There are lots of commentators arguing both sides about whether or not we are at peak stock market valuation. Certainly there is evidence that the market is richly valued, yet the market still goes up.
John Hussman just published a compelling analysis of where the market is valuation wise, showing how by one measure the current stock market overvaluation already exceeds the 2001 tech bubble. This chart breaks valuation down by market breadth, showing that if you look across the whole market, the value sectors are more overvalued that in 2001:
Note that the mid to low valuation stocks are at higher levels than in 2001, showing the market is much more broadly expensive than when the tech stocks were all the rage. One analysis of this could be that this is all due to the lower bond rates, and by comparsion to current bond rates the market is in an expected valuation range (kind of reminds me of the old joke about a guy bragging to his friend that he just bought a dog for $20,000 – when asked how he paid for it, he said ‘I gave the seller two $10,000 cats’). Valuation is relative.
So this doesn’t tell me conclusively that the market is at a top. Indeed, John Hussman had a similar market top article a year ago, and the S&P 500 is up over 13% since then. My current leaning is a major market correction will happen before the next presidential election, but I don’t currently see any signs within the next 6 months. I will agree though that we are in risky territory.
I have a number of old Microsoft Access databases that I maintain for clients, and I shudder anytime a client wants to make changes. Since I live happily in the world of c# and sql server, going back into old VBA code and DAO is getting more and more painful. Understandably these clients dont have the budget to upgrade their app, and it works fine in Access – Microsoft Access does have its place in the world for quickly building and prototyping apps, and when you deal with clients with pretty limited budgets, Microsoft Access still has a place in my toolbox.
Recently a client asked me to upsize his Access database to SQL server hosted on a cloud server. This is usually a relatively simple task, and I got it up and running in a few hours. Unfortunately, some of his entry forms (which have subforms) take a long time to render due to the amount of data Access is pulling across the web. So I got some more budget to optimize the app, and started dreading going in and doing major surgery on this app and getting mired in VBA and DAO.
I want to transition this client to web based entry forms on a WordPress website, and eventually toss out the Access front end – and here I am spending time changing what I consider long-term throwaway code. So before I started coding, I kept thinking to myself there must be a better (cheap) way that would allow me to code in C# and set the foundation for future architectural improvements.
First off, I decided that I have to change these slow complicated entry forms to unbind the controls from the tables, and hand code all the database access in VBA, calling pass-through queries or using ADODB. Before I started this, I wracked my brain for an alternatives. That’s when I struck on the approach I liked – as shown in the diagram below:
Microsoft Access Upgrade Architecture
First, I built some plumbing and VBA methods in my Access app to handle converting from and to JSON format. I found a nice VBA / JSON library(thanks Tim Hall!) on Github that helped with this and saved me a bunch of time from writing my own JSON Formatter. This will allow my Access app to communicate with an API. I then created a .net webclient wrapper that I exposed to COM so that Access can see it. Then, I changed my DAO reads and docmd.Saves to API get and put requests, using json built from the form fields. These calls from my Access to a Web-API app route thru the com wrapper nicely to get and save data from the API. After getting this plumbing configured, which wasn’t a huge deal, I got it working and it is working great. The architecture will be reusable across other Microsoft Apps that I maintain, and the performance is great. Initially I was a little concerned about the cost of jumping in and out of managed code for each request, but that really isn’t an issue.
I like design this because it keeps my from having to write in old languages and data access methods. This also MVC principles to Access; I am really only using Access as the view engine. Later on, I can use the same models I built in the Web API project to drive views in Angular, mobile apps, or any Javascript framework of choice. I think this is a very affordable way to start transitioning code bases from Access VBA to .Net, with limited additional cost to the client.
So I am optimistic this is the solution for most of the Access applications that I write. It should be an affordable solution to migrate these existing apps to a cloud based client server or SPA application.
I have always been a fan of Microsoft Access, but I am afraid this brand new web enabled world, it is showing its age. Hopefully, this infusion of technology will help extend the life of my Access apps, and provide a nice affordable solution to make them ready for the future.
His biggest beef is with Janet Yellen’s recent quote:
Would I say there will never, ever be another financial crisis? You know probably that would be going too far, but I do think we’re much safer, and I hope that it will not be in our lifetimes and I don’t believe it will be.
Contrast that quote with this chart Mauldin included showing how much more the world is leveraged than in 2008:
So who is right: Was 2008 a once in a lifetime economic experience, or is there another disaster looming? As is true in most cases, hopefully the answer is somewhere in the middle. But the leverage is something to think about. In 2007, the GDP of the G7 countries (which is a decent approximation of the above chart) was 31 trillion. In 2017, it is estimated to be 36 trillion. In 10 years, the G7 economic output as increased just over 16%, yet leverage is now more than tripled.
So for an analogy, lets say in 2007 you were earning $31,000/year, and had outstanding debts of $4,000. In 2017, you think you will be earning $36,000/year with debts of $13,000. Would you consider yourself fiscally better off in 2007 or 2017? How worried would you be if there was a recession on the horizon.
Some economists may question whether this is a valid analogy or not, but it does show the magnitude of how the countries fiscal health has changed. Obviously Janet Yellen doesn’t consider that analogy totally on target, based on her above quote. I would sure like to see better evidence as to why she thinks we are so much better off now.
If I had to pick between the two camps in this argument, I would lean toward’s Mauldin’s thinking. His quote:
Generals always fight the last war. The next crisis probably won’t originate in residential mortgage loans. It will come from somewhere else, and we have no idea whether the banks are actually ready for it.
I don’t get the impression this worldwide glut of debt greatly concerns the Federal Reserve Board. Hopefully they are right. If they are wrong, history will likely place the blame for any major economic downturn squarely on the Federal Reserve and all worldwide central banks.
One indicator of the emergence of eSports is that it is increasingly noticed by Venture Capitalists. Mary Meeker’s annual Internet Trends Report (published by Kleiner Perkins) has a whole section on the rise of eSports and a few interesting charts of note.
The first chart shows that the Monthly Viewers of eSports rose to 160 million viewers in 2016, with year over year growth increasing to 40%:
Monthly viewer growth
Remember – these are people watching other people, professionals and amateurs, play video games. Much like people watch other professional sports such as football or baseball. But they are watching virtual characters on a screen. But from an entertainment value, is it inferior to watching real people play sports on TV? Perhaps its even better, since the area in which these games are played are not constrained by real world limitations.
Now this chart is the one that really opened my eyes:
eSports vs Traditional Sports
This chart is a little misleading, as the population of the survey was limited to those ‘with at least a slight interest in eSports’. However, given that caveat – look at the second bar in the chart. For the millennial respondents, preference between eSports and traditional sports was split. If I owned a pro sports club, I think I would be nervous. eSports is like the Amazon.com of the sports world. It has no brick and mortal requirements, and no players to pay and travel expenses to deal with. If eSports can get continue to grow at near its current pace, we might start seeing alot less people in sports stadiums.
Lastly, watching eSports is not the only online entertainment category that is growing:
Monthly Active Users (MAU) for the largest Multiplayer games are rapidly growing. This chart shows users have almost doubled in two years. Given the huge technology boom that Virtual Reality could bring to this space, it is not inconceivable that this rate of growth would increase. As more millennials grow up playing online games vs playing schoolyard traditional sports, I have to assume the more future fans of watching eSports will result.
I think we are in early days of this entertainment transformation. This could be as big as what online shopping has done to traditional retail. If so, we are in for another wave of disruption, this time to professional and collegiate sports.
After a long break from writing for Seeking Alpha, I have gotten back in the groove again and just had another article posted.
3 Questions For Fitbit Investors
This article has been brewing in my mind for several months, and I finally had a chance over the long weekend to get my thoughts organized and in ‘print’.
To read the whole article, you will have to register with Seeking Alpha (which I recommend to any investor). This site has interesting articles written by a wide variety of authors – a great resource if you are looking for investment opinions.
A few posts ago I mentioned concern about how the transformation of retail might hurt the interesting cultural feel in Europe. However, after reading this article about how small towns might be the savior for retail, I am a little more optimistic.
There is no question online shopping will further transform the retail shopping model for some time to come. But maybe small towns give us an early clue to how everything will shake out. Perhaps retail will just get more focused – not a wide variety of shopping centers spreading a feeling of ‘Generica‘ throughout the country – but a focal retail center in every town, large and small. Perhaps each collection of retail centers will have a theme or specialty. Strip malls will disappear, with retail clustered around core centers of small towns or neighborhoods within large cities.
This central core would have more than just retail shops. Much like you are seeing shopping centers branch out into restaurants, gyms, and other service providers. I think it would be much more interesting to see neighborhoods within cities have a central core of unique combination of shops, and a place that can be the central gathering place for residents in the neighborhood. Europe has perfected this model, with the central town market square typically lined with restuarants with outdoor seating, with stores surrounding the central square. The further you get from the central square, the more it turns residential. We do see a flavor of this today in some neighborhoods (i.e. Fremont in Seattle) – perhaps the future looks like a lot more small funky neighborhoods and fewer strip malls and big box stores.
As our society becomes more virtually connected and physically isolated, a changing retail model might be the solution to bringing back a feeling of a physical community. The next waves of technology will be bringing even more social upheaval – perhaps those surviving physical retail stores will evolve and thrive in the coming new world.
I have been doing some portfolio pruning of late, and have decided to drop two stocks from the Puget Investor Portfolio.
Nordstrom (JWN) has been a long time holding that I finally decided to drop altogether. Last year I wrote about my concerns about Nordstrom, and why I unloaded most of my holdings. The thesis from last year remains – Amazon is going after clothing retailers, and I don’t want to bet against Amazon. When I saw that Amazon has come out with the Echo Look Style Assistant, I knew it was time to fully abandon my Nordstrom position. The Echo Look appears to go after the young fashion conscious consumer that would shop at Nordstrom – and I don’t know if Nordstrom has an answer for that.
Last week Nordstrom’s announced it was considering going private and the stock bounced a bit. An interesting development, but I am not sure if that is the answer. But I wish them good luck.
One related interesting stat I heard regarding retail. Because brick and mortar retailers have such high fixed overhead – if online takes just 25% of the traffic from stores, the store cannot survive. Most retailers are operating under such tight margins already, even a small drop-off in traffic could have painful consequences. Something to think about.
My reasoning to drop Hooker Furniture (HOFT) was a different story. I originally bought HOFT a couple years ago while perusing AAII‘s model portfolio of cheap, small cap stocks. After looking at a few of these stocks, I opened a small position in several of the stocks that looked like they had decent business models. As is often the case, this strategy had mixed results, some stock had done well – some did not. At the time Hooker was amazingly cheap – price to book around 1, little debt, flat to growing revenues. Seemed like a no-brainer, so in March of 2016 I picked it up around $32. It soon got cheaper, for no apparent reason (my thesis was still intact), so I picked up some more at $25. I was beginning to sweat my decision as the stock went no where for months, but I held on, and suddenly this month it surged to $46 on decent earnings (who new.. millennials are buying furniture!). Since the stock no longer is dirt cheap, and I am not a big bull in the growth of home furnishings, I decided there is no reason for me to keep this. So I am out.
I still have a couple stocks from my foray into the AAII model portfolio, Rocky Brands (RCKY) and Ultra Clean Holdings (UCTT). I am going to have to make a decision soon on these stocks also, as these have started to move up and I am not sure I can call them cheap anymore. Either come up with a new thesis, or drop them.
I am re-evaluating how many individual stocks I should own, so I may not replace these stocks with new holdings. I may go back and look at other AAII Model Portfolios for ideas, or just add to existing positions.
A friend of mine recently sent me a note on his first experience with Virtual Reality, and he was impressed and enthused for its future. So I got back to thinking about Virtual Reality (VR), and how close or far away it will be to being a viable mainstream technology. I have made numerous posts in the last few years, thinking VR was closer than it turned out to be. But its been awhile, and so here are my current thoughts in a nutshell:
I don’t think gaming will be enough to jumpstart VR into mainstream usage. I think its a chicken and the egg thing. Manufacturers wont be able to get prices down until gamers buy it en masse, and gamers wont buy an expensive headset until decent games are developed for it, and most gaming studios wont put the extra money into building a decent game for it it until a market exists. So its kind of a three way deadlock. I could be wrong, perhaps a game company such as Valve has a hit that jumpstarts adoption (Valve is in a unique situation where it is partnered with a headset maker, so they have much more incentive to push the adoption). But at this point, I am in the camp that it will take something other than gaming will break the deadlock.
That something else will be social. It seems that all new technologies have been built on social interaction – and I think VR will come to mass acceptance via some social interaction app – not gaming experience. My current thought is ‘Virtual Reality will be to human interaction what Television is to a Movie Theater‘. We all watch movies on TV, even though most would agree a theater is a better experience. But television is just much easier. So it is with the promise of VR. If I can use it to hang out with my friends without going anywhere, I will do it virtually with my friends, then on special occasions I will actually physically get with them. Isn’t this much of the appeal of Facebook? You can easily keep engaged with friends, but only when convenient (and in small doses). Perhaps this is why Facebook is spending boatloads of money on Oculus Rift. So I look for early VR adoption to be driven by a combination of Skype and Facebook and VR. An interesting example would be renting out ‘virtual luxury suites’ at a ballgame – where you could get together virtually in a room with your friends and watch a sporting event or other pop culture event. I think this is the kind of thing that will end up driving mass adoption, get Virtual Reality headsets into everybody’s hands, and kickstart the revolution.
We also discussed the worry that Virtual Reality will bring on a new social problem – full immersion into a virtual world. Given the current problems with have with alcohol and opioid addiction, it does seem foreseeable that many people will prefer a virtual world over the physical world. Of course, for generations we have been told we watch too much TV, or spend too much time on the computer, so maybe that fear is just an an echo of previous fears about technological advances. But the full immersion of the mind into a vivid fantasy world might be too much for many of our minds to rationally handle. So this will be interesting to watch.
I am not negative on the future of Virtual Reality. Prices are coming down to be more approachable and the quality is getting better. I just think adoption will appear via a backdoor application that is not currently obvious. And I think once the price gets to under $200’ish – watch out – we will see things we never dreamed of.
I recently spent a couple weeks on my first trip to the Netherlands, and thought I would share some random observations. I spent a week in Einhoven, a couple days in Delft, and a few days in Haarlem, and I feel I got an interesting immersion into Dutch culture. The Netherlands wasn’t at the tops of my list of places to go, but circumstances happened that I got to spend time here. As with all my trips to Europe, I enjoy the cultural differences I get when I leave the United States. So here are some random observations, in no particular order.
It constantly amazes me how easily Europeans switch between languages. Often when someone initiated a conversation with me – they would fire off a dutch phrase that to me sounded like garbled German. I speak a little German, but I had a real hard time understanding Dutch. At any rate, as soon as I said ‘spreekt oo Engels’ they fire off the same phrase in (usually) flawless English. As a person who only speaks one language fluently -but as a software developer who can write in many languages, I am always impressed at how their mind can so easily shift gears.
The bike culture in the Netherlands is fantastic. As an avid American bicyclist, I am jealous at how they have built their infrastructure around biking. Everywhere I went were bike lanes, and I made a point of renting a bike whenever possible to see the sights. None of the bikes people use are fancy – just very utilitarian. Only the occasional bike racers wore helmets, the rest of the people just casually ride without them.
I saw little trace of homelessness. I think Europe is dealing with the situation much better than the crisis we face in the United States. There are a lot more public workers doing jobs that you don’t see often in the US – i.e workers repairing bricks in town squares, street cleaners walking around picking up trash, people wiping down walls and floors throughout the train stations. Perhaps the US could follow Europe’s lead in helping mobilize some entry level jobs for the surplus of untrained labor.
With the rise in online retailers, I have been paying close attention to the demise of mall traffic in the US. So I was curious to see how online retailing will impact Europe. It seems to me that retail in the Netherlands is more scattered – every small town seems to have a market square, but radiating for blocks around that you still see little shops of clothing and various other retailers. I don’t see how these little shops will stay in business if Europe is hit with the mass exodus to online shopping like the US. I saw some delivery trucks making the rounds, but online shopping does not appear to be as pervasive as in the US. It would be tragic to see these small towns turn into shells half empty shops.
It took me a bit to get used to the public dress code in the Netherlands. The first day it hit the upper 60’s here in the Netherlands, I put on a pair of shorts and hit the sights. Umm…. I was the only person in shorts and I stood out like the tourist I am. Everybody else was wearing jeans and long sleeves and a jacket. The next day was a little warmer – low 70’s and humid, and I wore long pants and a sweatshirt, and I fit in fine. Everybody was still wearing leather jackets and jeans .. and I was overheating.. but looking good. Part of this could be the mobility issue – we here often throw a jacket in the car for if it cools down later – I guess if you are on a bike it may be just easier to wear it.
I took a lot of trains in my various travels through Dutch towns, and once you get the hang of it it is a pretty efficient way to travel. Most of my trips required changing trains to get to my destination, but because the network is so laid out and the trains are pretty exact on their schedule, I rarely had problems. Most rail station had a place where you could rent a bike to continue your travels for the last leg, which makes for an interesting hub and spoke system of travel.
I had many other various observations but will leave it here for now. It is always enriching to travel to foreign destinations to see how cultures have evolved in different small ways. Now back in America, it causes me to notice little idiosyncrasies that are uniquely American. In an increasing globalized world, I hope these cultural differences can remain, and that each culture retains its own unique little ways of doing things.
The battle for cloud computing market share continues to be an interesting one. Amazon is the clear leader, and its a sidelight to their core business. Microsoft is a rapidly growing second place competitor, but it has pretty much bet the company on its cloud strategy ( I wrote about this almost a year ago here).
Of all the charts in the report – this one interested me the most:
Top Public Clouds
Looking at this chart, its pretty clear that Microsoft’s Azure is still gaining on Amazon. However, Google Cloud is coming on strong. Google has recently made interesting enhancements to its offerings, and is pricing its products very aggressively. In 2016 I had the opportunity to work as part of a team evaluating moving applications to Azure, and in our case it was not an easy slam dunk. To get our application to run on Azure, we will have to revamp our database architecture to run under the limitations of Azure Cloud database. Had we written this application initially to run on a cloud database we would have made different architecture decisions, and it would have made it much easier. My current bias would be migrating existing applications over to run in the cloud is a lot more complicated than starting from scratch in the cloud. So I will be interested to see how many of the people listed as ‘Experimenting’ and ‘Plan to Use’ end up being successful in running in the cloud.
Another interesting point in this report was that 85% of respondents have a multi-cloud strategy. Theoretically, building an application that can fail-over across clouds should be doable, and it provides a nice redundancy for maximizing up-time. Again, this would be more difficult to modify existing applications to support this feature.
I still think those companies who are dependent on succeeding in the cloud as a future revenue source (I am looking at you Microsoft and IBM) will find it tough to make earnings targets. I think this is a tough commodity business with price cuts continuing (Amazon has cut its prices 52 times since 2006). I suppose it’s possible that one of the companies will come out with an offering that is better than the rest (I am thinking of something like IBM’s Watson’s cognitive services), but with the money all these deep pocketed companies are investing in this it seems hard to believe. I do think this is a huge growth opportunity, but which company will win and how much will be left to win still looks like a crapshoot.
So the cloud is still the future for Enterprise Tech. I just hope these companies are ready for the shrinking margins that will come with it.
