Dispatch From Croatia

I just returned from a trip to Croatia, a country I (and likely most Americans) know little about. During my two weeks there, I learned alot about the history of Croatia, and got a decent sense for the country. Here are a few random observations I picked up.

I Started in Zagreb, the capital of Croatia. Not really known as a tourist destination, but I was pleasantly surprised with how nice it was. Large pedestrian zone in the center of the old town, nice walks in the city and cafes.

Radiceva St in Zagreb

Zagreb and Croatia as a whole was pretty inexpensive, so if you are looking to travel in Europe on a tight budget, Croatia would be a great option for you.

Thoughout the various destinations I visited in Croatia I noticed very few Americans. Thats not to say there were not a lot of tourists – there were – tourism is Croatias leading industry. Most the languages I heard from the tourists were British, German and Slavic, which gave it a nice international feel.

If you visit Croatia, consider skipping any city where the cruise ships visit, unless you want to do the sights early or late. When the Cruise ships dock at Dubrovnik and Split, the streets get flooded during the day with people. We started our trip through the town of Dubrovnik around 8am, and were done by 11am. As we left, the crowds where everywhere:

We got out of there quick. There are plenty of great stops where you don’t have to fight the waves of tourists.

Regarding tourism in Croatia, in talking with a few Croatians, I got the impression they are not happy about being a tourism driven economy. It seemed to me that they felt the fall of communism and the resulting Balkan war broke their country. Industries were privatized, and the high paying jobs associated with those jobs are gone. More than one Croatian lamented the outflow of immigration of Croatians to other countries in search of high paying jobs. Granted most the people I interacted with were in the tourism business, so this anecdotal observation may be slanted, but it felt pretty prevelant.

On our way back from Croatia we stayed over a day in London, primarily because it is hard to get direct flights to Croatia. This was my first visit to London, and found it interesting. I was surprised how dirty it was, walking through the streets there was lots of litter and garbage everywhere. I find most European cities to be pretty kept up so that surprised me. Also was surprised about the number of homeless in London. Not as many as in the states, but more than I recall observing anywhere else in Europe. I am not sure what that indicates, other than the problem is not specific to America.

In summary, Croatia is a great place to visit. If you go, take some time to learn about the history of Croatia, Tito and the fall of communism, and the rise of the independent Yugoslavian states. But also enjoy the scenery.

Renewable Energy Takes Charge

A minor milestone on the renewable energy front – renewable energy sources have taken over market share from coal for the first time:

This Ars Technica article has the full story. I see no reason why this trend won’t continue, as solar prices have been dropping and even battery technology is getting better.

This chart from the US Energy Information Administration also shows an interesting chart – total US energy usage, while up in 2018, has been relatively flat since the mid 2000’s:

https://www.eia.gov/todayinenergy/detail.php?id=39092

Given the rising market share, and the aging of the US population, it seems that petroleum share will have to start shrinking. The primary reason its share has been rising is the dramatic fall in oil prices since 2010. The price of crude oil is now roughly just over half of what it was in between 2010 and 2014. One would think that with the advances in Solar and Wind power lowering the costs of electricity, petroleum prices will have to continue to fall in order to maintain market share.

The General Electric Saga

A lot of good reporting has been done regarding the General Electric (GE) ‘fraud’ accusations, one of the better is which is this Bloomberg article. In summary, the accusations are that GE has under reported its reserves for its long term care business, and will be in need of more cash than would be expected.

My take on all this reminds me of my take on the Boeing problems. In that post I refer to anecdotal evidence that something was amiss with management.

While its been many years since I have worked for a GE company, my take on this is agree with the whistle-blower Harry Markopolos. In many ways it does remind me of the Bernie Madoff story. I don’t think Bernie Madoff started out to be a crook. I think many people bend the rules once they start to get into trouble, then keep bending, then bending until they are so deep they realize it would be financial ruin to come clean, so they just keep putting it off. I recall a client I worked for who had a startup with lots of investor money in the early 2000’s. He had a small company and staffed up to build a big company, and when the market turned the company imploded and exposed some financial misdoings he had committed to try to keep the dream alive.

So this is the parallel I draw with General Electric. I agree with the theory they have been bending the rules with financial reserves, back when they needed money to make their quarterly numbers. GE is full of financial engineers, and their previous CEO Jeff Immelt was very short term (read that bonus) focused. I am sure they thought that business would pick up and they would deal with the issue before it got out of hand, but when Immelt left the years of dirty laundry left behind by him has been exposed. I am in the camp that GE will end up in Chapter 11, especially if the economy continues to soften as GE tries to sell assets. The most accurate analyst on GE has been Stephen Tusa, and he has a price target of $5 on the stock.

General Electric, like Boeing, is a no-touch stock for me. While the new CEO of GE is much more capable than the prior leader, I think the damage has been done and the cupboard is empty. Now its time to just watch this disaster unfold from the sidelines.

Streaming Wars

The battle for the living room has been interesting to watch from an investing perspective. I have been down on Comcast for years, thinking their business model would be severely hampered by the cord cutters eliminating cable. This has been somewhat true as the stock price has been flattish over the last 5 years:

Comcast 5 year chart

The one stock I have been kicking myself for not owning is Netflix – which has had an incredible run over the last 5 years:

Netflix 5 year chart

Earlier this month, Netflix reported slowing growth, and the stock got hammered – down from 360’ish to 310’ish. Recent earnings showing a slowing of subscriber growth, and fears of the Disney streaming service and Apple streaming service spooked investors.

The way I see it – the market is wrong on this one. Granted Netflix’s valuation is awfully high, but even with their subscriber growth not meeting projections, it was still decent domestically and great internationally. Interestingly their growth in the previous year’s quarter also missed expectations, and it bounced back nicely the following quarter. The word on the street was that areas that had price increases fared the worst. I am willing to bet that subscribers to Netflix are not that price sensitive. Amazon raised the price on Amazon Prime and nobody blinked – I think Netflix has more levers they can pull to raise revenue if they feel the need.

Regarding the increase in competition – I think the market is overreacting on this one too. I agree Disney is going to be a formidable competitor (and luckily I have been long Disney for awhile), but I hardly think Netflix will be the one hurt the most by this. Netflix is an establishment in most households – and I think it has the strongest network effect of all streaming companies. I think the big losers will be the 2nd tier streaming/content services – things like CBS Interactive, maybe Showtime, HBO etc. If people want to cut down their expenses on monthly TV subscriptions, I think Netflix will be low on the list. Regarding Apple’s offering – I am willing to bet that it will be underwhelming and not meet expectations. I still am in the camp that Apple is struggling to execute on its new initiatives, so I think the market is overly concerned about this one.

I initiated a small position in Netflix a few months ago when I saw the stock price weaken on these competition concerns. I prefer to invest in companies with CEO’s that consistently make the right moves, and Reed Hastings meets that criteria. So even though I am underwater on my holdings of Netflix, I am definitely not selling, and considering doubling down on this one – I am just waiting for the stock market and price to stabilize then will take a closer look.

Windows 10 Updates And Microsoft Access

I got a note from a client who runs a medium size Microsoft Access application, and recently they have been getting ‘Unrecognized database format’ errors on multiple client machines. This is a standard Access app they are running, with the client access database linked to a database of Access tables on the server. Microsoft Access is notoriously finnicky when it comes to network errors, and so my first assumption was that my clients networking setup had issues.

But I did a little poking around as it seemed odd that it would start cropping up on multiple machines, and I found this post pointing to what looks like a problem with an incompatibility with Microsoft Access and a recent update to Windows 10. From the looks of this article, this problem as impacted a large number of Access users, but has remained uncorrected for over a year. This article does show a workaround:

(courtesy https://www.devhut.net/ )

I wonder how many Access users would feel comfortable editing the registry on their machine (and their server), and even then it sounds iffy. Note that staying with Windows 10 build 1709 works, but given all the tightening of security in todays corporate world, that’s likely not an option for many users.

The fact that this problem has gone uncorrected for so long underscores to me that Microsoft Access will be deprecated or made functionally useless in the near future by Microsoft. Either explicitly, or through other ‘breaks’ that happen as Windows and/or Office moves forward. I understand why Microsoft is uncomfortable with Access. It’s foundation language, Visual Basic for Applications is outdated, and the native Access database format is underpowered when compared with SQL Server. When Microsoft released a free version of Microsoft SQL Server for small databases, this was the point where all hope for Access was lost. Microsoft is correct – there are better platforms for software these days, but I think they underestimate the number of business critical applications still run on Microsoft Access.

I am a huge fan of Access – it was ahead of its time in the 1990’s for quickly developing desktop apps. Many businesses, small and large, quickly built little Access applications to automate a business process. Often these applications were built under the radar of IT and without a budget. I know of many such Access Apps that have been around over 15 years, still providing value, yet there is no budget to rewrite them.

So unfortunately, Access users beware. Microsoft’s interest in Access is waning, and as they compete for Enterprise business and cloud applications, Microsoft Access may not have a seat at the table.

The Chase For High Yield

Every once in a while I get a notice of a bond offering from my broker for Ford Motor Credit. As I am always on the lookout for higher yields, I always pause and give this some thought.


With a 7 year CD yielding around 2.0%, my first thought is sure – Ford Motor seems pretty safe, maybe I should go after a higher yield. But after thinking about it a bit more, I always back off.

A couple problems keep creeping back in. First, I think the next market downturn will be initiated by some sort of credit breakdown, whether it be corporate borrowing, consumer borrowing, or sovereign borrowings – all at historically high levels. There is too much debt out there and so I am leery of low rated credit getting rated even lower. If this happens, I either want to be in high quality corporates, or government bonds. I am not sure I can consider Ford Motor a high quality corporation. The stock is lower now that it was 20 years ago, and has a terrible Debt/Free Cash Flow ratio of 6.77.

The second thought I have is the future of car manufacturers. The automobile industry is in the midst of a huge transformation and will likely look quite different in the next few years. From the switch to primarily gas fueled vehicles to electrics, to the concept of ride share replacing car ownership, I think the automobile business model will change drastically.

This disruption will lead to winners and losers. Will the ride share companies running autonomous vehicles be the winners? Will Tesla be the next big car manufacturer? All these questions nag at me as I look over the yield of these Ford Motor Credit bonds.

Investing in high yield bonds is always difficult. Every high yield bond/corporation has its fault, thus the risk premium. In many ways its similar to investing in stocks. It requires an investment thesis and opinion about the future. And for me, a low rated bond focused on consumer credit and the car industry looks like a risk that is too big to bear.

The World of Software Developers

Stack overflow recently released a survey of its users, and while it had a lot of insights into the current world of software development, two charts stood out to me as exceptional.

If you are not familiar with stackoverflow.com, it is in most developers opinion the best place to find solutions for technical questions. When coding a program, and you run across an error message that doesn’t make sense, or confusion on how to do something in your language of choice, stackoverflow is the place for answers.

Anyway, in this survey, here are the two charts that stood out to me.

Connected technologies

https://insights.stackoverflow.com/survey/2019/

This is the best display of the different galaxies in the computer universe. Most developers live in one, maybe two of the galaxies, and this maps all the related languages and tools nicely. If you are a developer looking to expand your skills, this gives a great idea of the technologies and tools that might be the most helpful to you in your collection of skills.

The second chart gave interesting insight to the problem of lack of women in software development:

Development role by gender
(click to expand)

In the decades of my software development experience, I have noticed how the ratio of female developers has dropped off. In the early part of my career, my bosses were mostly women, and the ratio of programmers was pretty evenly split. Looking at the above chart, you can see how that has changed. But this chart shows change might be coming. The areas with the best concentration of women in tech is in the researcher and data science area. The world of programming will look a lot different in 10 years as the focus moves more to data science and less on algorithmic programming. Give machines the data, and they can write the program will be the new mantra (for better or for worse). So assuming this prediction comes true, its it appears that the gender gap in software development will start to close. As a side note, in the world of data science, it will be important to get a wide variety of skilled workers, as data bias could be a real threat in the future. Heaven help us if we leave to the bubble of silicon valley to determine how the world should be defined in the future.

If the world of software development interests you, take some time to go though this stack overflow survey. It gives interesting insight into the minds that are creating the technology that will be changing our world.

Finally – A Clean Financial Data API

For years I have been automatically retrieving financial data from a variety of sources to help manage my stock portfolio, and power the VFS Daily Investment Contest. For years I just scraped prices from various websites and parsed the results into a database. Its not elegant, but it has worked. I have been looking for cleaner ways to do it, but many of the online data services for financial data charged high monthly prices that didn’t make sense for the minimal quotes I retrieve on a nightly basis.

Recently, I stumbled across a great new service to pull all sorts of financial data. In addition, for my needs I can likely stay at the free level, and its the cleanest API I have seen for financial data.

All I had to do was sign up for a free account, which provides a token that I can use to access the data. The API calls are all simple GET requests, with the token in the querystring:

The result is nicely formatted JSON, which can be easily parsed using library (I use Newtonsoft). No more parsing and stripping html to get to the data. The full list of data options provided by the API can be seen here. Below is a C# example of the code I use to pull quotes on a nightly basis:

(click to expand)

Amazingly simple, and I have been re-purposing this code to handle requests against other data points, so its real easy to get at all the API end points.

The pricing structure for this is smart also. The free level that I am currently at provides you with 500,000 request points a month. A delayed quote is 1 point, a dividend list is 10 points, and fancier things like full financials are 5000 points. So if you just want to get daily prices you can get virtually unlimited. If you want more advanced data that has been difficult to get to in the past, the free level limits will likely be exceeded. The pricing for the next level up is $9 a month, and that gets you 5,000,000 request points a month which would more then meet even my wildest data dreams.

This is a relatively new operation (the API came out of Beta in April), and they are constantly updating/improving it. It is missing some features I want (Can’t currently get prices for mutual funds, or dividends for ETFs. But those fixes are on their road map to be done soon. The IEX cloud GitHub repository does a great job of keeping users updated on changes, bugs, and upcoming fixes.

As I said above this is a new service, and in this world of online services, many do not survive. I really hope this one does. If you are looking for easy access to a wide variety of data, give this new API a shot. This is a pretty exciting development for financial data geeks such as myself.

Employment Data As Economic Predictor

Every month the financial press makes a big deal about the total payroll report. I have never really paid attention to it, as it seems like its just headline material rather than anything one can act on financially. Recently, I was poking thru the FRED data sets looking for an employment indicator that I could plug into my valuation model, and the one that caught my eye was a subset of the big monthly number – the Temporary Help Services number.

I put together this chart below comparing the numbers of the Wilshire 5000 stock market index, the Temporary services number, and the headline Nonfarm Payrolls number.

wilshire 5000, temporary employment and full employment chart
(click on image to enlarge)

As far as an early indicator of economic downturn (and hence a stock market downturn), it seems like the temporary help number is a much better indicator. The temporary help number started trending downward months before the non-farm payroll number, and even started rising sooner after the 2001 and 2008 recessions. There are some ‘headfakes’ in the temporary help number, but with a little smoothing I think my stock market model can be taught to ignore those.

One thing I have learned over the last several years while looking for correlations is there are a lot of coincidental correlations. So when I add data factors to my model, I give the data a good old fashioned smell test – does this data seem reasonable? In this case, I have rationalized that yes, it seems reasonable that in an economic downturn, companies would start jettisoning temporary employees early as they start to slow down, since those are typically the easiest and cheapest employees to part ways with.

So now when the monthly noise comes out about the jobs number, I will continue to ignore that number – but that will trigger me to look deeper at the temporary help number that gets released at the same time.

Townsquare Media Goes Digital

Townsquare Media is a company I have followed for a few years. I decided to post an article on Seeking Alpha about the company because I think it has an interesting story. The company primarily runs a number of rural radio stations, but is now working on tools to upsell its advertisers.

This stock has long been a value trap (and may still be), but if this new strategy pans out, it might be worth a look. For more details check out the article on Seeking Alpha.

Townsquare Media: Digital Solutions Could Be Catalyst For Growth