Shout out to the sidewalks for keeping me off the streets

Who is John Galt? Maybe Trump, maybe not. Apologies for the delayed note this week, I’ve been too busy selling stocks while we wait for more color on Trumpy’s plan. Discussions with my contacts over the last two weeks have had almost no mention of the possibility of a market correction. Actually, it’s been quite the contrary with fiscally minded folk getting giddy that their dream of a utopia with low taxes and less regulation is just around the river bend. The world Ayn Rand dreamed up in her novels is finally here! The only problem is that many stocks have made large moves in the past 10 days with little certainty the catalysts making everyone excited will ever materialize (not to mention whether Trump is actually a Republican). Just take a look at these charts: $SYRG$CXW$GS$LUV$ARIA.  The easy money has been made and its time to wait for the market to come back for another buying opportunity. So I ask you, have you been raising cash since the last time we spoke? If not, you should probably consider taking some gains. For those worried about taxes, this is to how do it. 1) Sell stocks you’ve lost money in to harvest tax losses (you can buy them back after 30 days and still write the loss off on your taxes). 2) Use those losses to sell stocks with gains you believe have limited upside. 3) Wait for the next pullback and redeploy some of the capital. You never lose money taking a profit and you probably won’t make money assuming the next president is an economic prophet.

Guiliani for AG, New York’s former mayor? A Trump DOJ is good news for Bayer. I’m actually going to talk about Monsanto ($MON) but it was too hard to figure out a rhyme. Full disclosure, I own Monsanto stock and it’s one of the few stocks I continue to buy in this market. Now before all you SJWsget upin arms, I’d like to emphasize that Monsanto does a lot of good for the world despite the bad. I’m all bulled up on Monsanto because it has a $128 per share all-cash buyout offer from Bayer yet currently trades at ~$102. Why? The Department of Justice during the Obama administration has not been friendly to mega-mergers and there are low expectations that Bayer and Monsanto becoming GMbrOs can actually get approved. When it comes to a Trump Justice Department however, I do think this is one of the places we see laxer government oversight and that Monsanto’s current share price is an interesting opportunity for investors as we move into 2017. Admittedly, the current share price isn’t exactly cheap meaning the stock has downside should the deal get shot down. However, Monsanto stands to receive a $2 billion breakup fee (roughly 4% of the company’s current value) in the event the deal falls through and is also outspoken about transitioning their business to become a “Big Data” player in the agriculture industry which makes me believe there are many ways that the stock can eventually work. Take my insight with a grain of salt but this has been the one of the more surprising laggards I’ve seen and added to during the post-election rally. Let me know if you disagree.

OMG! The new Madden has micro-expressions for the players! They’re so innovative! Can we please acknowledge that video game developers Activision Blizzard ($ATVI), Electronic Arts ($EA), and Take Two Interactive ($TTWO) have been recycling the same games for the past 5 years? Take Two’s rockstar subsidiary, Rockstar, hasn’t even put out an original title in three years and instead upsells us with their DLCs. C’mon. Why do we still pay $60 a pop for the same game every year? NBA2K16 having 12 new clapping patterns for the crowd in the background or Call of Duty building a new storyline where you shoot Nazis in space (and I bet you they actually end up doing that) is not creativity. It’s putting in bare (or should I say bear) minimum effort because they know you will buy their product. Take a look at this chart – if all the gamers out there had invested the money they were planning to spend on video games into the developer’s stocks, you would have more than tripled your money and probably have been on your way to starting your own video game company. Let’s stop bailing these “innovative” companies out. They’ve clearly run out of good ideas. Either put out new and original content or I refuse to give you my patronage.

It’s time for another Half-Assed Due Diligence Stock Pick of the Week!
Which lucky soul will you be sending higher this week, Jeff? Boston Beer Company ($SAM)
Sam Adams? Don’t be such a Boston Boy. What’s your thesis?  Depression and Taxes.

OK, cryptic as always. Please explain.  Remember last week I mentioned stocks with businesses primarily in the US would highly benefit from tax breaks? Well, these suckers actually pay taxes LOLOLOL. ~36% to be exact. That means reducing the corporate tax rate down to 15% would boost Sam Adams earnings by over 30% overnight and make the stock start to look very reasonably priced. Sam Adams has been slipping as of late after once being a stock market darling.  Much of this is due to the fact that there are more than two craft breweries started each day (sounds a lot like a bubble, huh?). Not to mention, hipsters no longer drink Sam Adams because its become too mainstream. Simply put, Sam Adams is a victim of its own success but will remain a top brand in the space and highly benefit if corporate tax breaks become a reality. It also is a prime buyout candidate for some of the larger players in the industry.

What does your thesis have to do with depression? Oh yeah, Sam Adams disproportionately sells into the Northeast (the most liberal part of the country). There are A LOT of libs out there drinking away their sorrows these past few weeks. My guess is Sam Adams is going sell a lot of beer and beat the next quarter. I’m only joking but seriously, think about it J

IMPORTANT NOTE: This is not investing advice.  This is pontification about the markets that we thought you might enjoy. If you would like a hot take on an issue or stock, email jeff@waylz.co. Please invest responsibly! 

I saw that going differently in my mind

NOTE: I know the recent election results have produced lots of complex feels for many of us. Before reading ahead, please keep in mind that this is purely looking at the election from an investing standpoint.

Trumpty Dumpty built a big wall. Will Trumpty Dumpty cause America’s fall? The Market Says No. Alright, so he won. Hairpiece played his Trump Card and put all of Nate Silver’s 538 staff back on the job market as they watched their model crumble. Seriously, did you see this guy on election night?!? Somebody send these folks some comfort dogs. Even more astounding, after market futures imploded and triggered a circuit breaker, stocks erased losses and investors earned some serious Trump Change. Politics aside, looking ONLY on at the price action of the market and discussions with institutional investors, a Trump run executive branch and a Republican led Congress is now setting the stage for a large rally over next several years. Investors are banking on the fact that society will remain inclusive and that the rhetoric espoused during the campaign should not be taken literally. Regardless of whether the market is primed for a Trump Bump higher, as we walk cautiously into Trump’s America, an enormous amount of uncertainty has just been injected into the markets and I would tread very, very carefully.  

So what is the market telling us? The price movement from last week indicates investors believe America is going to enter a period of higher interest rates, lower regulation, and protectionism. A quick summary of some of the notable movers:

Leaders:

·      Biotech’s bounced back as fears eased around pricing regulations as well as indications there may be efforts to streamline the FDA process.

·      Commercial and investment banks rose sharply in anticipation of higher interest rates and chatter (probably all it will be) to the repeal of the dreaded Dodd-Frank.

·      Defense stocks ran on excitement that government spend would continue at a high rate for the industry (chart with dollar for scale).

Laggards:

·      Promises by Trump to repeal Obamacare sent healthcare service stocks sharply lower as great uncertainty remains around the future of healthcare.

·      Renewable energy suffered a major blow on concerns that government incentives for their businesses are coming to an end. Santa is bringing us all coal for the holidays.

·      Technology giants traded down modestly as Trump’s rhetoric has caused concern for these names given their large international exposure.

Consumption and Taxes are key – Pain before pleasure. So I’m going to go out on a whim here and make some very bold predictions. First, I believe that the United States has or is about to enter a recession. The logic is that a large segment of the U.S. has now become extremely apprehensive and this is going to have a noticeable effect on consumption. I haven’t seen much chatter yet on the election’s effect on holiday shopping but I will not be the least bit surprised if we see softness starting with Black Friday sales. Normally, I’d be starting to panic about now if not for my second prediction that the stagnation in the economy provides the necessary ammunition for the Trump Brigade to pass through income and corporate tax breaks. With interest rates still next to nothing and expansionary fiscal policy unlikely, tax breaks are the only plausible stimulus the government will implement. And then stocks absolutely soar as private sector profits explode and consumption rebounds. Be patient because IMO pain is coming but 2018 is starting to look really interesting right here. In particular, stocks with the bulk of their current business in the US should be great stocks in the coming years as they benefit the most from tax breaks.

Now let’s finish by getting back to Nate “Noise, not the Signal” Silver. Let this be a lesson to all as it was so kindly put to me: garbage in equals garbage out. As a true believer in the power of big data and cognitive technology to solve many of the world’s complex issues, this has been a sobering reality. Perhaps I’m just frustrated by how I fell victim to Nasty Nate’s sweet visualizations and took his word as gospel. My inner frustrations currently lie with concerns that Nate Silver may have had an effect on elections. Hear me out. Nate Silver’s 538 is backed by the full faith and credit of the powerhouse that is ESPN ($DIS). 538 to some extent had a monopoly as the go-to website for election forecasting (obviously, no longer) given the strong success in past elections. So here comes the rub: if you we’re leaning Democrat and on the fence about voting in Wisconsin, Pennsylvania, and Michigan – one look at 538 or a discussion with a power user may have made you comfortable your state was already in the bag and you ended up staying home. After all, Silver had HilDog's probability of victory in each of these states at over 75%. Farfetched as it sounds, this plausibly could have been enough to tilt the scales in Trump’s favor and decide the election. Do not misinterpret this as me complaining about election results. I am merely cautioning that we just witnessed a prime example that there are limitations to what data and predictive modeling can accomplish. Taking them at face value can have large consequences.

IMPORTANT NOTE: This is not investing advice.  This is pontification about the markets that we thought you might enjoy. If you would like a hot take on an issue or stock, email jeff@waylz.co. Please invest responsibly and thank you for playing Waylz!

Bring me Assange and the Wiki

Bye partisan - the death of the moderate. We are focused on the wrong election. Most votes have not yet been cast but indications are pointing towards a Democrat-led Senate and Republican-led House. So yet again, it looks like Washington is about to pull an Avengers by having a ton of characters each trying to overshadow one another without pushing forward much of a plot. Thanks Obama. Our problem is we throw the word “moderate” around like it’s a venomous putdown these days. Literally - I have heard the word moderate used in an argument against HilDog. Granted I live in Massachusetts where it’s basically illegal to believe in capitalism but God forbid we have a president that can bring resolutions, right? We’ve elected these people to represent us on complete opposite ends of the spectrum who refuse to work with one another. For investors, stocks move higher on certainty and lower on uncertainty so knowing not much will change for the coming 2-4 years should be good for the markets. However, for those such as myself hoping for an overhaul of broken systems such as healthcare and education, we’ve got a better chance the Cubs Indians will ever win the World Series.

Make Japan Date Again! As an American, this data is both fascinating and unsettling. Recent surveys show that over 40% of Japanese people aged between 18-34 have never had sex before and over 60% of unmarried individuals are not in a relationship. While I recognize that productivity is most likely higher when young folks don’t become pure hedonists once the clock hits 6 PM, too many young adults still having their v-cards has enormous economic implications. Simply put, demographics matter A LOT. What this data tell us is that Japan is both getting older and declining as a population. Why do we care as investors? This means less people in the workforce which leads to lower consumption, lower taxes to fuel government spend, and ultimately stagnated economic growth. Not the trends you want to see out of the 4th largest economy in the world. Please, if you have the time, I’d encourage you to call your friends across the Pacific and encourage them that it’s time to hop on the good foot and do the bad thing.

Elon Musk has shingles… For those who don’t understand the context of my superb pun, this will get you up to speed. Suddenly, Tesla’s ($TSLA) real business model is starting to emerge and it shows strong resemblance to what Nikola Tesla failed to achieve at the turn of the 20th century. Coupling Tesla’s Powerwall home battery and their solar glass roof tiles (amazingly cheaper than a traditional roof), Tesla can now provide low-cost electricity to millions of households across America. Need an analogy? Think of the home as a cactus. A cactus collects sunlight during the day and performs photosynthesis in the evening to reduce the amount of moisture that’s lost in the process (science folks, I hope I didn’t butcher that). With Tesla’s technology, their solar panels can both power the home and recharge the battery during the day with the battery helping power the home in the evening. The resulting reductions in the use of outside electricity have massive cost savings and allow us to go buythat hummer we’ve always wanted lower our reliance on fossil fuels.

… and I hope that Tesla catches it. Admittedly, I’ve been a major bear against Tesla despite admiring Tony Stark Elon Musk and technology due to what topically appears to be an egregiously overpriced $25+ billion current value and it’s “cocktail party stock” status (a stock you brag about owning at a cocktail party). Currently, Tesla’s business is heavily reliant on both tax subsidies given to the consumer for owning an electric vehicle and Tesla selling their “Zero Emissions Vehicle credits” to other automakers not meeting their electric vehicle quota (for more on this, read here). Now, Tesla’s Powerwall and shingles have me really hoping we can get some major pain in the stock because the new products should be home runs based on where I see the world heading. And the public (and markets) have been known to get a little jelly and ig’nant and turn on those that tend to be the greatest innovators –Nikola Tesla, mason jar extraordinaire Howard Hughes, and Steve Jobs to name a few. So now my watch begins as I wait patiently for a sub $80 TSLA. And the early signs of a paradigm shift are out there.

IMPORTANT NOTE: This is not investing advice.  This is pontification about the markets that we thought you might enjoy. If you would like a hot take on an issue or stock, email jeff@waylz.co. Please invest responsibly and thank you for playing Waylz! 

I have no idea what I'm doing

"Whatever money you may need for the next five years, please take it out of the stock market right now, this week. I do not believe that you should risk those assets in the stock market right now."
Jim Cramer on October 6th, 2008 - less than 6-months before the market bottomed and after a 30% correction. Basically, exactly when you should have started buying (check out this little tidbit written by a guy named Warren Buffett titled simply, Buy America. I am., just 10 days later).

Lessons learned:
1.     Don’t invest money you need over the next five years.
2.     Don’t listen to a damn word out of Jim Cramer’s mouth.
3.     Superman wears Warren Buffett PJs.

America has Attention Deficit Disorder - we pay way too much attention to the government’s federal deficit. The fact that we continue to obsess over this has me more crotchety than normal. Watching the debates has been excruciating. Hairpiece loves to quote the figure that the US government owes twenty trillion dollars to the rest of the world. Then you have HilDog conveniently reminding us that her husband was in office the last time the government ran a balanced book and actually had a surplus. Alright, we get it. Here’s a hot take: the US federal deficit does not matter because America is the best house in a bad neighborhood and will continue to be for quite some time. Show me a responsible global actor and I will show you yet another plot hole that was never resolved from Lost. Let’s dispel some myths, the Chinese do not own us (collectively with Japan, they own less than 15% of total debt). The United States government, central bank, and public are the largest holders of U.S. debt.  So effectively, the system now is a giant circle jerk where the watchmen/women have decided that the rules society has constructed don’t apply to them. That leaves us with two options: spend, spend, spend and preserve our muted, but existent economic growth or decide we need to be responsible and cut government programs - most likely inducing a recession in the process with an unknown endgame. As a fellow disenchanted Millennial, I prefer the first option – let’s continue to kick the can and see if we can get the economy back into overdrive.

Why do I continue to shop at Whole Foods? I continue to promise myself I will stop shopping at Whole Foods ($WFM) or Whole Paycheck as my girlfriend calls it. I continue to promise myself that I will transition to an exclusively genetically modified organism diet, save money, and gain superpowers just like the research shows. I cave by telling myself I will only buy the produce and then gawk at yellow, red, and orange peppers costing twice as much as the green (rightfully so but, c’mon) and the $4/lb grapes (ever seen someone spend $10 on two servings of grapes, I have). And then I end up doing my entire shop for the week there. I am a Whole Food’s addict. A walking hypocrite that espouses being financially responsible but yet I burn a hole in my pocket overpaying for energy to fuel my body. The conclusion is simple. I need to go buy shares of $WFM for my portfolio because I know I can't be the only one.

Publicly traded prison stocks have been sent to solitary. Both Corrections Corporation of America ($CXW) and GEO Group ($GEO), are down roughly 60% of their highs after a Department of Justice investigation found that the facilities were inferior to state run equivalents in terms of many measures including safety. When situations like these arise, it begs an important question: should one forego their morals when a bigger steal than the Louisiana Purchase presents itself? These companies lobby against “common sense” criminal justice reform such as mandatory minimums for non-violent drug crimes, legalization of mary jane, et cetera because they profit off the crime according to a legal expert. Despite the clear abuses the companies seem to be committing, the process to phase out these facilities will be long - especially at the state level.  With $CXW paying you a dividend of ~15% a year, investors almost assuredly stand to earn a solid return in the coming years if they can overcome the ethical concerns. I myself will most likely sit on the sideline but I know a bargain when I see one.

This week we introduce a rotating section, Half-Assed Due Diligence Stock Pick of the Week!
Pick of the Week: IMAX Corporation ($IMAX)
What do they do? These are the guys that make the state-of-the-art movie theatre systems that absolutely killed it when Avatar came out.
So why is it going higher? Because we are all sheep.

Please explain. We all sat through Batman Vs. Superman and Suicide Squad. We are enable Hollywood and allow them to continue pumping out big budget action-equivalents of Gigli. We also thought Episode 7 of Star Wars was a lot better than it actually was. It’s not your fault, it’s called an information cascade. So again, IMAX is going higher because we are sheep.

So give me the TL;DR business analysisCinemas love IMAX as they are able to squeeze a couple extra bucks out of your pocket for the premium experience and we tend to pay it for the right films. IMAX’s business is super sexy because a large portion of its business (and becoming even larger) now comes from receiving a percentage of ticket sales rather than just charging for their product. Typically, IMAX has been highly sensitive to the strength of the film pipeline but as our standards continue to drop for what we view as entertaining film, my guess is we see more and more of these mediocre releases become major hits which is a boon to IMAX. With over 1,000 projectors and another 550 on the come (big deal announced in China), IMAX should generate stacks on stacks on stack over the long term. Another plus, IMAX will have a nice pop when James Cameron finally tells us when Avatar 2 will be released.

DISCLOSURE: My mentors are big fans of the stock so I am admittedly biased.

IMPORTANT NOTE: This is not investing advice.  This is pontification about the markets that we thought you might enjoy. If you would like a hot take on an issue or stock, email jeff@waylz.co. Please invest responsibly and thank you for playing Waylz!