormer.

Carolla returned to the issue of Neil Young demanding his music be removed from Spotify, remarking, “Guys like Neil Young, who back in the day would have been on the side of natural immunity are now on the side of big pharma and pushing back against natural immunity, so the whole thing is upside down.”

*  *  *

Brand new merch now available! Get it at https://www.pjwshop.com/

In the age of mass Silicon Valley censorship It is crucial that we stay in touch. I need you to sign up for my free newsletter here. Support my sponsor – Turbo Force – a supercharged boost of clean energy without the comedown. Get early access, exclusive content and behinds the scenes stuff by following me on Locals.

The 50,000 strong truck drivers heading to Ottawa, Canada’s capital, expected to arrive as early as Saturday, may break a world record for the longest convoy. Called the “Freedom Convoy,” the truck drivers oppose the federal government’s vaccine mandates for cross-border activity and have inspired others worldwide. 

Truck drivers from Canada to the US to Australia to Europe are banding together in protests worldwide against their respective governments’ overreach of public health, especially forced vaccine mandates. 

Freedom convoys from America are expected to join tens of thousands of truckers in Ottowa on Saturday to get the government to repeal cross-border COVID vaccine passports. 

South Carolina, US. American truckers heading up to Ottawa to join the Canadian truckers!
SHARE this far and wide🇺🇸
Join Us👉SergeantNewsNetwork pic.twitter.com/M0e9NwYtk6

— WendySue (@WendySueHoo1) January 26, 2022

A Facebook group in Australia called “2022 Official Convoy to Canberra” has more than 66k members and is preparing a convoy to arrive in the capital by Jan. 31 to protest vaccine mandates.

Multiple convoys across Europe are being organized at this very moment that will converge on Brussels at an unspecified date. A Telegram group with more than 14,500 members assembles convoys across the continent to meet in the capital. 

Europe Convoy is for no vaxx passports, health freedom, no medical apartheid, and for a whole host of European officials to resign. 

Are trucker convoys underway in Italy? 

First it was Canada 🇨🇦
And now Italy 🇮🇹
Here come the Italian truckers.#FreedomConvoy2022 #CanadianTruckers #ItalianTruckerspic.twitter.com/4b5z9nKJcu

— James Melville 💜 (@JamesMelville) January 28, 2022

And Brazil?

Brazil 🇧🇷 in solidarity with Canada 🇨🇦 Woo hoo! pic.twitter.com/Wrn2Jf0Ytk

— Love4WesternCanada (@Love4WesternCnd) January 27, 2022

It’s clear and straightforward, and as the famous podcaster Joe Rogan recently put it, “Canada is in Revolt.” 

Even the richest man in the world, Elon Musk, chimed in yesterday and said he supports the Canadian truckers to his 71.8 million followers. 

The tide could be turning as truckers are the beating heart of any economy, and a revolt among these groups of people can send economies of the world tumbling back into recession.

Maybe governments will wake up to the power truckers have as the movement spreads like wildfire across the globe could be what is needed to regain some medical freedom and at least put an end to forced vaccinations. 

By Ven Ram, Bloomberg Markets Live Cross-asset strategist and commentator

What do you see if you manage a fund comprising not ninety stocks, not 900, but some 9,000 of them totaling $1.3 trillion?

Well, for that kind of mammoth portfolio, you get to see the lay of the land perhaps like no one else can. So when the world’s biggest sovereign wealth fund cautions that the “we are going to see more rough weather,” it pays to listen. Norges Bank Investment Management — better known as Norway’s wealth fund — saw returns of about $176 billion last year, a number that dwarfs the entire corpus of many funds.

Navigating the post-financial crisis world for many investors, including Norway’s wealth fund, was simple — not to say it was easy by any stretch — provided they had a clear vision. Compounded annually, the S&P 500 returned an astounding 16% and the Nasdaq 100 an incredible 23% from the end of 2008 through the end of last year if someone had the courage to go against conviction back then. If rates climb back to anything that could be called “normal” — and that definition has undergone a regime shift — returns over the next decade are unlikely to be anywhere near those levels.

Of course, just because Fed Chair Jerome Powell has waved the red flag of rising rates doesn’t mean we will get there in a trice. The road ahead is likely to be punctuated with plenty of surprises, but if the economy were to hold its poise and if Unknown Unknowns permit, we may get to a higher land on rates.

If we get there, the lofty valuations of the go-go days of recent years are certainly likely to be questioned. If, however, the terrain gets rocky and we don’t quite get to materially higher rates, investors may still hesitate to keep buying more and ever more of the same at ridiculous prices.

All told, what we have seen so far this year in stocks is likely to be a recurring headache, which means that it’s time to shun beta and search for your own alpha.

Nothing in this world is permanent except death and taxes, so it’s better to fasten your seat belt and prepare for bumps along the way. Even if the ride isn’t going to be intoxicating, it promises to be exhilarating — if you are positioned right. If not, the lessons you learn will be.

Far be it for us to agree with anything Elon Musk says, but when he called President Joe Biden a sock puppet on Twitter yesterday, we had to chuckle. 

The Tesla CEO technically referred to Biden as a “damp sock puppet in human form” in a Twitter tirade he published on Thursday. Musk’s ire was a result of “the US president’s photo-op with General Motors chair Mary Barra,” according to RT. 

The photo-op was posted on President Biden’s official Twitter account earlier this week:

I meant it when I said the future was going to be made right here in America. Companies like GM and Ford are building more electric vehicles here at home than ever before. pic.twitter.com/5E3ecA93MR

— President Biden (@POTUS) January 27, 2022

In the video, Biden is seen praising GM’s planned investment in EV manufacturing in the United States. Musk, meanwhile, whether you like him or not, can likely be credited with moving the U.S. and the world closer to the adoption of EVs more than anybody in recent history. 

Musk took a jab at Biden for not mentioning Tesla in his remarks. “Starts with a T, Ends with an A, ESL in the middle,” Musk wrote. 

Starts with a T
Ends with an A
ESL in the middle

— Elon Musk (@elonmusk) January 27, 2022

“Biden is treating the American public like fools,” he later Tweeted.

Biden is treating the American public like fools

— Elon Musk (@elonmusk) January 27, 2022

Musk hasn’t been shy in making his political stance known over the last year or two. Hours before this exchange with Biden, Musk urged Canadian truckers and those support the anti-vaccine mandate in Canada to “vote them out”, referring to the country’s liberal political leaders.

“If you scare people enough, they will demand removal of freedom. This is the path to tyranny,” Musk wrote. “Canadian truckers rule.”

Musk has previously said that the unvaccinated are “taking a risk, but people do risky things all the time.”

“I believe we’ve got to watch out for the erosion of freedom in America,” he commented to Time last year.