I just published a new article on Seeking Alpha covering Rocky Brands:
Rocky Brands is an interesting story – one would think they would be hit pretty hard during the pandemic. They were expected to lose $0.16 a share in Q2, instead they reported a $0.33 gain on unexpected demand.
An interesting conservative buy at these levels and in this environment.
In the past few months I have become more curious about the air quality of our house. I noticed as I get older I feel more congested in the winter, and lately our cat has been sneezing more – so I decided to throw technology at the question. In the winter here in the Pacific Northwest, we keep the windows closed most days in winters, and we don’t usually have all the rooms in our house fully heated. In winter months, when I am not heating my office it can dip down to the low 60’s, and with the wet weather we receive, I wonder if we have mildew or other organisms that like damp, cool environments.
So I decided to research air quality trackers, and came across this Awair Air Quality monitor.
I was able to buy it at just over $100, and while it was more than I wanted to spend, but I couldn’t pass up the connected home features this one offers. It comes with a nice app that gives you more than enough information about your home air quality. I set it up in my office where it sits on my desk and I can see the numbers go up and down. I have it set up to give me notifications on my phone when thresholds exceed certain levels. After watching it for several months, the only thing it gives me a low score is typically on is the temperature and humidity. If I don’t have the heat on in my office, the humidity can quickly rise to above 70% on rainy days, which isn’t great. So I have been using this monitor to manage the humidity without grossly heating an empty room.
This does detect chemicals in the air pretty well though. One weekend, I got an alert from my Awair that chemicals in the air were high. I was just sitting in my office, and the numbers were spiking out of nowhere. After thinking about all the stuff I had been doing that day, I realized what was probably causing the issue. Earlier in the day around 2pm, I had painted a closet door in the garage with latex paint, and after I was done I used a utility sink to wash out the brush I was using. I have done this for years, never thinking anything of it. Well it turns out, the furnace is in the same room as the sink, and when the heat kicked on, it must have picked up all the latex compounds that I washed in the sink.
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Note that from the above data the number spike corresponds to a heat increase around 4:30pm – when the furnace kicked on. Amazingly just washing paintbrushes was enough to hit an unhealthy level in the house. Since then, the numbers have gone back down to normal and have not spiked since. I have some more painting to do – so I will test this out again just to prove my theory.
I tried moving the Awair to the Kitchen, and it seems pretty accurate detecting smoke from cooking too. Pretty much anytime when cooking, the particulate numbers will elevate, and turning on the kitchen fan does affect the numbers. Interesting the quickest way to get the numbers down is to open doors and windows, which almost immediately flushes the air.
For just over $100, this Awair appliance is interesting, although once you measure your air for a period of time, it doesn’t give you much actionable info. And I am not sure it answers my question about the mildew or mold in the air, but it does tell me I have no major problems. For now though, my indoor air quality is for the most part excellent and so I can rest (and breath) easy.
If historians ever write about software development in the 2010’s, the main discussion point will have to be the mess caused by JavaScript and competing JavaScript frameworks. The chart from Google trends shows how each year a different JavaScript framework was the ‘best framework to use’:
The reason this happened is they are all inferior. A JavaScript framework itself is a tool to try to cover up the deficiencies of JavaScript, a language that had developers grasping for a tool that would help. With frameworks came helper packages to help deploy frameworks, leading to a huge conglomeration of various packages needed to write front end software to run in a web browser.
The legacy of this mess will be with us for years. React is currently the winning framework (if you use Google search trends as a guide), and so new applications will more likely be written in React than the other frameworks. Thus, the pool of experienced developers with these older frameworks will shrink, making it more difficult to maintain these applications written just a few years ago. And no developer will want to put Vue or AngularJS on their resume when React is what is in demand at the moment, further weakening support for the older frameworks.
Granted many developers who know one framework know others, but the pressure will be one to translate, or rewrite an application from one framework to another. And that effort is expensive. Given that the business rules have likely changed since the original app was written in the mid 2010’s – it’s likely a new app in the current framework will be written from scratch. The good news I guess is since these apps only had a useful life of say 5 years, they will be easier to rewrite – but it won’t make the business person paying the bill feel any better.
Here is where I bring up Blazor – my favorite development tool of the day. While everybody is still writing apps using React – I think Blazor will be the ultimate winner. Its a much simpler, elegant, and efficient front end than any JavaScript framework can build. Remember – JavaScript frameworks are built on JavaScript, an un-typed, interpreted language. Blazor is a binary in WebAssembly using C#, allowing full stack developers to work in the same language from the front end to the server.
It’s still early days for Blazor, as the chart above shows. But I am confident that Blazor will be the winner, and I am currently writing all new apps using Blazor. Unfortunately for the business world, I expect in a few years I will be fielding lots of requests to rewrite very young React applications in Blazor.
I have been thinking a lot lately about Modern Monetary Theory (MMT) – the economic principle that the US has defacto adopted as part of the COVID-19 stimulus package. One could argue that we had adopted it prior to COVID, but the record money printing that the US did in early 2020 cements our place in the MMT camp.
Wikipedia has a good summary of the principles of MMT. This table of the main tenents is the most enlightening. A government that has the power to issue its own currency:
So if I understand this right – as long as there is no inflation, the government can print as much money as it wants. Deficits truly don’t matter. I can see why this is so attractive to governments around the world.
A few issues I have with this. It’s pretty clear that as the government has run up huge budget deficits in the last 10 years – the money has gone into the stock market – not the economy. So the only inflation that has occurred is in financial assets, which I assume is excluded from the traditional measure of inflation. Now maybe that is because of the way the government has been distributing all this excess cash. If over the last 10 years the focus had been to to get the money to the public rather than work through the banking system, maybe these excess dollars would be showing up in the economy as inflation.
The other issue I have with this (as does the author of these points apparently) is item #4. The assumption is that when inflation does arrive, the government will raise taxes to slow the economy. I find that uh.. very unlikely – as there will be no political will to do so, especially when workers are seeing their paychecks erode during inflationary periods. Unless of course the taxes are raised on financial assets and investments – and we know there is no political will to do that. We can even look so far as the latest CBO Budget estimate to see there is no projection to deal with budget deficits through 2030:
Perhaps the assumption is there will be no inflation for the next 10 years – in that case – the good times are here.
Nobody knows how this will ultimately play out. if no inflation does occur in the next few decades, I will have to admit the Modern monetary theorists were probably right. If we do start to see inflation, and see rising interest rates increase the debt service in our annual budget, I will be interested to see if the Modern Monetary Theorists stick to the plan when it becomes politically difficult.
I just published another new article on Seeking Alpha:
https://seekingalpha.com/article/4351149-adams-resources-energy-bet-on-oil-and-management
Adams Resources and Energy is a company I have followed for awhile, and decided to do a deep dive into seeing where this company is going. Right now I am neutral on the stock, but if new management can show commitment to improving margins, it might be a nice ‘safe’ place to invest. Its tied to oil prices, so if you think oil is going to zero (or below) – probably not for you.
I dont follow Apple all that closely, but I was interested to see that they are moving into the Augment / Virtual reality (A/R V/R) space with an upcoming product. This article shows schematics for upcoming A/R glasses which makes sense for Apple. From the article:
Apple is rumored to have a secret research unit comprising hundreds of employees working on AR and VR, exploring ways the emerging technologies could be used in future Apple products. VR/AR hiring has ramped up and Apple has acquired multiple AR/VR companies as it furthers its work in the AR/VR space.
This makes sense, as this would be the next logical extension to the Apple Watch. It looks like they are headed in two directions – Apple Glass which would provide an easy way to get notifications – kind of a heads up display for everyday use.
According to the rumors Apple appears to be working on a V/R headset also. This has been rumored for some time, but there are more specifics to the rumors:
Along with augmented reality smart glasses of some kind, rumors have suggested that Apple is working on an incredibly powerful AR/VR headset that’s not quite like anything else on the market. It is said to feature an 8K display for each eye that would be untethered from either a computer or a smartphone, and it would work with both virtual and augmented reality applications:
Along with augmented reality smart glasses of some kind, rumors have suggested that Apple is working on an incredibly powerful AR/VR headset that’s not quite like anything else on the market. It is said to feature an 8K display for each eye that would be untethered from either a computer or a smartphone, and it would work with both virtual and augmented reality applications.Rather than relying on a connection to a smartphone or a computer, the headset would connect to a “dedicated box” using a high-speed short-range wireless technology called 60GHz WiGig. The box would be powered by a custom 5-nanometer Apple processor that’s “more powerful than anything currently available.” At the current time, the box apparently resembles a PC tower, but it “won’t be an actual Mac computer.”
For years I have been skeptical of Apples ability to innovate – every year all they innovate is a bigger iPhone or bigger iPad at a bigger price. However, I have to give them credit for getting the Apple Watch to gain market share. Now the real innovation that I am intrigued by is their recent purchase of a company called NextVR. This company ” specializes in recording live events like concerts and sports matches to be experienced in VR “. So Apple might be just the consumer company to finally bring VR to the masses, if they can take the worlds media consumption to a whole new level from streaming TV shows to streaming VR shows.
So keep your eye on Apple – while these are only rumors, it seems a logical next step for the company.
I just published a new article on Seeking Alpha:
https://seekingalpha.com/article/4342698-townsquare-media-appears-to-be-oversold
When I started this article, my thesis was that the drop in the stock price was justified. But after breaking down the business and looking at the expected revenue contribution of the various segments, I changed my mind.
I am not too wild about any stock in this environment, but I may sell some other stock to raise cash and take a flyer on Townsquare Media.
Microsoft stock has been one of the few stocks I have tracked consistently over the last 30 years. In 1990 I finally decided to buy Microsoft stock, even though the P/E on the stock was through the roof. Previously I had always looked for stocks that appear cheap on a valuation basis, but I felt Microsoft was going to be a winner and it was always overpriced. It turned out to be one of my best investments ever, splitting 7 times from 1991 through 2003.
Unfortunately, I fell in love with the stock and held it throughout the 2000’s when it did very little. The technology world was changing, and the Ballmer administration (in my opinion) lost touch with developers and made some really bad decisions. I finally drained my position in 2010 as I saw no ideas coming out of Microsoft that could justify me owning the position.
After Ballmer left and new CEO Satya Nadella came in, in 2015 I bought a small position since I new Nadella had been the head of the Microsoft Azure Cloud business, where I had seen good and creative decisions. I exited that position in 2016 with a small profit, when I became concerned that the cloud business could not make up for the loss of Windows revenue as the price of Windows goes closer to zero every year. The other concern I had (which I think is still somewhat valid) – is that the cloud business is a commodity business, and all the other cloud providers have alternate sources of revenue. For instance, Amazon and Google could treat the cloud business as a loss leader, really cut the price of cloud, and could survive on its other businesses. Microsoft is disadvantaged in that respect as the Windows revenue is dropping.
But this month, I decided to get back into Microsoft stock. After giving much it much thought I decided that even though it is expensive (much like when I first bought it) I think it has upside potential. Below are the reasons for finally getting back in:
So Microsoft is back in the portfolio. In this coronavirus stock market, I am taking the time to improve my portfolio. I sold some other technology stocks to add Microsoft – rather than commit new money to this stock market. I hope I am not too late on this purchase, but it feels comfortable to be back in the Microsoft fold.
I have started to give some thoughts about how to invest in this post coronavirus economic lockdown world, and thinking about how I should adjust my investing thinking in this changed economy. I do think in the next several months to years there will be structural changes in the economy, causing me to rethink my investing priorities. The following is just a sample of my current ideas.
Job automation will be jumpstarted. With demand falling, I think there will be much more emphasis on streamlining operations. Over the last few years we have been inventing technology that has had mild acceptance in corporate america, but now that companies are less fat and happy, they will be up for trying new things.
A couple examples are video conferencing and moving operations to the cloud. Due to the closing of workplaces, video meetings have become a daily requirement for white collar America. As workers become more accustom to this mode of communication, it will lead to improving efficiencies. In addition, having workers work from home will cause employers to rethink management practices as employees are suddenly autonomous. Related to this is moving operations to the cloud – i.e. Microsoft Azure or Amazon AWS. While disruptive at first, this can lead to smoother operations and allow companies to focus more resources on the business and less on infrastructure issues.
Jumpstart to augmented/virtual reality (AR/VR). I know this sounds odd, but for years AR/VR has struggled with mainstream acceptance. This is a technology that is an example where companies have not really figured out how to integrate a technology into their operations. At the same time, the technology is getting better, cheaper and could be more than a niche product. Now that video conferencing and work from home have taken hold, to me a logical extension of this would be VR meetings to better simulate the workplace. These could help the building of corporate teamwork lost when employees are not in one physical place achieving a common goal. Not a big investing theme here for me, but I am starting to think about what technology companies might benefit from the next step up from video conferencing.
Strong Balance Sheets. I have spent a lot of time over the last couple of weeks looking through the balance sheets of the companies in my portfolio. We are in a time where nobody can forecast earnings for the next few months, so looking at the balance sheet and thinking of best case/worst case scenarios helps me assess the near term performance of companies. Those fortunate companies with low debt and lots of cash will be in a good position to ride out any worst case scenarios, and also have the flexibility to pick up low priced assets of failing companies.
Good Management. Good management will be more important than ever for the next few years. My measure of good management will be how well does management adapt to the changing workplace, changing customer demand, and changing supply channels. I think there will be huge opportunities for smart companies to find products in this new environment, and also keep their workforce happy and motivated with new management techniques. Good management may also want to rethink ‘just in time’ inventory approaches, and redesign backup plans for sourcing of materials.
Real Estate Losers. I am very bearish on commerical real estate over the next few years. The triple whammy of a glut of restuarants that will not reopen, an oversupply of hotels for business travel/conventions, and less office space requirements can’t be good. I think smart management will be able to reduce the amount of office space needed per employee. The business convention business has been overlooked as a big loser in this new world. One example is Microsoft cancelled all its in-person events through July of 2021. I have to believe most big business conventions will be cancelled for at least 2020. That’s a lot of empty expensive hotel rooms in the downtowns of many cities.
The Rise of Sports Betting. Another big loser in this event is the hit to municipal economies. With all the revenue shortfall states will incur, I have to believe ramping up revenue from gambling will be an early target. Sports betting was already gaining traction in over a dozen states – I predict wagering on profession sports will be legal in all 50 states by the end of 2021. The winners here will be casino operators.. unfortunately most casino operators have big hotel holdings that will get hurt on the flipside, so choose your investment wisely in this area.
Regardless of whether you agree or disagree with any of the above points, I think its worth it for every investor to envision what the world will look like when we come out of this. Then look at your portfolio, and make sure it is positioned with companies that will thrive in this new environment. Whatever happens in the next few months, I think the stock market will identify big winners and big losers.
As with most people in Washington State, I have been self isolating most this week working from home, and watching the financial headlines roll through like thunderstorms. I have spent so much time in my office chair this week I am looking for backup chairs in case my main steed fails.
This market drop and has been sudden and spectacular. Record breaking volitility, massive economic shutdowns, and pandemic fears make data driven investing extremely difficult. I have been asked by several friends over the last few days for market opinions, and gladly respond to anybody who cares to hear my amateur-status opinion. In past months, you could have looked at invest.vfsystems.net to get my rough view of the market, but in this enviroment, its moving too fast for that data-view of the world. So please feel free to email me any time you have market questions – I am full of free advice and opinions.
In summary, I do believe this will be a more significant event that the 2008/09 great recession. The worldwide supply and demand shock in this highly levered world is going to cause severe economic damage and change. Perhaps this quote from Warren Buffet is the most appropriate now:
Only when the tide goes out do you discover who’s been swimming naked.
The tide went out very quick in this case, and indeed, a lot of companies are scantily dressed (I am looking at you Boeing).
Having said all that, I thought I would post these thoughts, giving you an overview of what I have seen this last few weeks and what I am thinking:
GDP Estimates – It was fascinating to watch the GDP estimate revisions for 2020 come out this week. On Monday, Goldman Sachs forecast a 5% drop in Q2 GDP, then a 4% rise in Q3 GDP. When I saw that I knew that was still way too optimistic. As of this writing at the end of the week, Goldman is now down to -24% (!) Q2GDP and looking negative all year:
To be fair – nobody knows – past data is pretty much useless now, so everybody is just guessing. But it cant be good.
The Speed of the Market Drop – Speaking of data, the speed of this drop is what was most unique about this downdraft. My investment models look at economic data and predict expected prices based on that data. We have no precedent for such a sudden global economic stoppage. And the economic data we have is in many cases too old. For instance, Housing Start data came out on Wednesday this week, and the survey was for February, which by now is ancient history. The number was down slightly from the all time high. Typically Housing start data has been a good predictor of slowdowns, but because of the speed of news we wont see Housing start data tank until we get the March numbers in late April. So I have some work to do to figure out how to get more timely data or otherwise deal with fast moving markets.
Investing By Hand – Because the market is moving faster than my data, I took my investing strategy off autopilot, and am now investing largely on untested theories and headlines in this turbulent market. This is extremely dangerous. However, I am working to repair my models, and every day I think I get better data to help drive decisions in this new environment. I am gravitating to strong companies I know, with smart management. Going into this crash I was fairly defensively positioned, and as this market has dropped, I have gotten more defensive. My model is still fairly positive on the market, but again, the lack of timely data makes that opinion near worthless. The most important thing is to keep my emotions in check and look at the data coming in rationally.
Bet Against Commercial Real Estate – One non-data related trade I made was to by a Sept 2020 70 strike price put on the VNQ. The VNQ is the Vanguard REIT Index. This was a trade I had been thinking about, but was triggered largely by the news that our local high end mall was closing for two weeks. This mall, like many malls, has been increasingly opening restaurants in place of stores closing due to the retail apocalypse. As the coronavirus hit, all the stores and restaurants immediately emptied out. When this local mall closed, it was enough for me to act on my thesis that the impact to commercial real estate will be devastating from this point forward. We already had too many restaurants opening. We had massive building of commercial offices built downtown (now and in the future to be empty due to working from home). Finally, in our town we have had thousands of new hotel rooms built in high rise hotels built in the last couple years alone. I am confident in the next few months, we will find out which hotel chains have been swimming naked.
Regarding working from home, yes I think people will return to offices after all this. This event has caused me to use on a regular basis teleconferencing software, and I must admit, it works pretty well and once a home office is set up, you can be at least nearly as productive as in the office. I think businesses can adapt to this new paradigm on an ongoing basis. Yes I believe employees still need central meetings periodically, But I think this will kick off a large shift of offsite rotation. Maybe this will lead companies to reducing office space needs by 1/3? If so, that is a lot of nice empty office buildings.
In summary, I do not think this market drop is over. In 2008/09, the market dropped by ~55% peak to trough, and as of this writing we are down ~32%. I see no reason why we shouldn’t drop less than ~55%, and I think there are a lot of bad headlines coming our way in the next few weeks.
With the lack of data, I think many people are having to invest on emotion. I was talking with a neighbor, and we agreed at this point it may best to close the markets for a couple weeks because of the trillions of dollars being traded purely on headlines and emotion. Lets take a couple weeks to gather data, get a bearing on the economy, then re-open the markets. Maybe that’s not possible with global markets, but I feel that would help.
Regardless of the Coronavirus’s ultimate health toll, I don’t see this as a quick economic recovery. With a 2020 government deficit now projected to be over 3 trillion after all the stimulus being discussed, I think the economic impact of this event will last for years. In the coming days, we will see many corporate losers, surprise bankruptcies, as well as a few winners in this new digital economy. And I still don’t think we are near the market bottom.
